The Paid-up Capital of X Ltd. is ₹10 Crore and Reserve and Surplus are negative (due to huge losses since previous few years) amounting ₹300 Crore. To pay the dues to Creditors, the Board of Directors passed the resoluti

Section 180(1)(c) read with Section 179 of the Companies Act, 2013, provides that the Board of Directors can only with the consent of the company by a special resolution would borrow money, where the money to be borrowed, together with the money already borrowed by the company exceeds aggregate of its paid-up share capital, free reserves and securities premium, apart from temporary loans obtained from the company's bankers in the ordinary course of business. Now, whether a transaction is ultra vires the company can be decided on the basis of the following: if a transaction entered into by a company falls within the objects, it is not ultra vires and hence not void; if a transaction is outside the capacity (objects) of the company, it is ultra vires; if a transaction is in excess or abuse of the company's powers, it is ultra vires and such transaction will be set aside by the shareholders or even ratification by the shareholders would not validate the acts done beyond the authority of the company itself. Personal liability of Directors: It is one of the duties of directors to ensure that the corporate capital is used only for the legitimate business of the company and hence if such capital is diverted to purposes alien to company's memorandum, the directors will be personally liable to replace it. In Jehangir R. Modi v. Shamji Ladha, [(1866-67) 4 Bom. HCR (1855)], the Bombay High Court held, "A shareholder can maintain an action against the directors to compel them to restore to the company the funds of the company that have by them been employed in transactions that they have no authority to enter into, without making the company a party to the suit". In case of deliberate misapplication, criminal action can also be taken for fraud. While the doctrine of 'constructive notice' seeks to protect the company against the outsiders, the principal of indoor management operates to protect the outsiders against the company. Hence, in the present case, the Board has taken loan exceeding the prescribed limit under section 180(c) of the Companies Act, 2013, therefore, Directors are personally liable to repay the loan to financial institution.