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LLM · Group 2 Business Law
2024-25 Examination
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First published on munotes.in on 12 August 2026.
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Model answers written and edited by the munotes.in editorial desk.
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The question paper reproduced here is the paper as set by the University of Mumbai at the 2024-25 examination.
Four changes date most textbooks on this subject. Inability to pay debts ceased to be a ground of winding up on 15 November 2016, when the Insolvency and Bankruptcy Code substituted section 271, and voluntary winding up went with it: sections 304 to 323 were omitted and section 59 of the Code took over. The Company Law Board was dissolved on 1 June 2016 on the constitution of the National Company Law Tribunal. The certificate of commencement of business is gone: section 11 was omitted on 29 May 2015 and replaced from 2 November 2018 by the declaration in section 10A. And the statement in lieu of prospectus, section 70 of the Act of 1956, has no counterpart in the Act of 2013; section 42 on private placement does its work.
Contents
The questions below are the paper as the University of Mumbai set it at the 2024-25 examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2024-25 examination, reproduced as the University of Mumbai set them, in the order it set them. Nothing has been reworded, added or left out. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 7 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
SECTION I
Form 96661. Attempt any four questions, all questions carry equal marks
any four of seven · 100 Marks
1.Analyse the concept of the memorandum of association. Examine in detail the doctrine of the Ultra Vires Act.[25]
Answer
For full marks, cover: the memorandum as the company's charter, its six clauses under section 4 with the mode of alteration each requires under section 13, and the binding force section 10 gives it; then the doctrine of ultra vires from Ashbury through Lakshmanaswami Mudaliar, with its four consequences set out separately; and then the honest modern assessment, that the doctrine has been eroded by the width of modern objects clauses, by the 2017 amendment to section 4(1)(c) and by its abolition in England, but that it survives in India and is enforced.
The memorandum as the company's charter
The memorandum is the document by which the company is created and in which its constitution towards the outside world is fixed. Lord Cairns in Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) LR 7 HL 653, described its purpose in two limbs: it states affirmatively the ambit and extent of vitality and power the company is to have, and it states negatively that nothing shall be done beyond that ambit, so that the shareholder knows the objects to which his money may be applied and the outsider knows the range of the company's capacity.
Section 4(1) fixes six clauses. The name clause, requiring the name with "Limited" for a public company and "Private Limited" for a private company, and section 4(2) forbidding a name identical with or too nearly resembling an existing name or one the Central Government considers undesirable. The situation clause, stating only the State in which the registered office is to be situated. The objects clause under section 4(1)(c), stating the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance of them.
The liability clause, stating whether the liability of members is limited or unlimited, and if limited, whether by shares or by guarantee. The capital clause, stating the amount of authorised capital, its division into shares of a fixed amount, and the number of shares each subscriber agrees to take. The subscription or association clause, carrying the declaration of the subscribers, and, in a One Person Company, the name of the nominee under section 4(1)(f).
Section 4(6) requires the memorandum to be in the form of the appropriate Table in Schedule I, Table A for a company limited by shares, B for a company limited by guarantee without share capital, C for one limited by guarantee with share capital, D for an unlimited company without share capital and E for an unlimited company with share capital.
Alteration is deliberately harder than for the articles, and the mode differs clause by clause. The name may be changed by special resolution with the approval of the Central Government, except where the change is only the addition or deletion of the word "Private" on conversion, under section 13(2). The registered office may be moved within the same city by a Board resolution and no alteration at all; from one city to another within the State by special resolution; and from one State to another by special resolution confirmed by the Central Government under section 13(4), which must dispose of the application within sixty days and be satisfied that the alteration has the consent of the creditors, debenture holders and other persons concerned, or that their debt has been discharged or secured.
The objects may be altered by special resolution, but section 13(8) adds a protection: a company that has raised money from the public through a prospectus and has an unutilised amount may not change its objects unless a special resolution is passed and the details are published in newspapers and on the website, and dissenting shareholders are given an exit offer in accordance with the regulations of the Securities and Exchange Board. The capital clause is altered under section 61 by ordinary resolution if the articles authorise it, and a reduction of capital requires a special resolution and the confirmation of the Tribunal under section 66. The liability clause of a company limited by guarantee cannot be altered so as to increase liability without written consent, and section 18 provides for conversion of one class of company into another.
Section 10(1) states the binding force. The memorandum and articles, when registered, bind the company and its members to the same extent as if they had been signed by the company and by each member, and contain covenants on the part of each member to observe all their provisions. Section 6 makes the Act override anything to the contrary in them. Section 399 makes the memorandum a public document open to inspection, which is the basis of the doctrine of constructive notice: in Kotla Venkataswamy v. Chinta Ramamurthy, AIR 1934 Mad 579, a mortgage deed executed by two officers where the articles required three was held to bind nobody, because the plaintiff was deemed to know the article.
The doctrine of ultra vires
The doctrine is that a company has capacity only for what its memorandum authorises, and an act beyond that is void from the beginning. The words mean beyond the powers. The distinction that must be kept straight is between an act ultra vires the company, which is void and incurable, and an act ultra vires the directors but within the company's powers, which the company in general meeting may ratify.
Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) LR 7 HL 653, is the foundation. The company's objects were to make, sell and hire railway carriages and wagons, to carry on the business of mechanical engineers and general contractors, and to buy, sell and deal in timber, coal, metals and other materials. The directors contracted with Riche to finance the construction of a railway line in Belgium. The company later repudiated. The House of Lords held the contract void from the beginning, and, critically, that it could not be ratified even by the assent of every shareholder, because ratification presupposes a capacity to do the act, and the company never had it. Lord Cairns rejected the argument that "general contractors" widened the objects, holding that the phrase must be read in connection with what preceded it.
Attorney General v. Great Eastern Railway Co., (1880) 5 App Cas 473, softened it at once, holding that whatever may fairly be regarded as incidental to or consequential upon the objects is not ultra vires. Without that gloss the doctrine would have paralysed commerce, because no draftsman can list everything a business must do.
The leading Indian authority is A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, AIR 1963 SC 1185. The shareholders of an insurance company resolved to pay Rs. 75,000 out of its funds to a charitable trust formed to promote technical and business knowledge, at a time when the insurance business had been nationalised. The memorandum authorised charitable contributions conducive to the objects of the company. The Supreme Court held the payment ultra vires, because after nationalisation the company had no business to which the donation could be conducive, and the directors were held personally liable to refund the money. The case is the best Indian illustration of two propositions at once: that an object clause is read in the context of the business, and that the directors, not the company, bear the loss.
Four consequences follow, and they should be set out separately.
One, the transaction is void and cannot be ratified, however unanimous the shareholders. Neither party can sue on it, and the company cannot be estopped from pleading its own incapacity.
Two, an injunction lies. Any member may sue to restrain the company from committing an ultra vires act, and this is one of the recognised exceptions to Foss v. Harbottle, (1843) 2 Hare 461, because the wrong is not one the majority can ratify. Section 245(1)(a) now puts the same remedy on a statutory footing by allowing a class action to restrain the company from committing an act which is ultra vires the articles or memorandum.
Three, the directors are personally liable. They are agents whose authority is bounded by the memorandum, and a payment made outside it is a breach of duty for which they must make good the money, as in Lakshmanaswami Mudaliar. Section 166(1) now requires a director to act in accordance with the articles, and section 166(7) makes contravention punishable.
Four, property and tracing. Money spent ultra vires may be traced and recovered so long as it remains identifiable in the hands of the recipient, and if an ultra vires borrowing has been used to pay off a lawful debt of the company, the lender is subrogated to the position of the creditor he has paid, which is the equitable relief that prevents the company from enriching itself by pleading its own incapacity.
Where the doctrine has been narrowed. The Companies (Amendment) Act, 2017 substituted section 4(1)(c) so that the memorandum states the objects and matters considered necessary in furtherance of them, removing the earlier tripartite division into main objects, objects incidental or ancillary, and other objects, which had itself been a device for widening capacity. Modern objects clauses are drafted so broadly that few transactions fall outside them. In England the doctrine has been abolished in substance: section 39 of the Companies Act, 2006 provides that the validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company's constitution, and section 31 permits unrestricted objects. India has made no such change, so the doctrine remains law here.
Where it still bites, and this is the part that shows understanding. It bites where a company applies its funds to a purpose the memorandum does not support, as in Lakshmanaswami Mudaliar. It bites in the public sector and in companies with statutory objects, where the objects clause is genuinely confining. And it has an analogue that is very much alive in ultra vires borrowing and in section 186, which caps loans and investments, and in section 180, which requires a special resolution for borrowing beyond paid-up capital, free reserves and securities premium, so that a borrowing beyond that limit without the resolution is beyond the Board's authority even where it is within the company's objects. The candidate should note the distinction: the first is void, the second is voidable and ratifiable.
The drafting device that hollowed the doctrine out is worth naming, because it explains why ultra vires is rarely litigated today. In Cotman v. Brougham, [1918] AC 514, a rubber company's memorandum listed some thirty objects and added a clause providing that every sub-clause should be construed as a substantive and independent object and not as subordinate to any other. The company underwrote shares in an oil company, and on its liquidation the transaction was challenged as ultra vires. The House of Lords held the independent objects clause valid, so that the objects could not be read down to what was incidental to the main business. After that decision draftsmen simply listed everything, and the objects clause, which Lord Cairns in Ashbury had treated as a real limit, became a formality.
Conclusion. The memorandum is the charter that both creates the company and limits it, its six clauses under section 4 fixing the name, the State of its office, its objects, the liability of its members, its capital and its subscription, each alterable only in the manner section 13 prescribes, with section 13(8) giving an exit to dissenting shareholders where public money has been raised. The doctrine of ultra vires is the enforcement of the objects clause: an act beyond it is void from the beginning and unratifiable, as Ashbury held; it may be restrained at the suit of a member and now by a class action under section 245; and the directors who authorise it pay for it, as Lakshmanaswami Mudaliar shows. The doctrine has been narrowed by wide drafting and abolished in England, but in India it is intact.
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