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LAKSHMANASWAMI MUDALIAR V. LIC

Lakshmanaswami Mudaliar v. L.I.C. AIR 1963 SC 1185

ISSUE:

  • Whether the plaintiff consented to the subletting of parts of the demised premises and if so, when and to what effect?

RULE:

  • The Supreme Court repealed this doctrine. The company was incorporated under the Indian Companies Act, 1882, and had a principal objective to carry life insurance business in all its branches. It was registered under Life Insurance Act.

FACTS:

  • At an extraordinary General Meeting of the shareholders of the United India Life Assurance Company Ltd, a resolution was passed, among other matters sanctioning a donation of Rs. 2 Lakhs from out of the share.
  • On July 1, 1956, the Life Insurance Corporation Act came into force by the provisions of which on the appointed day all the assets and liabilities appertaining to the controlled business of an insurer vested in the life insurance corporation.
  • Section 15(l)(a) of the Life Insurance Corporation Act power was given to the corporation to apple to the tribunal for relief in respect of payments made by the insurer, during the five years preceding the date of vesting not reasonably necessary for the purpose of the controlled business.
  • The corporation applied to the tribunal for relief in respect of the payment of Rs.2 Lakhs by the company to the appellants on the ground that the said payment was ultra vires the powers of the company and was not reasonably necessary for the purpose of the controlled business.
  • The tribunal ordered the appellants to restore the sum of Rs. 2 lakhs to the corporation.
  • Then a special leave application was filed to the Supreme Court in appeal of the matter decided in the tribunal. 

HELD:

  • An act of the company is ultra vires, if it is not:
  • Essential for the fulfillment of the objects stated in the Memorandum.
  • Incidental or consequential to the attainment of its objects.
  • Which the company is authorized to do by the company act, in course of its business.
  • Where a company does an act that is ultra vires, no legal relationship or effect ensues therefrom. Such an act is absolutely void and cannot be ratified even if all shareholders agree.
  • The bearers of the company who were responsible for passing the resolution ultra vires the company are personally liable to make good, the amount belonging to the company which was unlawfully disbursed in pursuance of the resolution.
  • Section 13 of the Company Act, required to specify the main object of the company ancillary to the attainment of the main object.
  • It was held that the Memorandum of Association of a company must be read fairly and its import derived from a reasonable interpretation of the language which it employs.
  • Where a particular act has not been provided for in the Memorandum of Association, the directors cannot seek recourse to the Articles of Association to imply that such business falls within its objects.
  • The Memorandum of Association has to be read with the Articles of Association, where the terms are ambiguous or silent. This process may explain the provisions of the Memorandum itself but cannot extend to the scope.