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Doctrine of Ultra Vires

ursmitesh (CA Practice ) (126 Points)

25 March 2011

Is borrowing power of a private Ltd. company should be specified in MOA? My company has lend a sum of Rs. 1.00 lakh to a private ltd. company. However, now we are being adviced, since borrowing power is stipulated in Articles of the company and not in Memorandum, the act is Ultra Vires and as such not enforceable in the court of law.

I want the advice from experts about the case. Can I have any judgement as my reference for my claim?

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4 Replies

Sudhir Garg (Service) (236 Points)
Replied 25 March 2011

I understant to borrow money in furtherence of company's objects is company's inherent power and need not to be mentioned in AOA or MOA. Further, if Table A is not debarred by your MAOA, the provisions of Table A automatically applies which allows the same.

Regards- Sudhir

Shridhi Jain (Company Secretary) (1678 Points)
Replied 25 March 2011

Firstly, you should see what is the business of the company ? If the main activity concerns with borrowing or lending or if the borrowing-lending is done for the profit making purpose, then definitely it should be mentioned in the objects of the company in MOA.

However, in general course of business, borrowing and lending power is given by the Articles of the company to its BOD. So mentioning the same in MOA is not compulsory.

SANTOSH SHAH (Company Secretary) (754 Points)
Replied 25 March 2011

Originally posted by : Shridhi Jain
	Firstly, you should see what is the business of the company ? If the main activity concerns with borrowing or lending or if the borrowing-lending is done for the profit making purpose, then definitely it should be mentioned in the objects of the company in MOA. However, in general course of business, borrowing and lending power is given by the Articles of the company to its BOD. So mentioning the same in MOA is not compulsory.

I Agree with Shridhi.

Borrowing powers of company are deemed to be inherent for a company to carry out its activity.

So such borrowing / lending power for pvt ltd will be part of articles and not necessary be repeated in MOA.

That in this case does not mean ultravirus act of the company.

The articles can have the limits upto which it can borrow or lend, so ensure that limits

does not exceed if clause is as such in the articles mentioned.

Other views welcome.

regards

Santosh Shah

SIDHARTH DHIR (senior articled assistant) (623 Points)
Replied 25 March 2011

Originally posted by : Shridhi Jain
	Firstly, you should see what is the business of the company ? If the main activity concerns with borrowing or lending or if the borrowing-lending is done for the profit making purpose, then definitely it should be mentioned in the objects of the company in MOA. However, in general course of business, borrowing and lending power is given by the Articles of the company to its BOD. So mentioning the same in MOA is not compulsory.