Company Law_Doctrine of Constructive Notice

Doctrine of Constructive Notice

1. The Memorandum of Association (MOA) and Articles of Association (AOA) are Public documents and are easily available for inspection of public at the office of Registrar of Companies.
2. Under the doctrine of constructive notice, it is presumed that, the person dealing with a company has read these documents even if he failed to read the same.
3. In short, every person dealing with a Company is deemed to have “constructive notice” of contents of the company’s MOA & AOA
4. In case of Kotla Venkataswamy V/s Rammurthy (AIR 1934; Mad 579), the Hon’ble. Court had observed this doctrine of constructive notice.
• The Article of Association of a company laid down that all documents executed by a company required the signature of the managing director, the secretary and one working director.
• A deed of mortgage signed on behalf of the company in favour of the Plaintiff. However, the same had been signed by the secretary and one working director. 
• The dispute occurred between the parties in respect of validity of the deed of mortgage. 
• The Madras High Court held that the Plaintiff accepted a deed of mortgage executed by the secretary and a working director only. Now, the Plaintiff could not claim under this mortgaged deed as it was not duly executed as per the Articles of the company. She would have abstained from accepting a deed inadequately signed. 
5. It is a duty of every person dealing with a company to read the relevant provisions of these documents
6. The doctrine of constructive notice applies not only to MOA and AOA but also to all such documents which are required to be registered with Registrar of Companies.
7. The Section 399 of the Companies Act, 2013, provides that, when the MOA and AOA  registered with the Registrar of Companies, it become the Public Documents. These documents can be available to anyone on payment of fees.
8. Doctrine of constructive notice has sometimes resulted hardship and injustice to third parties because it does not take into account the realities of business life.
9. This doctrine looks unrealistic and imaginary and is a fiction created by the judicial pronouncement of the Courts.
10. This doctrine is an exception to the Constructive Notice Doctrine.

Company Law_Doctrine of Ultra Vires

Doctrine of Ultra Vires 

1. Ultra Vires is the Latin phrase, which means beyond the powers.
2. The Memorandum of Association of the Company provides the objects of the company for which the company is established. The act of the Company should not be beyond the object clause, otherwise the said act will be treated as ultra vires, i.e. beyond the powers of the Company
3. The ultra vires act is completely different from an illegal act. However, both are void.
4. The ultra vires act is void act and therefore it cannot be ratified even if all the directors of the company want to ratify the same.
5. The motive behind the doctrine of ultra vires is to protect the investors and creditors of the company.
6. This doctrine prohibits the Company to use the money of the investors for the purpose other than that are stated in object clause of the Company enumerated in Memorandum of Association.
7. In the case of Ashbury Railway Carriage and Iron Company V/s Riche, (1875) L.R.7, H.L.653,  the doctrine of ultra vires had been established. This was the landmark decision. 
8. The details of the case is as under: 
• Facts of the Case
• Ashbury Railway Carriage and Iron Company Ltd., this company was incorporated under the Companies Act 1862. As per the Memorandum Clause No. 3 of the said company,  its objects were "to make and sell, or lend on hire, railway-carriage and wagon and also to carry on the business of mechanical engineers and general contractors.
• The Clause No. 4 of the Memorandum contained that activities beyond this objects needed a Special Resolution.
• The Directors of ARC&IC Ltd. entered into contract with Riche, in order finance the construction of railway-line in Belgium. 
• However, after few days, the company repudiated the said contract with Riche on the contention that, the said contract was ultra-vires. 
• As a result, Riche filed a case for damages for breach of Contract. The main contentions of Riche that, the said contract was within the ambit of the word General Contractors and therefore, it was within the power of company. Thus, the said contract was ratified by the majority of the company's shareholders.
• Issue before the Court
• Whether the contract executed between the company and Riche was valid and if not, whether it could be ratified by the members of the company?
• Judgment
• The Court held that, the contract was ultra-vires and therefore such contract was void and the company had no capacity to ratify the said contract.
• The company has power to do only those things which are authorized by its object clause enumerated in the Memorandum of Association.
• The shareholders has no power to ratify the ultra-vires contract. The business objectives of the company  must be specified in the Memorandum.