DR.

RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY

CORPORATE LAW
PROJECT ON:

TOPIC : ALTERING THE OBJECTS CLAUSE OF MOA: CURRENT

TRENDS

SUBMITTED BY: UNDER THE GUIDANCE OF:

ANKANA MUKHERJEE MS. PRIYA ANURAGANI

ENROLLMENT NO-150101018 ASSISTANT PROFESSOR (LAW)

SECTION- ‘A’ DR. RAM MANOHAR LOHIYA

B.A. LLB (Hons.), SEMESTER VI NATIONAL LAW UNIVERSITY

SIGNATURE OF STUDENT: SIGNATURE OF PROFESSOR:

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OBJECTIVE OF THE STUDY

The objective of this paper is to analyse and understand the provisions relating to the
alteration in the objects clause of Memorandum of Association as provided under Companies
Act, 2013 and the current trends of the same.

TENTATIVE RESEARCH QUESTIONS

Q.1. What is the Object Clause of the Memorandum of the Association of Company?
Q.2. What are the steps for alteration in the objects clause of Memorandum of Association
under Companies Act, 2013?
Q.3. What are the current trends regarding the object clause of Memorandum of Association?

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 Contents

WHAT IS OBJECT CLAUSE .................................................................................................................. 4

PROCEDURE FOR CHANCE IN OBJECT CLAUSE............................................................................ 4

The format under the Companies Act’2013 includes only two sub clauses: ........................................... 5

Object Clause under the Companies (Amendment) Bill ......................................................................... 5

POSITIVE SIDE OF THE AMENDMENT.............................................................................................. 7

CRITICISM OF THE AMENDMENT ..................................................................................................... 7

CURRENT SCINARIO ............................................................................................................................ 8

ANNOTATED BIBLIOGRAPHY ............................................................................................................. 9

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WHAT IS OBJECT CLAUSE

The memorandum of Association (MOA) of any Company as per Companies Act’ 2013 has
five clauses:

 Name Clause
 Registered Office clause
 Object Clause
 Liability Clause
 Capital Clause
Any of these clauses can be altered by the Company as and when it wants to do so.
These clauses can be altered by passing a special resolution of the shareholders of the
Company except in case of the capital clause which can be altered by passing an
ordinary resolution by the shareholders of the Company. Object clause is the clause in
the MOA of the Company which defines the main business activity of the company. It
defines the main objects that the company is going to pursue after incorporation. The
object clause also enlists the objects that are necessary/incidental for furtherance of
the main objects i.e the objects which help in conduct of the Main Objects of the
Company or are necessary for the conduct of the main objects. Earlier under the
Companies Act’ 1956 there used to be an Other Object Clause also which defined all
other objects that the company could undertake other than the Main and Ancillary
objects. This other object clause has now been done away with under the Companies
Act’2013.

PROCEDURE FOR CHANCE IN OBJECT CLAUSE

First call a board meeting for approval of change in object clause. The agenda of the board
meeting will be to approve the change in object clause and to call an EGM to get the
shareholder’s approval for change in object clause. The board meeting should be called by
giving at least 7 days notice. The board will determine the changes in the object clause and
will set the agenda for EGM. The board will approve notice for calling EGM by fixing date,
time and venue of EGM. Here another thing to be kept in mind while altering the Object
clause of Memorandum is that the Registrar may ask for adoption of new set of memorandum
and articles in line with the new Companies Act’2013.

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The statutory backing for adopting new set of memorandum and articles is given in Section 6
of the Companies Act’2013. herefore, the provisions under the old memorandum/articles may
be repugnant i.e contradictory/inconsistent with the provisions of the Companies Act’2013
and hence may be termed as void therefore it is advisable to adopt new set of memorandum
and articles as per Companies Act’2013.

The format under the Companies Act’2013 includes only two sub clauses:

 THE OBJECTS TO BE PURSUED BY THE COMPANY ON ITS

INCORPORATION i.e Main Objects.
 MATTERS WHICH ARE NECESSARY FOR FURTHERANCE OF THE MAIN
OBJECTS.
Therefore while altering the object clause it is advisable for the company:
 To amend the title of incidental object Clause of the Memorandum Of
Association by passing the following resolution:
“Clause III (B) of the objects that are incidental or ancillary to the attainment of the
main objects of the Memorandum of Association be and hereby replaced with the title
“MATTERS WHICH ARE NECESSARY FOR FURTHERANCE OF THE
OBJECTS SPECIFIED IN CLAUSE III (A) ARE:-“
 To Delete the other objects clause of the Memorandum Of Association by passing
the following resolution:
“Pursuant to the provisions of Section 4, 13 and all other applicable provisions, if any,
of the Companies Act, 2013, (including any amendment thereto or re-enactment
thereof), and subject to necessary approval(s) if any, from the competent
authorities, the Other Objects Clause of the Memorandum of Association of the
Company be removed by completely deleting the clause III (C)”.

Object Clause under the Companies (Amendment) Bill

The Companies (Amendment) Bill, 2017 was introduced in Parliament to usher in more
changes to the recently amended Companies Act, 2013 (the “Act of 2013”). Among the
proposed reforms, one proposal was to do away with the need for an ‘object clause’ in the

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Memorandum of Association (MOA). Section 4(1)(c) of Act of 2013 lays down a
requirement of including an object clause in the MOA which states the objectives behind the
incorporation of a company and mandates every MOA to state “the objects for which the
company is proposed to be incorporated and any matter considered necessary in furtherance
thereof”. This was a departure from section 13(d) of the Companies Act, 1956 (the “Act of
1956”) which provided that every company should separately provide for ‘main’ and ‘other’
objects.1 The actions undertaken by any company are required to be within bounds of its
object clause and any action beyond its realms is to be considered ultra vires, a principle
established in the case of Ashbury Railway Carriage & Iron Company Ltd. v.
Riche.2 However, such ultra vires act is different from an illegal act.

