Mitigating Ultra Vires Actions and Ensuring Compliance during Acquisition

1. Ensuring a Legal Acquisition:

To avoid ultra vires actions (actions beyond a company's legal powers) during the
acquisition of Tech Innovations Pvt. Ltd., Ms. Sarita should take the following steps:
 Review XYZ Corporation's Memorandum of Association (MOA): The MOA outlines
the company's objects and powers. Ms. Sarita should ensure the acquisition aligns with
these objectives. For example, if XYZ Corporation is strictly a software development
company, acquiring a company in a completely different industry might be considered
ultra vires.
 Scrutinize Financial Irregularities: The uncovered financial irregularities raise red
flags. Ms. Sarita should involve external auditors to thoroughly investigate these issues.
Acquisitions based on misleading financial information could be challenged later.
 Board Approval and Shareholder Consideration: The board's approval for the
acquisition is crucial. However, depending on the size and significance of the deal,
shareholder approval might also be necessary. Ensure proper documentation and
adherence to company bylaws regarding such approvals.
2. Doctrine of Constructive Notice and Negotiations:
The doctrine of constructive notice implies that a party is presumed to have knowledge
of information that could be reasonably discovered through due diligence. Here's how it
might affect negotiations:
 XYZ Corporation's Leverage: Since the financial irregularities were uncovered during
due diligence, XYZ Corporation can leverage this information during negotiations. They
can potentially lower the acquisition price or demand warranties from Tech Innovations
Pvt. Ltd. to protect themselves from future liabilities.
 Tech Innovations Pvt. Ltd.'s Defense: Tech Innovations Pvt. Ltd. might argue that the
irregularities were not material or were not intentionally concealed. Open
communication and addressing these issues head-on are crucial during negotiations.
3. Indoor Management Principles and Internal Controls:
 Indoor management principles dictate that outsiders cannot challenge a company's
internal decisions as long as they are made within the company's authority. However,
strong internal controls are essential to demonstrate compliance:
 Clear Acquisition Process: Develop a well-defined process for acquisitions, outlining
roles and responsibilities for all involved parties. This helps ensure proper oversight and
adherence to company policies.
 Due Diligence Team: Establish a dedicated team with expertise in finance, legal
matters, and technology to conduct a comprehensive due diligence of Tech Innovations
Pvt. Ltd.
 Documentation and Communication: Maintain detailed records of all negotiations,
agreements, and decisions made throughout the acquisition process. This strengthens
the company's position in case of any future legal challenges.
By following these steps, Ms. Sarita can significantly reduce the risk of ultra vires
actions and ensure XYZ Corporation complies with legal and internal control
requirements during the acquisition of Tech Innovations Pvt. Ltd.