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What are the treatment and consequences of acts done beyond MOA and AOA?

Act done beyond MOA

In case the act goes beyond the powers of MOA, then such a act is treated as ultra-vires and void-ab-initio. Nobody can alter that and make changes in their favor then.

For example- if it is provision in the MOA that a company can take a loan only up to 100 lakhs, then the company is restricted to borrow more, and if the company borrows more, then it is void-ab-initio, and the third party has the right to sue the company. Not even the shareholders can ratify it now.

Act done beyond AOA

In case the act goes beyond the powers of AOA, then it is not treated as ultra-vires and thus not at all void-ab-initio. Shareholders can alter the clauses unless and until it is not affecting the rights of the minority shareholders.

For example- if the shareholders can take a loan only up to 10 lakhs from the company as per AOA. But if the shareholders take a loan more than that, then it can be easily ratified by the shareholders by passing an SR.

Thus, acts beyond MOA cannot be ratified, while the acts done beyond AOA can be easily ratified.

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Note: This Post was last updated on November 30, 2022

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