Trace Your Case

Categories
Memorandum of Association and AoA

Royal British Bank v. Turquand (1856) 6 E&B 327

ROYAL BRITISH BANK V. TURQUAND

Royal British Bank v. Turquand (1856) 6 E&B 327

ISSUE:

  • Whether the company is liable for the loan?

RULE:

  • The Memorandum of Association of the Company shall be lodged with the Registrar of Companies. This is available for public inspection since people engaged in business with the Company are free to inspect the document to see whether there is any limitation of powers or limitations on the business. It created a problem it deems outsiders to be aware of any limitations placed on the Company’s management. Therefore, if it was later found that there was an irregularity within the Company regarding any decision, it regards outsiders dealing with the Company to be aware of it.

FACTS:

  • They appointed Turquand as the office manager to liquidate the insolvent ‘Cameron’s Coalbrook Steam, Coal, and Swansea and London Railway Company’. This company was incorporated under the Joint Stock Companies Act of 1844.
  • The company had issued a bond of £2000 to the Royal British Bank, which secured the company’s drawings on its current account. The bond was under the seal of the company, signed by two directors and the secretary.
  • The plaintiffs, the Royal British Bank, for the non-payment of the same sued him.
  • The company claimed that, under its registered deed of settlement (the articles of association), the directors had only the power to borrow the company’s resolution had allowed what.
  • The defendants also pleaded that it had adopted no such resolution allowing the making of the bond and that they give any such bond without the authority and consent of the shareholders of the company.

HELD:

  • Sir Jervis was of the opinion that the judgment of the Court of Queen’s Bench should be upheld. He was inclined to believe that the question, which was mainly raised both in this case and in that Court, does not necessarily arise and does not need to be decided. His impression is that the resolution set out in the replication goes far enough to satisfy the requirements of the deed of settlement.
  • According to Sir Jervis, the deed allows directors to borrow on a bond the sum or sums of money which may be borrowed from time to time by a resolution passed at the General Meeting of the Company and the replication of the resolution, adopted at the General Meeting, authorizes the directors to borrow such sums on bonds for such periods and at such interest rates as they may deem expedient, in accordance with the act of settlement and the Act of Parliament; but the resolution does not otherwise define the amount to be borrowed.
  • Sir John Jervis CJ contended that it seems to me to be enough. If this is the case, the other question does not arise, we do not need to decide; for it seems to us that the plea, whether we consider it to be a confession and a refusal or a special Non-est factum, does not raise any objection to that advance as against the Company.
  • He further said that – we can now take for granted that dealings with these companies are not like dealings with other partnerships and that the parties dealing with them are bound to read the statute and the act of settlement. But they’re not bound to do more than that. And the party here, reading the act of settlement, would find, not the prohibition of borrowing, but the permission to do so under certain conditions. In finding that the authority could be completed by a resolution, it would have the right to infer the fact of a resolution authorizing what appears to have been legitimately done in the face of the document.
Categories
Memorandum of Association and AoA

Ashbury Rly. Carriage & Iron Company v. Riche (1875) LR 7 HL 653

ASHBURY RAILWAY CARRIAGE AND IRON CO V. RICHE

Ashbury Rly. Carriage & Iron Company v. Riche (1875) LR 7 HL 653

ISSUE:

  • Whether the company can enter into a contract that is beyond the scope of the object clause in the MOA of the company?

RULE:

  • The Ashbury Railways case laid the foundation of the ultra vires rules and confined the acts of the company within the ambit of the object clause of the MOA. This was rendered moot to a great extent after the introduction of the changes in the Companies Act 2006 since section 17 of the Act does not mandate any company to have a MOA.

