Companies Act Section 6

Companies Act Section 6: Supremacy of the Act Over Memorandum, Articles, and Other Company Decisions

1. Introduction: The Act’s Overriding Authority

Section 6 of the Companies Act establishes the absolute supremacy of the Act’s provisions over any internal rules, documents, or decisions of a company. 

This section makes it clear that, regardless of what is written in a company’s Memorandum of Association, Articles of Association, or any agreements or resolutions made by the company, the Companies Act will always prevail. 

This principle ensures that companies operate within the legal framework set by the Act, and that no internal decision or document can override the law unless the Act specifically allows for such exceptions.

2. The General Principle of Supremacy

At its core, the general principle of this section is that the Companies Act takes precedence over all other documents and decisions related to a company. 

Whether the conflict arises from the company’s foundational documents, its agreements, or its board and general meeting resolutions, the Act holds a higher legal authority.

The only exception to this principle is when the Companies Act itself explicitly provides that certain provisions may be modified or excluded by a company through its internal documents. 

In all other cases, the law is non-negotiable, and companies must adhere strictly to the Act’s requirements.

3. Supremacy Over the Memorandum, Articles, Agreements, and Resolutions

The law outlines several specific areas where the Companies Act takes precedence. 

In the event of any discrepancy between the Act and a company's internal documents or decisions, the Act’s provisions will override. 

The key areas affected by this principle are:

A. Memorandum of Association

The Memorandum of Association is one of the most critical documents in a company’s formation and governance. 

It outlines the company’s objectives, scope of activities, and other fundamental details regarding its structure. 

However, if any part of the memorandum is found to be in conflict with the Companies Act, those specific provisions in the memorandum will be rendered void and unenforceable. 

This ensures that the company’s objectives and operational framework always remain aligned with the law, preventing the possibility of a company acting beyond its legal scope, even if such actions are stated in its memorandum.

B. Articles of Association

The Articles of Association govern the internal management of a company, including aspects like the appointment of directors, the conduct of meetings, and the administration of the company’s affairs. 

However, similar to the memorandum, if any regulation in the articles conflicts with the Companies Act, the provisions of the Act will prevail, and the conflicting regulations in the articles will be considered invalid.

This ensures that internal administrative procedures and rules comply with the broader legal framework, preventing companies from bypassing statutory obligations through internal rules.

C. Agreements

Any agreements made by the company, whether with external parties or among internal stakeholders, must also comply with the Companies Act. 

If a company enters into a contractual agreement that contains provisions contrary to the Act, those conflicting provisions will be unenforceable to the extent of the conflict.

This ensures that companies cannot circumvent legal requirements through private contracts or agreements, and all contracts must align with the law.

D. Resolutions

Companies often pass resolutions during their general meetings or meetings of the Board of Directors to make decisions about their operations, policies, or governance. 

Section 6 clarifies that even if a resolution is passed, registered, or executed, it will have no legal effect if it conflicts with the Companies Act. 

This applies to resolutions made before or after the commencement of the Act.

By ensuring that resolutions cannot override statutory provisions, the law maintains a uniform application of its requirements across all companies, regardless of their internal decisions.

4. Effect of Conflict: Nullification of Inconsistent Provisions

If any provision contained in a company's memorandum, articles, agreements, or resolutions conflicts with the Companies Act, the result is that such provision is considered void. 

The provision is rendered ineffective to the extent that it contradicts the Act’s requirements. 

For example, if a company's articles permit a certain action that is prohibited by the Companies Act, the provision in the articles will have no legal standing. 

The company cannot rely on the articles to justify its actions in such cases, as the law will override the conflicting provision.

The effect of this nullification is twofold:

First, it prevents companies from operating outside the legal framework established by the Act.

Second, it ensures that all companies, regardless of their individual rules or decisions, comply with consistent standards set by the legislation.

5. Uniform Application of the Act

Section 6 ensures the uniform application of the Companies Act’s provisions across all companies, regardless of their size, structure, or internal preferences. 

By nullifying any conflicting provisions in internal documents or decisions, the Act reinforces the principle that companies are governed by the law and must operate within the boundaries it sets.

This not only protects the integrity of the legal system but also ensures that stakeholders, such as investors, creditors, and employees, can rely on the fact that all companies are subject to the same statutory requirements, providing a predictable and consistent business environment.

6. Example to Illustrate Supremacy of the Act

To illustrate the effect of Section 6, consider the following scenario:

A company’s Memorandum of Association states that the company has the power to engage in certain activities that are restricted under the Companies Act. 

Despite this provision in its memorandum, the company cannot lawfully pursue those activities because the Act overrides the conflicting provision in the memorandum. 

If the company attempted to act on the basis of its memorandum, such actions would be illegal, and the provision would be considered void to the extent of the conflict.

Similarly, if the company passes a resolution at a board meeting that contradicts the statutory requirements of the Companies Act, the resolution will be invalid, even if it was passed by a majority of the board. 

The company must comply with the Act, and the conflicting resolution will have no legal effect.