DELHI METROPOLITAN EDUCATION,

NOIDA

“CORPORATE LAW PSDA”

SUBMITTED BY:
RAMEY KRISHAN RANA
42851103517
BBA LLB(HON.)
FIFTH SEMESTER

UNDER THE GUIDANCE OF

MS. AYUSHI SHARMA
ASSISTANT PROFESOR OF LAW
(DME, NOIDA)

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 INDEX
TABLE OF CONTENTS

INDEX OF AUTHORITES……….………………………………….............. 3

CASE PROBLEM……….…………………………………………………… 4

STATEMENTS OF ISSUES ……………………………………………... 5

ARGUMENTS ADVANCED. (PLAINTIFF).……… ……………………... 8

ARGUMENTS ADVANCED (DEFENDANT)…………………………....... 11

JUDGEMENT …………………………………………………...................................................14

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 CASE PROBLEM NO.2

A company, Lincoln Ltd., was formed for the purpose of tramways

services i.e. conveying passengers, animals, goods, minerals and

parcels from one place to another. After few years, the Board of the

company decided to bring a resolution before the shareholders in the

general meeting for starting its own courier services. The resolution

was passed in the general meeting by the majority shareholders. The

minority shareholders objected to it on the grounds that it is ultra

vires.

Decide the validity of the action taken by directors.

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 STATEMENT OF ISSUES

ISSUE 1:

WHETHER THE RESOLUTION PASSED BY MAJORITY

SHARE HOLDERS OF STARTING OF THE NEW COURIER
SERVICE IS VALID.

SUB ISSUE 1.1

WETHER THE RIGHTS OF THE MINORITY

SHAREHOLDES ARE BEING INFRINGED.

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 ARGUMENTS ADVACNED

{ON THE BEHALF OF PLAINTIFF}

I. RESOLUTION PASSED BY THE BOARD IS NOT

VALID
1. It’s respectfully submitted that the resolution passed by the
board is not valid as it was against the decision of the
minority share holders and they even objected to it. Gone are
the days when some board of directors used to call them
monopoly of the market while doing as they wish to shame
Corporate Governance and ethics to the largest extent
possible. The modern shareholders are more aware of their
responsibilities than ever and more powerful than anyone can
imagine. With Shareholders revolution, it is a democracy in
company affairs and the shareholders are the supreme power
which appoints its ministry in the form of directors to run the
show and make money for them. In the process the Directors
are given necessary powers but obviously more
responsibility. The Companies Act 2013 has ensured this
balance of Power vis-à-vis responsibilities is maintained to
most benefit to the Shareholders and ensure Corporate
governance to the maximum extent possible. It utilizes both
regulatory measures as well as penal measures including
stringent judicial measures to ensure the regulations are
properly followed and to avoid any mishap in corporate

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 governance and to maintain the legal sanctity of the
organization.
2. The resolution passed was against the content of MOA hence
it’s ultra vires and the resolution is not valid. As per
according to the current preview of the matter considering the
interest of minority share holders, taking reliance from the
context of the very word “Share holder” itself describes the
owner of the company whereas each and every share holder
interest matters in every companies actions and resolution
therefore relying on to above pleading placed by the plaintiff
itself makes it crystal clear that the facts are justified.
➢ The Memorandum of Association or MOA of a company
defines the constitution and the scope of powers of the
company. In simple words, the MOA is the foundation on
which the company is built. In this article, we will look at the
laws and regulations that govern the MOA. Also, we will
understand the contents of the Memorandum of Association
of a company.
➢ The MOA of a company contains the object for which the
company is formed. It identifies the scope of its operations
and determines the boundaries it cannot cross.
According to the problem given the company “LINCOLN
LTD.” Was formed for the purpose of tramway services i.e.
conveying passengers, animals, goods, minerals and parcels
from one place to another. But later on amended the objective

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 and without the very lacking consent of minority share
holder.
In the case of : The Directors, &C., of the Ashbury
Railway Carriage and Iron Company (Limited) v
Hector Riche, (1874-75) L.R. 7 H.L. 653.
3. It was held that : Here the contract was for construction of
railways which was not in the memorandum of the company
and thus, was contrary to them. As the contract was ultra-
vires the memorandum, it was held that it could not be
ratified even by the assent of all the shareholders. If the
sanction had been granted by passing a resolution before
entering into the contract, that would have been sufficient to
make the contract intra-vires. However, in this situation, a
sanction cannot be granted with a retrospective effect as the
contract was ultra-vires the memorandum.

IT IS TO BE PUT INTO CONSIDERATION THAT AS PER

RAISING THE VAILIDITY OF RESOLUTION DIRECTLY
CONSTITUTE TO MOA AND AOA WHEREAS TAKING
RELAINCE FROM THE VARIOUS PRECEDENT BY THE
HON’BLE COURT WHICH CONSIDERED THE FACTORS AS
TO CONCERNING THE SHARE HOLDERS RIGHTS.

In Re New British Iron Company, [1898] 1 Ch. 324

Rayfield v Hands and Others, [1957 R. No. 603.]

