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

Ananya, a shareholder, finds that the articles of Delta Foods Ltd., a public company, contain a clause giving the Managing Director a veto on every board decision. The clause conflicts with a mandatory provision of the Companies Act, 2013 requiring decisions by board majority on certain matters. Which statement states the correct legal position?

The clause is void to the extent it conflicts with the Companies Act, 2013. Articles are subordinate to the Act and the memorandum, so they cannot override mandatory statutory provisions, and neither registration nor member approval by ordinary resolution can validate such an inconsistent clause.

  1. AThe articles are valid because they were registered and bind all members
  2. BThe clause is void to the extent that it is inconsistent with the Act, as the articles are subordinate to the ActCorrect
  3. CThe Act yields to the articles since articles are a contract among members
  4. DThe clause is valid if approved by an ordinary resolution of members

Explanation

Articles are subordinate to the Companies Act and the memorandum. A provision in the articles that contradicts a mandatory provision of the Act is void to that extent. Registration or an ordinary resolution cannot give it validity, so the view that the articles prevail is wrong.

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