INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO
Provisions of the Companies Act, 2013:
Section 14: Alteration of articles.
Rule 2.30 of the Companies Rules, 2013
[Section 14 is not yet brought to force and the Companies Rules, 2013 is not yet brought to force]Corresponding provisions of the Companies Act, 1956:
Section 31Corresponding provisions of the English Companies Act, 2006
Sections 21, 23, 24 and 26Applicability:
This section is applicable to all companies.
A company may later its articles of association with consent of its members by way of a special resolution. However this power is subject to provisions of the Companies Act and Memorandum of association of the company. Meaning, while a company is free to alter its articles of association the way it wants, it shall not be contrary to provisions of the Act and its memorandum of association.
A private company may alter its articles of association by removingÂ restrictions and limitations of a private companyÂ to convert itself into a public company. And upon receiving consent of its members, a private company becomes a public company.Â [1st proviso to section 14(1)]
And registering altered articles and receiving fresh certificate of incorporation from the Registrar of Companies remains formality, though important.
Normally consent of members by special resolution for alteration of articles suffices. However, if articles contains entrenchment provision, i.e. requiring consent of more or all members for alteration of its articles, the same shall be obtained. [section 5(3)].
A public companyÂ may alter its articles of associationÂ by insertingÂ restrictions and limitations of a private companyÂ to convert itself into a private company. However, it’s conversion is subject to approval of National Company Law Tribunal. [2nd proviso to section 14(1)].
Every alteration of articles and in case of conversion of a public company into a private company by altering articles, a copy of order ofÂ National Company Law TribunalÂ shall also be filed with the Registrar of Companies in Form no. 2.31 within 15 days of receipt of the order of the Tribunal. Copy of printed articles of association is also required to be filed along with it. [section 14(2) r/w rule 2.30].
Wordings of draft Rule 2.30 suggests that altered articles shall be filed only in case ofÂ conversion of a public company into a private company by altering articles.
Any alteration of the articles once registered with the Registrar of Companies shall be valid as if it were originally contained in the articles. [section 14(3)].
Since no specific penalty or punishment is prescribed for contravention of section 14, general penalty prescribed under section 450 of the Act is applicable. Accordingly, the company as well as its officer who is in default or such other person shall be punishable with fine upto Rs.10,000/-. For continuing offence, they are punishable with further fine upto Rs.1,000/- for every day after the first during which contravention continues.
It may be noted that for second or subsequent contravention of the provision of this section, if made within a period of three years, then the company as well as its officerÂ who is in default shall be punishable under section 451 with twice the amount of fine.
Under Section 454, the officer appointed by the Central Government, not below the rank of Registrar of Companies, may adjudicate and impose monetary penalty for violation of this section, where it decides that no prosecution be launched. However, before imposing penalty, an opportunity of hearing shall be given to the Company and its officers.
It may be noted that under section 441, where offence is punishable with fine only, the same may be compounded by the National Company Law Tribunal or where the fine does not exceed Rs.5,00,000/- by the Regional Director or any other officer authorised by the Central Government.
Only company may apply for compounding for violation of section 14. Since directors and officers of company who is in default are punishable with fine or imprisonment or both, they cannot avail compounding mechanism to settle the contravention.
Summary of forms and records:
Altered articles with copy of order of National Company Law Tribunal together with printed copy of altered articles of association shall be filed in Form no. 2.31 within 15 days of receipt of the order of the Tribunal. [rule 2.30].
A copy of special resolution together with the explanatory statement under section 102, if any, shall be filed with the Registrar in Form No. 7.14 [section 117 r/w rule 7.22].