Company law

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manoj

manoj (Querist)
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06 March 2015 Please explain me what is provision for entrenchment in article of association CA 2013??

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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10 March 2015 The articles may contain provisions for entrenchment to the effect that specified provisions of the articles may be altered only if conditions or procedures that are more restrictive than those applicable in the
case of a special resolution, are met or complied with. [Section 5 (3)]

Essentially, the entrenchment provisions allow for certain clauses in the articles to be amended upon satisfaction of certain
conditions or restrictions (such as obtaining a 100% consent) greater
than those prescribed under the Act. This provision acts as a protection to the minority shareholders and is of specific interest to the investment community. This shall empower the enforcement of any pre-agreed rights and provide greater certainty to investors, especially in joint ventures.

The provisions for entrenchment referred to in section 5(3) shall 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. [Section 5 (4)]

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