BORROWING POWERS
 Capital is necessary for the establishment and
development of a business and borrowing is one of
the most important source of the capital, but
unfortunately there is no express provision in the
Companies Act as to the borrowing powers of the
company.
 Every trading company, unless prohibited by its
memorandum or articles, has an implied power to
borrow money for the purpose of its business, and to
give security for the loan by creating a mortgage or
charge on its property even though such power is not
expressed in the memorandum of the company.
 On the other hand, a non-trading company has no
implied power to borrow money and, therefore, it
cannot borrow unless such power is expressly
provided in the memorandum. If the memorandum
does not contain such a power, the memorandum have
to be amended before the company can exercise its
borrowing powers.
 Again a public company having a share capital cannot
exercise the borrowing powers unless a certificate of
commencement of business has been obtained by it .
The Board's Powers
 The borrowing power is exercised by the board of directors
subject to the provisions in the memorandum and articles of the
company. The memorandum or articles generally specify the
maximum limit of borrowing power allowed to the Board of
Directors and may impose restrictions upon the exercise of such
power.
 Section 293(1)(d) also limits the directors' power to borrow. It
provides that the Board of Directors of a public company or of a
private company which is a subsidiary of a public company, shall
not except with the consent of such public company or its
subsidiary in a general meeting borrow moneys, where the
moneys to be borrowed together with the moneys already
borrowed by the company will exceed the aggregate of paid-up
capital of the company and its free reserves . Thus, the power of
directors to borrow is subject to two main limitation :
1. Statutory limitations
2. Limitations enumerated in the memorandum and articles.
ULTRA VIRES BORROWINGS
 Ultra vires borrowings mean borrowings which are
beyond the powers of the company or the directors.
Borrowing by a company may be :
1. Ultra vires of the company, or
2. Intra vires of the company but ultra vires of the
directors.
Borrowing which is ultra vires of the company
 Where a company borrows money in excess of its
powers, the borrowing would be ultra vires the
company. In such a case, the contract is void and the
lender cannot sue the company for the return of the
loan. The securities given for such ultra vires
borrowings are also void and inoperative, and no
ratification can render the debt valid.
Borrowing intra vires of the company but ultra
vires of the directors
 In this case, the borrowings is within the powers of the company
but restrictions have been placed on the authority of the
directors to borrow. Borrowing ultra vires the directors, but
within the power conferred by the memorandum, is voidable
only and may be ratified by the company. If the borrowing is
ratified, the company becomes liable to repay the money.
Whereas such borrowing is not ratified by the company, the
remedies available to lender are :
1.
.
Doctrine of indoor management. By relying on the rule of
indoor management he can recover the amount of loan from
the company provided the borrowing was due to noncompliance with some internal regulations of the company.
2.
No notice for unauthorised business. A lender is deemed to
have notice of the limitations imposed by the memorandum
and articles on the borrowing powers of the directors. A
company can avoid the liability on the ground that borrowing
was known or deemed to be known to be ultra vires. But if
restrictions on the director's authority are secret or not obvious
from these documents, or otherwise the lender does not know
of it from some other source, the company will be bound.
 Further, the company shall not be liable for the unauthorised
borrowings of its directors if it can establish that the borrowing
was neither necessary not 'bonafide' or for the benefit of the
company but if a loan has not been taken in the name of the
company it will not be liable even if it has received some benefit.