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CA Intermediate · Corporate and Other Laws · Incorporation of Company and Matters Incidental Thereto

Aarav Textiles Pvt Ltd, a company with a share capital, has an object clause in its memorandum limited to manufacturing cotton fabrics. The board decides to commence trading in ready-made garments, which is outside the objects. Which course of action is legally correct under the Companies Act, 2013?

The company must pass a special resolution to alter the objects clause of its memorandum and file it with the Registrar, with the alteration effective on registration. A board decision or an ordinary resolution cannot validate business outside the objects, which would be ultra vires.

  1. APass a special resolution to alter the objects in the memorandum and file the resolution with the Registrar, as the alteration takes effect on registrationCorrect
  2. BProceed on the board's decision, because directors can extend business beyond the objects if profitable
  3. CPass an ordinary resolution at a general meeting; no filing with the Registrar is needed
  4. DObtain approval of the Reserve Bank of India before altering the memorandum

Explanation

Changing the objects clause requires a special resolution of members and filing with the Registrar within the prescribed period. Acts outside the objects are ultra vires and cannot be validated by the board's decision alone. An ordinary resolution is insufficient, and RBI approval is not required for such alteration.

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