Page 239 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes Held: The alteration was good, as it was done bona fide for the benefit of the company as
a whole, even though the alteration had a retrospective effect [Allen vs. Gold Reefs of
West Africa Ltd. (1900) 1 Ch. 656].

Example: By an alteration in the articles, a company was empowered to expropriate
shares held by any member who was in business in competition with the company. At the time
of alteration, there was only one member doing business in competition with the company. He
challenged the alteration.
Held: The alteration was valid, although only one member was at that time within the
ambit of alteration, as the alteration was bona fide and for the benefit of the company
[Sidebottom vs. Kershaw Leese & Co. (1920) Ch. 154 (C.A.)].
5. The alteration must not constitute a fraud on the minority by the majority. If the alteration
is not for the benefit of the company as a whole, but for majority of the shareholders, then
the alteration would be bad.

!
Caution An alteration to the articles must not discriminate between the majority
shareholders and the minority shareholders so as to give the former an advantage of
which the latter have been deprived.

Example: In Brown v. British Abrasive Wheel Co. (1919) 1 Ch. 290, the majority which
held 98 per cent of the shares passed a special resolution that upon the request of holders of
9/10th of the issued shares, a shareholder shall be bound to sell and transfer his shares to the
nominee of such holders at a fair value. The alteration was held to be invalid since it amounted
to an oppression of minority.
6. There cannot be alteration of the articles so as to compel the existing members to take or
subscribe for more shares or in any way to contribute to the share capital, unless they have
given their consent in writing (s.38).
7. An alteration of articles to effect a conversion of a public company into a private company
cannot be made without the approval of the Central Government (s.31).
8. A company cannot justify breach of contract with third parties or avoid a contractual
liability by altering articles.

9. The amended regulation in the articles cannot operate retrospectively, but only from the
date of amendment [Pyare Lal Sharma vs. Managing Director, J&K Industries Ltd. (1990)
67 Comp. Cas. 195 SC].

Task A company, in which the directors hold majority of the shares, altered its articles so
as to give power to directors to require any shareholder, who competed with the company’s
business, to transfer his shares, at their full value, to any nominee of the directors. S had
some shares in the company. Is S bound by the alteration?

Self Assessment

Fill in the blanks:
4. A company by ………………resolution can alter or add to its articles.

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