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

The Articles of Association of Lotus Foods Ltd contain a clause that conflicts with a mandatory provision of the Companies Act, 2013. A shareholder, Divya, relies on the Articles to support her claim. What is the legal position?

The Articles are subordinate to the Companies Act, 2013, so a clause that conflicts with a mandatory provision of the Act is void to the extent of the inconsistency. Even a special resolution cannot validate it, and the Act prevails over the Articles.

  1. AThe Articles prevail because they are signed by all subscribers
  2. BThe conflicting clause is void to the extent of the inconsistency, and the Act prevailsCorrect
  3. CThe Memorandum overrides the Act in this case
  4. DThe clause is valid if approved by a special resolution

Explanation

The Articles are subordinate to the Companies Act. Any clause contrary to a mandatory provision of the Act is void to that extent. A special resolution cannot validate a clause that breaches the Act, so option 4 is wrong.

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