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Lets Analyze

September 4, 2013

In this issue we shall proceed to Section 13 from Section 11 which was discussed in the earlier issue. This section of the Companies Act, 1956 deals with the requirements with respect to the Memorandum.

Query # 1 : Whether a suit filed by the shareholder for declaration of true meaning of clause in Memorandum of association be maintained against the company ?

Decided Case Law : Bharat Insurance Co. Ltd v. Kanhaya Lal Gauba :

Facts of the case : The plaintiff was a shareholder. He approached the court for correct construction of a particular object of the company embodied in the memorandum of association pertaining to application of the assets of the Company. The plaint was opposed on the ground that the shareholder, if dissatisfied with the acts and deeds of the directors, should have raised the question before the general body of shareholders. The broad rule in such cases is, no doubt, that in all matters of internal management of a company, the company itself is the best judge of its affairs and the court should not interfere in such matters..

Clarification : Held that, the key point involved was the interpretation of a certain clause of an object in the memorandum relating to the application of the assets of the company. Such a question is not a matter of mere internal Management. It was alleged that certain directors whose good faith had not been questioned had misunderstood the clause in question and were in consequence acting ultra vires in their application of the funds of the company.

Conclusion : Even a single member of the company can maintain a suit for a declaration as to the true construction of the article or clause. He can maintain an action against the company for acts alleged to be ultra vires.


Query # 2 : If it becomes impossible to carry out object for which company was formed, can it be wound up even before expiry of one year of its incorporation ?

Decided Case Law : German Date Coffee Co.,

Facts of the case : The company was formed for the purposes of purchasing and working a German patent, but the German Government did not grant the patent, it was held that the company's substratum had gone and the company should be wound up even if the period of one year allowed to commence business had not expired.

Clarification : Where there is a case in which it is apparent, within a year, that the whole time is abortive that the company cannot acquire that which it was intended to acquire and that it cannot carry out the object for which it was formed – the law does not require the court to wait for one year, and the case would fall within the just and equitable clause.

Conclusion :Hence the impossibility to carry out objects for which the company was formed would result in the winding up of the company even before the expiry of one year of its incorporation.

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