Under conditions where the company exceeds its objects, they are neither able to sue the
company for breach of contract nor seek specific performance. Such actions undertaken ultra
vires the objects were considered void, as laid down in Ashbury Railway Carriage3. Thus, the
only actions which a company could have undertaken are those within the ambit of objects
clause. An argument which attempted to negate the allegation of an ultra vires agreement was
that of constructive notice, which states that since outsiders/third parties had access to the
MOA which contained the object clause, they would be deemed to have knowledge about
extent of company’s ability to enter into transactions. But, the interplay between the ultra
vires and constructive notice doctrines has not been an easy one to deal with, especially for
courts.

In section 31(1) of the (English) Companies Act of 2006 the provision states that unless the
articles of company specifically restrict the objects of a company, its objects are unrestricted.
A similar approach is followed in section 23 of the Singapore Companies Act.

Likewise, the Companies (Amendment) Bill, 2016 in India sought to do away with the
requirement of having a specific object clause. By introducing amendments to section 4(1)(c)
of the Act of 2013, it extended an option to the company to either merely mention that it will
engage in lawful activities or choose to enumerate specific objects in detail. However, by way
of a proviso, it was stated that if a company chose to lay down specific objects, it won’t be
permitted to engage in activities ultra vires such ambit.

1
Section 13(d) was amended through the Companies (Amendment) Act, 1965. The changes were in line with
the suggestions of Daphtary Sastri Committee.
2
(1875) LR 7 HL 653.
3
Id.

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POSITIVE SIDE OF THE AMENDMENT

 The amendment sought to grant maximum autonomy to persons controlling the affairs
of the company to enter into any transaction unhindered and un-impacted by any ill-
drafted clauses in the MOA. But the transactions entered into were subject to laws in
force and hence the transactions could still be challenged and be vitiated by applicable
laws. Thus, the defence that transactions carried out beyond object clause being void
and not binding upon the company was relinquished the moment a company decided
not to have an object clause. It was beneficial for third parties since any breach of
contract or fraudulent transactions could be brought before the court for redressal,
without having the burden to prove the vires of transaction.
 Due to the mandate of having a detailed object clause, the practice of drafting the
object clause as widely as possible had developed, and which was in direct correlation
to obviating the necessity to seek consent of general meeting by special resolution
whenever any new venture was contemplated. The proposed clause in the Bill would
have given unlimited power in the hands of persons controlling the company to enter
into any possible transaction as deemed correct without having the need to amend the
clause or to seek consent from other stakeholders from time to time.
 In 1998, the Company Law Review considered the removal of object clause
requirement as a bid to promote “straightforward, cost-effective and fair” corporate
law system.4 Thus, the attempt has always been to provide greater flexibility in
carrying out business.

CRITICISM OF THE AMENDMENT

 It was not clear what the drafters tried to achieve through the proviso to section
4(1)(C) as proposed in the Companies (Amendment) Bill, 2016. It merely allowed
the company to proceed with the traditional approach of laying down an
exhaustive object clause. It did not in any way unburden the court of the need to
decide on basis of factual analysis whether certain action would be incidental or
consequential to what has been expressly mentioned in the clause.
 With such unrestrictive clauses, the shareholders would be required to keep
adequate check on the exercise of such power by adding appropriate internal

4
Modern Company Law for a Competitive Economy: Final Report, 2001.

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 control clauses and distributing powers proportionately. One of the reasons which
Daphtary Sastri Committee gave for having a detailed object clause was to give all
the stakeholders (shareholders and other interested parties) a clear idea of what the
objects were. With such liberal position, there was higher possibility of their rights
being impaired without the presence of adequate checks and balance.
 The concern about establishment of bogus entities was raised by the Parliamentary
Standing Committee on Finance in its 37th Report that considered the provisions
of the Companies (Amendment) Bill, 2016,5 and removal of such blanket
exemption was suggested. The Committee found that the reduction of object
clause to a mere redundant provision in the Memorandum as “too far-fetched.”
The Committee argued that a well stated object clause instilled confidence
amongst the investors and creditors of the company.

CURRENT SCINARIO

The suggestion given by Parliamentary Standing Committee on Finance in its 37th Report was
accepted in the amendments to the bill circulated on April 5, 2017 and the status quo was
restored by removing the proposed amendment in the Companies (Amendment) Bill, 2017 as
passed by Lok Sabha on July 27, 2017.

5
Standing Committee on Finance, 16th Lok Sabha, 37th Report, p. 58, pp. 3.31.

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ANNOTATED BIBLIOGRAPHY

1. Section 13(d) was amended through the Companies (Amendment) Act, 1965. The
changes were in line with the suggestions of Daphtary Sastri Committee, report of the
commission of inquiry on the administration of Dalmia-Jain Companies.
2. Ashbury Railway Carriage & Iron Company Ltd. v. Riche (1875) LR 7 HL 653.
3. Id.
4. Modern Company Law for a Competitive Economy: Final Report, 2001. A
consultation document from the Company Law Review Steering Group.
5. Standing Committee on Finance, 16th Lok Sabha, 37th Report, p. 58, pp. 3.31.
6. https://indiacorplaw.in/2017/08/object-clause-companies-amendment-bill-flip-
flop.html#_ftn2 Object Clause under the Companies (Amendment) Bill: A Flip-Flop.

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