Friday, February 22, 2013


Memorandum of Association defines the scope and ambit of the Company. Memorandum binds the Company and outsiders. As per section 36(1) of the Companies Act, 1956 –Subscribers to the MOA

Effect of memorandum and articles: Subject to the provisions of this Act, the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles.”

The section very clearly states that “Signing by the Company and Each member”. And it also uses the term “Covenants”. Covenants mean Agreement. As it is used in law it is a Contract. Hence we know as per the provisions of the Contract law – Acceptance once given cannot be revoked. On understanding this general principle of the Contract law – Revocation after registration is impossible.

Such revocation shall be treated as the breach of the Contract. Only way by which such withdrawal shall be permissible is acceptance by all other subscribers. I again clarify; this is a procedural permission i.e. by FACT and not by LAW. In order to prove such permission is erroneous by law, I hereby draw the words of Sec.41 of the Companies Act,1956 “The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration, shall be entered as members in its register of members”.

Note: Buckley says, "The subscriber is liable by virtue of the contract, which, under this section, arises immediately upon his signature."

Coming back to the query, Whether all by agreement could do so is a question it is not necessary to consider, as such a step would destroy the proposed company altogether, and the question of the protection of the public, which is the object of the Act, would not arise as the literal meaning of the section is clear.

Even by the PEEL’s case law, we have understood that Registration of the MOA is conclusive evidence. Even though alteration of every other clause is possible by law, one such provision is intentionally omitted in the ACT for subscribers to the MOA to prohibit such alteration.

As it is a breach of the Contract, Specific performance shall be the solution. As per Sec. 15(h) and 19(e) of the Specific relief Act, it is an agreement. Hence specific relief can be claimed.
Lord Romilly in Drummond's Case 4 Ch. App. 772 at p. 776 note "The persons signing the memorandum are required by the Legislature to do so as an earnest that there are certain persons personally liable to pay money to the company."

Sec.36(2) of the Act says that “All money payable by any member to the company under the memorandum or articles shall be a debt due from him to the company”.
Hence by analysing all these, it shall be clear – Subscriber to the MOA is irrevocable acceptance.

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