MOA

Object Clause of the Co.

 Memorandum 2(56) - 2013
Means - MOA of a Co.
As originally framed / as altered
from time to time
In pursuance of any previous Co.
law / of this Act;
SS 12 – 25, CA 1956
SS 26 – 31, CA 1956
 Business
 Business Means
Production – Buying - Selling of goods / services for
profit.
 “To carry on”
Means to manage; conduct; to continue without
stopping
 Anything that is not done for pleasure!!!
 Activity carried on
Continuously & systematically
By a person
By the application of his labour / skill
With a view to earning an income.
 Does not necessarily mean trade / manufacture only –
Includes – Professions - Vocations - Callings
 Director of Supplies & Disposals v Member, Board of Revenue,
AIR 1967 SC 1826
 2 (c) - Bengal Finance (Sales Tax) Act, 1941 ?
“To regard an activity as business – There
must be
A course of dealings, either
Actually continued / Contemplated to be
continued
With a profit-motive;
Some real & systematic / organised course of
activity / conduct with a set purpose of
making profit.
 Director of Supplies & Disposals v Member, Board of Revenue

 Ordinarily there must exist the characteristics of

Volume - Frequency - Continuity & System
Indicating an intention to continue the
activity of carrying on the transactions for a
profit.
 But no single test / group of tests is decisive of
the intention to carry on the business.
 It must be decided in the circumstances of each
particular case…”
 Ref. State of AP v If. Abdul, Bakshi & Bros, 1964 Indlaw
SC 164
 Business v Trade ?
Business is a wider term than Trade ?
Business Means: Trade

A person’s regular - Action of buying & selling

Occupation - Profession - Trade goods & services

Exchange (something) for

 A Commercial Activity something else, typically as a
commercial transaction.

 Business - May include hiring land & employing a manager to

farm it…
 A single venture, where a single article / a No. of articles on a
single contract are purchased & sold?
 Amount to a business ? (NO)
 Senaji Kapurchand v Pannaji Devichand AIR 1930 PC 300
Mode of Forming Incorporated Co. Sec. 3 – CA -13

OPC
 Object Clause is for Protection ?
Check on the misuse of funds by the Co.
(Cotman v Brougham)
 Ultra vires - Powers of a director ? v
Ultra vires – Powers of the Co. ?
 “To make & sell, / lend on hire, railway carriages & wagons, &
all kinds of railway plant, fittings, machinery & rolling stock; to
carry on the business of mechanical engineers & General
Contractors; to purchase, lease, work & sell mines, minerals,
land & buildings; to purchase & sell as merchants, timber, coal,
metals, / other materials, & to buy any such materials on
commission / as agents.”
 Ashbury Railway Carriage & Iron Co. Ltd v Riche, (1875) LR 7
HL 653
 Purchase of shares of other JSC - Unless expressly authorized by
MOA - is ultra vires? Jehangir Rustomji Modi v Shamji Lodha (1867-68) 7
Bom HCR 185
Ratification?
Obtaining judgment by consent?
By estoppel?
 Lawful purpose (S. 3) v Object of the Co. (S. 4)
 Main object - Objects of the Co. are
unobjectionable?
 Conduct of a lottery & Some were
philanthropic?
 To raise general donation funds to carry out
charitable objects
 Will not save Co. from being unlawful
 Purpose illegal even where the illegal business is
merely annexed to the real one which is
philanthropic ?
 Sec. 294A, IPC - Universal Mutual Aid & Poor Houses
Assn. Ltd. v Thoppa Naidu, (1932) 2 Comp Cas 515 (Mad)
 Lawful purpose v Object of the Co.
 Object / Purpose of the Co. - Not lawful ?
 ROC may refuse to register – COI ?
 If issued – will legitimize the business ?
 No – remains illegal / unlawful
 Performing Rights Society Ltd. v London Theatre of Varieties Ltd.
(1922) 1 KB 539;
 R v ROC’s, ex parte Attorney General (1991) BCLC 476 (QBD)
 Objects - must not be contrary to Co. Law / provisions
of any other law
 Gambling house ?
 Scope of its activities - permitted range of enterprise
 Egyptian Salt & Soda Co, Ltd. v Port Said Salt Assn. Ltd.
(Shareholder), (1931) A.C. 677 (Export of salt from Egypt)
 Acts which are contrary to
Acts beyond the express &
public policy / contrary to a
implied powers of the Corp ?
statute (expressly prohibition)
Ultra Vires Illegal ?
 ‘Ultra Vires’ is more apt for a transaction which, though
otherwise lawful, is for a purpose outside the objects for which
the Co. was formed as disclosed by the objects
Dalmia Jain Airways Ltd.
Carrying on Air Transport business (Rs. 319 lakhs)
Purchasing surplus motor vehicles & spare parts & machinery let
by U.S.A. & the American forces at the conclusion of the last War,
& reconditioning the vehicles & setting them at a profit.
Omnibus Clause:
Power to the Co. to deal in vehicles of all kinds, including cycles,
carriages & perambulators.
Object Clause Business Carried On
Software Shoe manufacturing

