Page 75 - DCOM106_COMPANY_LAW

Company Law

Notes totally ineffectual for the reasons mentioned above by the researcher. In fact, to prove their
point, the commentators cite the example of existence of such a right and subsequent withdrawal
in December 1947, indicating that experience showed that such a right was unnecessary and
ineffective. A very pertinent question in this regard is that can the creditors contractually bind
the company so as not to alter the objects of the company in future? In view of the researcher the
answer to this question will be no, since, first of all, this will be a matter which will ideally be
regulated by the articles of association of the company since those will regulate the extent to
which the directors of the company can enter into the agreement with the creditors. Further, the
company cannot bind itself not to exercise its right conferred by the statute without shareholders
approval.
Shareholders’ Interests: No doubt shareholders interests are well protected in theory, by the law
as well. However, in practicality, memoranda of association are excessively prolix, being designed
to include every conceivable business. This defeats the object of having an object clause and
confers no protection on members. It also fails to guide investors as to what is the real business
of a company. One more important query in this regard can be that, what is the remedy available
to the shareholder? In this regard, the researcher’s view is that since the law has provided
enough protection to the shareholders in this regard – approval by the CLB, there should ideally
be no need for such a protection. In view of the researcher, perhaps this remedy is too far fetched
and this point will be dealt with by the researcher while dealing with the practical aspects of the
whole process of alteration.
The assumption that the entire public has access to the MoA is based on archaic thinking.
Consequent to industrial growth and wide dispersal of shareholding vis-a-vis the vastness of
India, those who deal with the company are generally confined to the place over which the
Registrar of the Companies has jurisdiction. They may have a right to receive the required
information by post; but such exercise will involve time and it may frustrate conclusions of
dealing with a company.
The aforesaid concept of law is perhaps justified in England since that is a small country as
compared to India. The assumption as to the possibility of automatic inspection at public registry,
therefore, needs review.
It is not being canvassed that a company need not spell out in advance what it proposes to do.
Of course, it is essential that the lines of the business are spelled out somewhere, but it is
pointless to insist on the demarcation between the main objects and the ancillary objects; especially
when the main objects embrace a score of activities.

Self Assessment

State whether the following statements are true or false:
12. The doctrine of ultra vires is an illusory protection to the shareholders and a pitfall to the
outsiders.

13. An ultra vires act, even if endorsed by all the members of the company, is void.
14. A company cannot alter the conditions contained in its memorandum except in cases, in
the mode and to the extent for which express provision is made in the Act.

15. The intention of the legislature is to prevent too easy an alteration of the conditions
contained in MOA.
16. A company can shift its registered office to another state by passing an ordinary resolution
and with the permission of CLB.

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