following guest post is contributed by Suprotik Das, a 4th year law student at the Jindal Global Law
School, Sonepat, Haryana.]
India Action Plan, the focus for start-ups seems to be on simplification of
convoluted legal procedures, efficiency and speed of incorporation. In this
regard, the Government has proposed that incorporation and registration
formalities be shifted to a mobile application platform with seamless
integration with the MCA and Registrar of Companies.
I wish to discuss which will ease the speed of incorporation and registration
in India. This proposal, which has been adopted successfully in other countries
within the Commonwealth such as the United Kingdom, Hong Kong and Singapore,
involves abolishing the need for drafting a memorandum of association
having an ‘all-inclusive’ constitutional document that facilitates
incorporation-related matters and contains within it an amalgamation of
important elements from the Articles of Association and the Memorandum of
Association (“articles’ and “memorandum” for short). This would benefit
start-ups (that meet the requirements delineated in the Action Plan) and
potentially for new companies that do not qualify as start-ups.
used the term ‘start-up’ in the context of those companies that qualify as
start-ups under the Action-Plan and the term ‘company’ has been applied in the
context of those companies which are not start-ups under the action plan and which
would be incorporated in the future.
India, Hong Kong and Singapore.
the articles and the memorandum. The memorandum, apart from other important
share-capital and name-related matters contains the objects clause of the company and the
articles contain details of internal management of the company. Both can be
amended pursuant to special resolutions under sections 13 and 14 of the Companies
(Cap. 622), which was notified on March 3, 2014, the requirement of drafting a
separate Memorandum of Association was done away with. This is due to the
removal of the doctrine of ultra vires and
revival of the doctrine of post facto ratification.
Further, the objects clause has been effortlessly included in the Articles. The
result is a quick, seamless and simple procedure to incorporate a company in
as recently amended has also done away with the bifurcation between Articles
and Memorandum of Association and has combined them into a single document
known as the ‘constitution’, which includes the objects clause (which is only
to discuss what is meant by the doctrine of ultra-vires.
seminal case of Ashbury Rly Carriage and
Iron Co v. Riche. It states that if an act were done outside the company’s objects clause,
it would be void ab initio.
arrangement means that if the company carries out an act that is not
contemplated by its memorandum, the following scenarios may arise:
as ultra vires in relation to the
ex post facto.
business strategy such as diversification or the existence of synergies, the
memorandum could be altered through a special resolution of the members.
Suppose a director takes an action that is outside the ambit of the objects
clause, shareholders in general meeting can ratify such an action if it is in
the best interests of the company.
is this: companies and start-ups may have widely worded objects clauses and shareholders
may ratify an ultra vires act without
having to go through the herculean task of amending the memorandum through a
Law Committee Report has recommended that section 4(1)(c) be amended such
that it allows companies to have a general objects clause. The proposed clause
reads as follows – “to engage in any
lawful act or activity or business as per the law for the time being in force”.
However, the fetter to this general objects clause would be the
prescription of sectoral restrictions by the concerned regulators. The
conclusion that I draw from this is that the Committee has recognised the
practical effect of post facto ratification.
reference to the English Companies Act, 2006 wherein it describes the statutory
requirement of having the objects clause included within the articles of the
company. As per section 31 of the English Companies Act, the objects are
unfettered unless restricted by the articles, which leads us to conclude that even
the United Kingdom has this practice of having in place an over-arching
constitutional document for a company. Strangely, the Committee has not
considered this practice, even after reviewing the English position.
is, in a manner of speaking ‘organic’, i.e., amenable to change, why not
abolish the need for a separate document? The name and type of company, objects
clause and other important share capital-related matters ought to be integrated
into one holistic ‘constitutional’ document much like the approach of England, Hong
Kong and Singapore.
recent efforts to ensure the ease of doing business in India as well as the
‘Make in India’ campaign, this is something Parliament should consider so as to
bring India on par with global standards of the ease of doing business. At a
domestic level, this will greatly benefit companies and start-ups that seek to
focus on a wide spectrum of services and products.
Government of the Hong Kong SAR, http://www.cr.gov.hk/en/companies_ordinance/faq_abolition-ma.htm#02.