Provisions for Entrenchment in Articles of Association
An entrenched / entrenchment
provision is a provision that makes the current level of provisions more
stringent / difficult to follow for the coming period. Most of the times,
making a mandate requiring the consent of more number persons for the happening
Section 5 of the Companies Act 2013 contains provisions regarding Articles of Association of a
company containing the provisions for entrenchment.
Section 5of the Companies Act 2013 came into force w.e.f. 1st April 2014 (MCA notification dated 26th March 2014).
Following is the brief glance of
such provisions for entrenchment in articles of association:
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.
When can a Company add provisions for
entrenchment to AOA?
Ans.: (1) Either on formation of a
company,or (2) by an amendment in the
(2.1) in the case of a private company the amendment has to be agreed
to by all the members of the company; (2.2) in the case of a public company by
a special resolution.
It may be noted that the Stakeholders
of private company may raise concern over the requirement of unanimous consent
for amendment in Articles for addition of entrenchment clause.
Notice to ROC
Where the articles contain provisions
for entrenchment, whether made on formation or by amendment, the company shall
give notice to the Registrar of such provisions in such form and manner as may
Rule 10 of the Companies (Incorporation) Rules, 2014 prescribes the form and manner for notice to the ROC for articles containing provisions
for entrenchment, which is as follows.
At the time of incorporation of the company - notice to the Registrar of such provisions in Form No.INC.2 or Form No.INC.7 along with fees; or
In case of existing companies - notice to the Registrar of such provisions in FormNo. MGT 14 along with feeswithin thirty days from the date of entrenchment of the articles.