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Question
Study the following case/situation and express your opinion.
Mr. A entered into a contract with Star Limited company and as advance payment gave a cheque of ₹ 1 lac to a Director Mr. Sam. Mr. Sam is not the Managing Director. Articles state that only the MD is authorized to sign any contracts or receive any payments on behalf of the company.
- Did Mr. Sam have the authority to accept the cheque? Why?
- Can Mr. Sam’s action be called as Ultra Vires? Why?
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Solution
- Mr. Sam does not have the authority to accept the cheque from the outside party because Mr. Sam although a director but not a managing director of the company. As per' the provisions made in the articles only managing director has the authority to sign contracts and receive any payment.
- Mr. Sam’s action can be called ultra Vires because accepting a cheque of Rs 1 lac, by a director Mr. Sam, is an act beyond the scope and authority or power of articles of the company.
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