1. The articles of a company shall contain the regulations for management of the company.
2. The articles shall also contain such matters, as may be prescribed:
Provided that: nothing prescribed in this sub-section shall be deemed to prevent a company from including such additional matters in its articles as may be considered necessary for its management.
3. 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.
4. The provisions for entrenchment referred to in sub-section (3 ) shall only be made either on formation of a company, or by an amendment in the articles agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company.
5. 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 be prescribed.
6. The articles of a company shall be in respective forms specified in Tables, F, G, H, I and J in Schedule I as may be applicable to such company.
7. A company may adopt all or any of the regulations contained in the model articles applicable to such company.
8. In case of any company, which is registered after the commencement of this Act, in so far as the registered articles of such company do not exclude or modify the regulations contained in the model articles applicable to such company, those regulations shall, so far as applicable, be the regulations of that company in the same manner and to the extent as if they were contained in the duly registered articles of the company.
9. Nothing in this section shall apply to the articles of a company registered under any previous company law unless amended under this Act.
Legal Commentary & Landmark Judgments: Section 5
Section 5 governs the Articles of Association (AOA), which establish the internal regulations, administrative machinery, and operational governance binding the company, its directors, and its shareholders.
Entrenchment provisions protect minority shareholders or joint venture partners by requiring higher percentage majorities or unanimous consent, provided such entrenchment is agreed either upon incorporation or through an amendment approved by all members in a private company or special resolution in a public company.
The statutory codification of entrenchment clauses under Section 5 represents a critical reform for private equity investments and joint venture agreements in India. Previously, contractual covenants in shareholders' agreements (SHAs) were unenforceable against the company unless incorporated into the articles. By utilizing Section 5 entrenchment, institutional investors can embed affirmative voting rights and veto protections directly into the corporate constitution with statutory backing.