Ship Building Diamond Mining

Pig Breeding Banking
Paint Manufacturing Advertising Co
Coal Mining Car Manufacturing
Textile Tourism
Legal Illegal?
Pharmaceutical Manufacturing Prohibited Drugs Manufacturing

Construction & Real Estate Providing Housing for Employees

(Harbouring Immigrants)
 Gower: Objects of the Co.
 Purpose is to ensure - that an investor in a gold mining
Co. did not find himself holding shares in a fried-fish
shop &
 Those who allowed credit to a Ltd. Co. –
Some assurance that its assets would not be
dissipated in a unauthorised enterprise
 SH’s are given an opportunity to inform themselves of
the principal industrial / business activity
 Can BOD - Propose to engage in new lines &
activities
 Growing & sale of timber - operation of beauty
saloon?
 Diversification ?
 Purpose of Objects Clause –
Goal / Purpose?

 Co. to – Delimit - Identify the objects – In plain & unambiguous

manner?
 Rapidly changing business environment –
 Prevents Co. from
 Suitably changing the strategies ?
 Exploiting new opportunities ?
 Unnecessarily - Restricts Co’s objects ?
 What field it is to be put at risk?
 Palmer
 “...Law relating to objects clause is one of the most
unsatisfactory areas of Co. Law…
 Reason is that in English law –
Co. does not enjoy full legal capacity? Like a natural
person?
 Objects Cl. is designed to define - Restricted - capacity
of the Co.
 Relevant in determining Co. has acted intra vires / ultra
vires?
 But its harmful effect has been greatly mitigated by
modern statute law & liberal interpretation of the rule
by modern judges…”
 Outdated in English Law?
Narrower the objects expressed in MOA
Less is the subscriber’s / investor’s risk
Wider the objects
Greater I
s the security
of persons who transact business with the Co.
 Corporate Practice –
 Mention a plethora of objects - Even if there is
only a remote chance of pursuing them
 To get around the constraints imposed by T / Sec.
 Objects v Power?
 Trading Co. –
 Should - Define the trade
 Need not specify the powers?
 Egyptian Salt & Soda Co Ltd. v Port Said Salt
Association Ltd, (1931) 1 C.C 285 (PC)
 Powers - not required to be & ought not to be
specified
 Practice of specifying powers as objects?
 No statutory limit on the No. of objects which
may be specified
 Cotman v Brougham, (1918) AC 514
 Re, Bhutoria Bros., ILR 1957 Cal 593 (incidental object)
 Borrow money?
 Promote Co.’s interests by advertising its products / services?
 Power to mortgage?
 Is merely a power? - Not an object?
 Another sense - Is a subsidiary object of Co.
 Included usually in the objects Cl.
 Perhaps it more properly should be referred to as a power –
But, it is a provision relating to the manner in which Co. may
carry out its objects.
 Scientific Poultry Breeders’ Association, In re (1933) 3 Comp Cas
89 (CA) (Introducing scientific methods in feeding, housing &
breeding poultry)
 Objects - Proposed the Alterations –
 to remove the prohibition against payment of remuneration
to the management to be paid for their services
Ultra Vires doctrine

