The circular was issued because a public limited company altered its articles empowering its Board of Directors to expel a member in a case where the Board is prima facie of the view that activities or conduct of the member is detrimental to the company or that by reason of his continuance as a member, it would be prejudicial to the future of the company.

The Department, after considering the scheme of the Companies Act, is of the view that “amendment of articles of association of a company providing for expulsion of a member by the management is opposed to the fundamental principles of company law jurisprudence and is ultra vires the company.

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Such a provision is repugnant to the various provisions of the Act pertaining to the rights of a member in a public limited company and cuts across the scheme of the Act as it has the effect of rendering nugatory the very powers of the Central Government under section 111 of the Companies Act, 1956 and the powers of the court under sections 107 and 395 of the Act and is, therefore, void by operations of section 9 of the Act.

The article of association is a contract between the company and its members setting out the rights of members inter se under the contract and expulsion of a member is not only a violation of this contract but is also opposed to the principles of natural justice.”