ENTRENCHMENT OF ARTICLE


According to Section 5 of the Companies Act, 2013 the articles may contain provisions for entrenchment to the effect that specified provisions of the articles may be altered only if conditions or procedures as that are more restrictive than those applicable in the case of a special resolution, are met or complied with. We have discussed this provision earlier here.

An entrenched clause or entrenchment clause of a basic law or constitution is a provision which makes certain amendments either more difficult or impossible, i.e., inadmissible. It may require a form of supermajority, a referendum submitted to the people, or the consent of another party.

One Example: A strategic investor introduced in a company to bring a new technology or investment. Now, such strategic investor wants to protect its interests in company. The Article may be entrenchment to protect such interest. In this article may be entrenched to require consent of such investor to pass resolutions.

According to Rule 10 of the Companies (incorporation) Rules 2014 where the articles contain the provisions for entrenchment, the company shall give notice to the Registrar of such provisions in Form INC – 2 or Form INC – 7, as the case may be, along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 at the time of incorporation of the company. These forms are related to incorporation of One Person Company and Company other than One Person Company, respectively.

Form INC – 2 asks whether Articles are entrenched or not and Number of Articles to which provision of entrenchment shall be applicable. The form also asks for details of entrenched articles; Article number and contents. Entrenched Articles are also required to be attached with the Form INC – 2. There is similar provision in Form INC – 7.

Where the articles of an existing company altered to include entrenchment, the notice of entrenchment shall be filed in Form MGT – 14 within thirty days from the date of entrenchment of the articles, as the case may be, along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014.

Form MGT – 14 is related to filing of resolutions and agreements to the Registrar pursuant to Section 94(1) and 117(1) of the Companies Act, 2013.

Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.

Advertisements

6 responses to “ENTRENCHMENT OF ARTICLE

  1. Pingback: Index of Companies Law Posts | AishMGhrana

  2. I have an question…
    If any company is registered under CA 1956 but we altered it name and object, does it require to draft new MOA & AOA as per CA 2013…?????
    Thanks

    Like

  3. can we alter provision for entrenchement by passing special resolution ?

    Like

  4. Pingback: Amended Form INC – 7 (W.E.F. 1 May 2015) | AishMGhrana

No professional query in comments (but in mail). Only academic discussion here. Comments moderated. Sometime, reply to your mail ID. To subscribe blog, check homepage.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s