Name Pradumn Bisht

Semester V
Subject Company LAw
Roll No 1629

Ans 1

Chief Legal Advisor for Heron advice to Mr. Hamza would be that venturing into the steel
business would be outside the scope and objectives of the MOA additionally the primary
objective of of Heron Pvt. Ltd. i.e. is to carry out its operation as a Cement manufacturing
entity.applying the Doctrine of Ultra Vires

Doctrine of Ultra Vires

-The term Ultra Vires means ‘Beyond Powers’. The doctrine implies that a company cannot do
anything beyond the powers expressly or impliedly conferred upon it by the statute or
memorandum of association.. A company has to follow what is written in Articles, but that
should be in consonance with the MoA. Any purported activity beyond such powers will be
ineffective even if agreed to by all the members.. The powers of a company are essentially
derived from the statute constituting it and the memorandum of association.cannot performed in
excess of the legal powers. This doctrine works on an assumption that the powers are limited in
nature.As per the doctrine there are

• Powers given to the directors to achive the objective of the company.

• Limitatations are also provided so these powers are not misuse.

A Memorandum of Association

It is a binding document which describes the scope of the company among other things. If a
company departs from its MOA such an act is ultra vires. It states that the objects of a company,
as specified in its Memorandum of Association, can be departed from only to the extent
permitted by the Act. Hence, if the company does an act, or enters into a contract beyond the
powers Allowed by the MOA, then the said act/contract is void and not legally binding on the
company.

Doctrine of Ultra Vires has been laid down In the case of Ashbury Railway Carriage and Iron
Co. Ltd. v. Riche, which was decided by the House of Lords. In this case the company and M/s.
Riche entered into a contract where the company agreed to finance construction of a railway
line., The objects of the company as per the memorandum of association were to supply and sell
some material which is required in the construction of the railwaysAs the contract was ultra-vires
the memorandum, it was held that it could not be ratified even by the assent of all the
shareholders.

Herein the present matter, , the object clause of the company clearly mentions that the main
object of the company is to carry out its operation as a Cement manufacturing entity thus even
the sub-clause (20) of Clause 2, describes the head of ‘Other Objects’, cannot be interpreted in
the way to include the business of Steel and Steel related Products.

Venturing into steel and related businesses is not at all in consonance with the main objective of
the company since it is completely unrelated with the cement manufacturing., it is hereby stated
that the company which is manufacturing cement will have to acquire entirely different
machinery which could have detrimental effects on cement manufacturing operations of Heron
Pvt. Ltd.. Hence it is not in consonance with the main functions of the company. Therefore
Heron Ltd. cannot venture into the steel business as it goes against the object clause and MOA of
the company

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Ans 2. Document on which a Company borrowed a sum of money was executed by the

Managing Director of a certain company in exercise of his powers as the Chief Functionary of
the Company borrowed a sum of money.

In the instant case the document executing the transfer of the money to the company has only
valid signature of the chief functionary of the company and the signature of the other two
directors as mandated by the Articles Of Association of the company have been forged.
Issue: Whether the Company can dispute the validity of the document in question and deny any
liability arising out of such document?

Decision

The company cant dispute the validity of the document and it will be liable for claims arising out
of such document applying the Doctrine of Indoor Mangement laid down in the landmark case of
Royal Bank vs Turquand.

AOA regulate the internal management of the company. The Articles of Association of the
company required when the company borrowed money, the document executing such transfer
had to be signed by the Chief Functionary of the Company accompanied along with the
signature of the other two directors of the company. The aforesaid fact is an internal regulation
of the company and there exists a presumption in the favour of lender as he could not have
known the fact whether to comply with the AOA requirement the signature of the other two
directors was forged.

In conclusion, applying the Doctrine of Indoor management there is a presumption of regularity

on the part of the borrowing company and the lender is entitled to presume that all internal
procedures and AOA of the company have been complied with. Hence the document transferring
money is valid and company liability exists for any claims arising out of the said document .