FACTS:

  • Ashbury Railway Carriage and Iron Co. Ltd., in the object clause of its MOA, had stated that the object of the incorporation of the company was ‘to make or sell, or lend, or hire, railway carriages and waggons, and all kinds of railway plants, fittings, machinery, and rolling stock; to carry on the business of the mechanical engineers and the general contractors; to purchase and sell, as merchants, timber, coal, metals, or other materials; and to buy and sell any such materials on commission, or as agents.’
  • The directors of the company entered into a contract with Riches, wherein a railway line was to be constructed in Belgium, and the contract was for the financing of the construction.
  • Clause 4 of the object clause specifically mentioned that beyond the scope of the above-mentioned clause, there was a need for a special resolution to indulge in any activity which was beyond the scope of this clause of the object clause in the MOA.
  • However, the company superseded this requirement and agreed to give Riches the loan and financing they needed to build the railway line.
  • The contract which was thus entered into by the company was ratified by all the members of the company.
  • However, later on, the company reneged on its side of the deal repudiating the contract that was entered into by the company and Riches. Riches sued the company for the breach of the contract and claimed damages.

HELD:

  • The House of Lords held that the objectives of the company as mentioned in the object clause of the company’s MOA were absolute.
  • House of Lords, in this case, applied this same principle and held that the contract which had been entered into by the company was beyond the scope of the object clause of the MOA of the company.
  • The House of Lords also held that by entering into the concerned contract with Riches, the company was in breach of the clauses that had been included in the constitution of the Company.
  • The clauses that were included in the MOA did not allow the company to make a contract. Keeping this in mind, the House of Lords held that the transaction concerned here was invalid, and thus, consequentially held that the contract shall have no legal effect for the company or the Riches.
  • The judgment resulted in a defeat for Riches to have the contract enforced since there could not be any breach. This was due to the fact that there could not have been any contract to be breached in the first place.
Categories
Memorandum of Association and AoA

Lakshmanaswami Mudaliar v. L.I.C. AIR 1963 SC 1185

LAKSHMANASWAMI MUDALIAR V. LIC

Lakshmanaswami Mudaliar v. L.I.C. AIR 1963 SC 1185

ISSUE:

  • Whether the plaintiff consented to the subletting of parts of the demised premises and if so, when and to what effect?

RULE:

  • The Supreme Court repealed this doctrine. The company was incorporated under the Indian Companies Act, 1882, and had a principal objective to carry life insurance business in all its branches. It was registered under Life Insurance Act.

FACTS:

  • At an extraordinary General Meeting of the shareholders of the United India Life Assurance Company Ltd, a resolution was passed, among other matters sanctioning a donation of Rs. 2 Lakhs from out of the share.
  • On July 1, 1956, the Life Insurance Corporation Act came into force by the provisions of which on the appointed day all the assets and liabilities appertaining to the controlled business of an insurer vested in the life insurance corporation.
  • Section 15(l)(a) of the Life Insurance Corporation Act power was given to the corporation to apple to the tribunal for relief in respect of payments made by the insurer, during the five years preceding the date of vesting not reasonably necessary for the purpose of the controlled business.
  • The corporation applied to the tribunal for relief in respect of the payment of Rs.2 Lakhs by the company to the appellants on the ground that the said payment was ultra vires the powers of the company and was not reasonably necessary for the purpose of the controlled business.
  • The tribunal ordered the appellants to restore the sum of Rs. 2 lakhs to the corporation.
  • Then a special leave application was filed to the Supreme Court in appeal of the matter decided in the tribunal. 

HELD:

  • An act of the company is ultra vires, if it is not:
  • Essential for the fulfillment of the objects stated in the Memorandum.
  • Incidental or consequential to the attainment of its objects.
  • Which the company is authorized to do by the company act, in course of its business.
  • Where a company does an act that is ultra vires, no legal relationship or effect ensues therefrom. Such an act is absolutely void and cannot be ratified even if all shareholders agree.
  • The bearers of the company who were responsible for passing the resolution ultra vires the company are personally liable to make good, the amount belonging to the company which was unlawfully disbursed in pursuance of the resolution.
  • Section 13 of the Company Act, required to specify the main object of the company ancillary to the attainment of the main object.
  • It was held that the Memorandum of Association of a company must be read fairly and its import derived from a reasonable interpretation of the language which it employs.
  • Where a particular act has not been provided for in the Memorandum of Association, the directors cannot seek recourse to the Articles of Association to imply that such business falls within its objects.
  • The Memorandum of Association has to be read with the Articles of Association, where the terms are ambiguous or silent. This process may explain the provisions of the Memorandum itself but cannot extend to the scope.
Categories
Memorandum of Association and AoA

V.B. Rangaraj vs V.B. Gopalakrishnan And Others AIR 1992 SC 453, 1992

V.B. RANGARAJ V V.B. GOPALAKRISHNAN

V.B. Rangaraj vs V.B. Gopalakrishnan And Others AIR 1992 SC 453, 1992

ISSUE:

  • Whether the shareholders can among themselves enter into an agreement which is contrary to or inconsistent with the Articles of Association of the company?