INTRA

AOA
ULTRA

MOA
 Doctrine of Ultra Vires
Cohen Committee (1945)
 “… Doctrine of ultra vires is an illusory protection for SH’s &
yet may be a pitfall for third parties dealing with the Co…
 We consider that as now applied to Co’s the ultra vires doctrine
serves no positive purpose but is, on the other hand, a cause of
unnecessary prolixity & vexation.
 Co. Act, 1948 – Did not Abolish
 Jenkins Committee – 1959
 European Communities Act, 1972 (Sec. 9)
 Companies Act, 1985
 Dr. Prentice’s
 Co. (Amendment) Act, 1989 - Sec. 35
 “The validity of an act done by a Co. shall not be called into
question the ground of lack of capacity by reason of anything in
the Co’s MOA.
 Companies Act, 2006 (UK) – Abolished
 USA - Australia
 India & Doctrine of Ultra Vires
 Bhabha Committee, 1952
Did not recommend the abolition
 A.V. Visvanatha Sastri Committee, 1957
 Vivion Bose Commission
Principal - Ancillary objects - All other objects
 Daftry – Shastri
 Co. (Amendment) Act, 1965
Main objects – incidental & ancillary objects &
other objects thereto
 Sachar Committee
Did not recommend but diluted
 Co. (Amendment) Bill, 2017
Proposal to – Choice of having object clause for Co.
 Sec. 13 (9)
 (9) ROC shall register any alteration of MOA with
respect to the objects of the Co. &
 Certify the registration within a period of 30 days from
the date of filing of the Spl. Res. in accordance with S
13(6)(a)

 Stephens v Mysore Reefs (Kangudy) Q Mining Co. Ltd.,

(1902) 1 Ch. 745
“that the objects specified in each paragraph of this
clause shall be in no way limited / restricted by
reference to / inference from the term of any other
paragraph / the name of the Co.”
 Cotman v Brigham Case
 Bowen L.J. “charity has no business to sit at
BOD’s qua charity.”
 Three pertinent questions:
It is the transaction reasonably incidental to.
the carrying on of the Co’s business?
It is a bonafide transaction?
It is done for the benefit & to promote the
prosperity of the Co. ?
 Henn, Harry G., Handbook of the Law of Corporations
& Other Business Enterprises, 352 (1975)
“Corp’s are usually responsible for torts,
crimes, & contempt attributable to them,
regardless of whether the tortuous, criminal /
contemptuous activity was ultra vires”
 Kirpa Ram v Shriyana Prasad
(1951) 21 Comp. Cas. 326
 AOA – “Directors shall have the power with the consent of the
Co. in GM to sell / dispose of the undertaking of the Co. -
Scheme had been approved by majority of SH’s.
 Held
 Transaction was not one which was ultra vires…
 Even if it was held that the directors of Co could not enter into
these transactions without the assent of the Co. it was a matter
which could be sanctioned / ratified by SH’s / was capable of
being approved.
 In either case the question of ultra vires would not arise, & it is
not, open to minority of SH’s to object to any transaction unless
it is a fraud /, the majority have abused their powers & are
depriving the minority of their rights.
 Rajendra Nath Dutta v Shibendra Nath Mukherjee, (1982) 52 Comp. Cas. 293
 Breach of a director's duty not involving appropriation of the property of the
Co. / bad faith, can be ratified by SH’s.
 E.g. Execution of a document by MD - without the common seal, is an ultra
vires act & a subsequent resolution cannot ratify it.