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 4. THEREFORE THE ABOVE SUBMISSION ARE SOLELY
BASED ON VALID AND RELEVANT CONSIDERATION
ALSO DEPENDING ON THE PRECEDENT PROXIMITY
CLEARLY JUSTIFIES THE GROUND CHALLENGED
BY THE PLAINTIFF.
I.1 INFRINGEMENT OF SHARE HOLDERS RIGHT
It has been submitted that right has been infringed in the
current review of the matter where the sole interest of
the share holder has been neglected by the actions of the
company by passing the resolution for courier services
without the consent of minority shareholders. This is to
be put into consideration that the share holders are
owner of the companies where every share holder has
the same right as another share holder not raising the
context of question of related to majority share holder
or the minority share holder even if we consider the
minority or the majority share holder right the court has
to see the very look upon the very essential ingredient
of being a share holder initially.
Unfair Prejudice- A shareholder has the right not to
be unfairly prejudiced (see Companies Act 2006
section 994(1)). Unfair prejudice arises when a
shareholder believes that the conduct of the company’s
affairs are affecting them unfairly. It usually arises in a

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 situation where a director is also a majority shareholder
and is using their joint roles to abuse their position.

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 ARGUMENTS ADVACNED

{ON THE BEHALF OF DEFENDANT}

I. RESOLUTION PASSED BY THE BOARD IS VALID.

A Memorandum of Association of a company is a basic
charter of the company. It is a binding document which
describes the of the company among other things. If a
company departs from its MOA such an act is ultra vires. Let
us further understand the Doctrine of Ultra Vires.

The Doctrine of Ultra Vires is a fundamental rule of Company Law. 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 of the directors and/or the company
itself, then the said act/contract is void and not legally binding on the
company.

The term Ultra Vires means ‘Beyond Powers’. In legal terms, it is

applicable only to the acts performed in excess of the legal powers of
the doer. This works on an assumption that the powers are limited in
nature. Since the Doctrine of Ultra Vires limits the company to the
objects specified in the memorandum, the company can be:

 Restrained from using its funds for purposes other than those

specified in the Memorandum
 Restrained from carrying on trade different from the
one authorized.
The company cannot sue on an ultra vires transaction. Further, it
cannot be sued too. If a company supplies goods or offers service or
lends money on an ultra vires contract, then it cannot obtain payment
or recover the loan.

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However, if a lender loans money to a company which has not been
extended yet, then he can stop the company from parting with it via
an injunction. The lender has this right because the company does not
become the owner of the money as it is ultra vires to the company and
the lender remains the owner.

Further, if the company borrows money in an ultra vires transaction to

repay a legal loan, then the lender is entitled to recover his loan from
the company.

Sometimes an act which is ultra vires can be regularized by the

shareholders of the company. For example,

 If an act is ultra vires the power of directors, then the

shareholders can ratify it.
 If an act is ultra vires the Articles of the company, then the
company can alter the Articles.
Remember, you cannot bind a company through an ultra vires
contract. Estoppel, acquiescence, lapse of time, delay, or ratification
cannot make it ‘Intra vires’.

2. Therefore as the plaintiff submitted the very fact challenging the

resolution on the grounds that the resolution passed by the court is
ultra vires this is to be put into consideration that the context of MOA
and ULTRA VIRES in relation to current preview of the matter are
baseless and unjustified, taking the reliance from above submission
laid down by the defendant.

IN THE CASE OF Eley v The Positive Government Security

Life Assurance Company, Limited, (1875-76) L.R. 1 Ex. D. 88
It was held that the articles are not a matter between the company and
the plaintiff. They may either bind the members or mandate the
directors, but they do not create any contract between plaintiff and the
company.

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IN THE CASE OF In Shuttleworth v Cox Brothers and
Company (Maidenhead), Limited, and Others, [1927] 2 K.B. 9
It was held that if a contract is subject to the statutory powers of
alteration contained in the articles and such alteration is made in good
faith and for the benefit of the company then it will not be considered
as a breach of the contract and will be valid.

I.1 NON INFRINGEMENT OF THE RIGHT OF

MINORITY SHARE HOLDER.

A majority shareholder is one who owns 50% or more of the shares in

a company. This can be an individual or a group who have formed to
pass a specific resolution. A minority shareholder is the opposite;
anyone owning less than half of shares. The majority is Goliath to the
minority’s David.
It’s normal for a single majority shareholder to exist in a limited
company who happens to be the company director. However in a PLC
there may be literally hundreds of shareholders all in the minority.

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 JUDGEMENT
1. Considering, the contention from both the parties, from the
plaintiff as well as from the defendant, the decision is of
the opinion that the resolution passed by the board are not
ultravires, as plaintiff challenged the validity of the action
taken by directors are baseless as per they are acting in
accordance to there duties as per the companies act, 2013.
Therefore the action of the company as well as the board
are justified by the defendant on its pleadings. Considering
the very fact that MOA and ultravires with the current
preview of the matters are far away different from the
context of each other.

2. Considering that the minority shareholders right are not

infringed by the resolution passed by the board, as per, the
it does not depend upon te majority shareholder or
minority shareholder but depends upon the voting rights
whereas the contention raised by the defendant are
justified onto ye relevant ground and stands highly
justified.

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