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.
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