Company can alter MOA to increase its share capital provided there are reasonable statutory compliances: HC

A company shall be entitled to alter its memorandum to increase its share capital provided there is reasonable statutory compliance of provisions of law

Facts of the case :

a) The appellant- Company was incorporated with an authorized share capital of Rs.2 lakhs and later, the authorized capital was increased upto Rs.5 lakhs.

b) Further, one of the directors of the appellant-company called an Extra Ordinary General Meeting (EOGM) with an agenda to amend the Memorandum of Association (MOA) to increase authorized capital of the Company from Rs.5 lakhs to Rs. 1 crore and to alter the Articles of Association (AOA) of the Company and despite strong objection raised by the plaintiff, the proposed resolution for altering the clause of the MOA for increasing authorized capital to Rs.1 core was passed by an ordinary resolution.

c) Appellants contended that the MOA was altered in accordance with the provisions of the Act of 2013. The AOA were also amended, firstly, by passing resolution by simple majority and thereafter called EOGM and passed special resolution, amending the Articles. It was therefore, submitted that either way the AOAs were amended and there shall not be any impediment for the company to proceed further and take necessary steps.

d) However, according to the plaintiff in past, MOA was amended by passing a special resolution by the company and, therefore, no exception can be made now by exempting the Company for passing the resolution by a 3/4th majority with a specious plea of provisions of the Companies Act, 2013. It was submitted that unless MOA and AOA were amended strictly in accordance with law, the resolution passed by the board cannot be implemented.

The High Court held as under :

1) Articles are internal regulations of a Company, subordinate to the MOA. A company shall be entitled to alter its memorandum to increase its share capital in accordance with the Company’s regulations and the legislative provisions of the Companies Act of 2013, viz. sections 13(1), 61 and 64. In the instant case, the Board of Directors had amended the MOA and AOA by simple majority but in an EOGM of the company passed a special resolution for amending the Articles of Association.

2) In accordance with the provisions of section 13(6), after amendment of MOA, the company had filed an application with the Registrar of Companies for recording alterations of its memorandum. Accordingly, the Registrar of Companies had registered the same. In accordance with the increased share capital, new shares were distributed. The Articles of Association were amended in accordance with the provisions of section 14. Therefore, there was reasonable and statutory compliance of the provisions of law. – [2017] 84 taxmann.com 86 (Bombay)