Legal Nature and Binding Effect of the Articles

The Articles of Association are more than a private administrative note — the Companies Act, 2013 gives them real legal force. Section 10 of the Act provides that the Memorandum and Articles, when registered, bind the company and its members to the same extent as if they had respectively been signed by the company and by each member, and contained covenants on their part to observe all the provisions of the Memorandum and the Articles. In effect, the Articles operate as a kind of statutory contract binding three sets of relationships at once: between the company and each member, between the members inter se (among themselves), and, to the extent the Articles govern their conduct, between the company and its officers acting on its behalf.

This contractual force, however, comes with an important limitation that is frequently tested: the Articles are always subordinate, both to the company's own Memorandum and to the Companies Act, 2013 itself. Any provision in the Articles that conflicts with the Memorandum, or with a mandatory provision of the Act, is void to the extent of that inconsistency and cannot be enforced, no matter how clearly it is worded or how long it has stood unchallenged. A company cannot, for instance, use its Articles to authorise an act that its Memorandum's objects clause does not permit, nor can it use the Articles to contract out of a protection the Act confers on members or creditors. …