RULE:

  • Shareholder’s Agreement is the agreement made between the shareholders of the company among themselves. This case is related to the validity of provisions of shareholder’s agreement which is in contravention to the Article of Association.

FACTS:

  • There were appeals filed by defendant 1 and by defendants 4 to 6, against the decision of Madras High Court. Defendant 3 was a private limited company that had a total shareholding of 50.
  • There was jointly family, which were the plaintiffs in the present case. They were group of minority shareholder holding 13 shares and the remaining 37 shares were held by people from outside. Later on, the joint family acquired the remaining 37 shares.
  • This family consisted of Baluswamy and Guruviah Naidu who were brothers, wherein both held 25 shares each in company. The plaintiffs said that in 1951 there was an oral agreement between Baluswamy and Guruviah Naidu. The agreement said that each branch of family would always continue to hold equal number of shares, which are, 25. If any member in either of branches wished to sell his share, then he would give first option of purchase to members of that branch. Only if the offer made was not accepted, the shares would be sold to others.
  • The plaintiffs, defendant no. 1 and 2 and Selvaraj are the sons of Baluswamy Naidu whereas defendants 4 to 6 are the sons of Guruviah Naidu. Baluswamy Naidu died on February 5, 1963, and Guruviah Naidu died on January 10, 1970.
  • Defendant 1 who was one of the son of Baluswamy Naidu made a contrary decision as to the agreement as he sold shares to son of defendant 4 to 6 who are sons of Guruviah Naidu.
  • Trial Court passed a decree in the present suit and held that sale of the shares were invalid. The sale was not binding on plaintiffs and defendant no. 2. The court also directed both defendant no. 1 and defendants 4 to 6 to transfer the said shares to the plaintiffs and also granted a permanent injunction. The appeals which were filed by defendant no. 1 and defendants 4 to 6 were dismissed.
  • High Court held that the Sale of the shares by defendant no. 1 in favor of defendants 4 to 6 was invalid and therefore plaintiffs and defendant no. 2 became entitled to purchase the shares, the agreement made was binding on the company and the company was bound in law to register the shares in the name of plaintiffs.

HELD:

  • The court looked in to the article in the agreement which was related to restriction on shares of the company. The article read that: “No new member shall be admitted except with consent of majority of members on death of any member of his heir or heirs or nominee shall be admitted as a member. If such heirs or nominees are unwilling to become members, such share capital shall be distributed at par among members equally or transferred to any new member with the consent of the majority of the members.”
  • So, the court after looking at the article said that the private agreement which is relied upon by plaintiffs, there is restriction on living member to transfer his shareholding only to branch of family to which he belongs in terms imposes two restrictions which are not stipulated in the Article.
  • Firstly, it imposes a restriction on a living member to transfer the shares only to the existing members and secondly the transfer has to be only to a member belonging to the same branch of family. The agreement obviously, therefore, imposes additional restrictions on the member’s right to transfer his shares which are contrary to the provisions of the Article. They are, therefore, not binding either on the shareholders or on the company.
  • Therefore, the appeals of the defendants were allowed and the decree of the High Court was set aside.
Categories
Memorandum of Association and AoA Uncategorized

World Phone India Pvt. Ltd v. WPI Group Inc USA, (2013) 178 Comp Cas 173

ISSUE:

Whether the provisions of an agreement, that are not inconsistent with the act, but are also not part of the AoA, can be said to be applicable?

RULE:

The legal position is that where the AoA is silent on the existence of an affirmation vote, it will not be possible to hold that a clause in an agreement between the shareholders would be binding without being incorporated in the AOA.

Subscribe to Read More.
Login Join Now