What was the central issue?

Whether a ₹2 lakh donation by the insurer-company was within its objects or ultra vires, and if LIC could recover it under Section 15(1)(a) of the LIC Act.

What did the Supreme Court hold?

The donation was ultra vires. Acts not essential or incidental to the company’s objects are void and cannot be ratified.

Can Articles expand the company’s objects?

No. Articles cannot enlarge the Memorandum. At best, they explain ambiguous terms; they do not extend scope.

Are directors personally liable for ultra vires payments?

Yes. Those responsible must make good the company’s money unlawfully disbursed.

What principle about MOA reading was emphasized?

Read the Memorandum fairly and reasonably. Only acts essential or incidental to its objects are valid.

Lakshmanaswami Mudaliar v. LIC, AIR 1963

Lakshmanaswami Mudaliar v. LIC, AIR 1963 SC 1185

Ultra vires donation, company objects, directors’ liability, and LIC’s recovery power under Section 15(1)(a).

Supreme Court of India 1963 (Decision) Bench: — Citation: AIR 1963 SC 1185 Area: Company Law Reading time: ~7 min

Author: Gulzar Hashmi | Location: India | Published: 23 Oct 2025

Quick Summary

An insurer-company proposed a donation of ₹2 lakhs. After nationalisation, LIC asked to recover this money. The Supreme Court said: the donation was ultra vires (outside the company’s objects). Such payments are void. Directors who approved it must make good the loss.

Ultra Vires Donation Company Objects MOA & AOA Supreme Court

Issues

Ultra vires: Was the ₹2 lakh donation within the company’s objects or beyond them?
Recovery: Could LIC recover such payment under Section 15(1)(a) of the LIC Act?
Directors’ liability: Are directors personally liable for ultra vires payments?

Rules

Ultra vires doctrine: An act is void if it is not essential or incidental to the objects in the Memorandum of Association (MOA).
No ratification: A void ultra vires act cannot be cured even by unanimous shareholder consent.
MOA vs AOA: Articles cannot enlarge MOA objects; they may explain, not extend.
LIC Act s.15(1)(a): Payments not reasonably necessary for controlled business can be recovered.

Facts (Timeline)

EGM Resolution: United India Life Assurance Co. resolved to donate ₹2,00,000.

1 July 1956: Life Insurance Corporation Act came into force; assets/liabilities of controlled business vested in LIC.

LIC’s Power: Section 15(1)(a) allowed relief for payments not reasonably necessary for controlled business.

Application: LIC sought recovery of the ₹2 lakhs, calling it ultra vires and unnecessary.

Tribunal: Ordered restoration of ₹2 lakhs.

Appeal: Special leave to the Supreme Court was filed against the tribunal decision.

Timeline of events in Lakshmanaswami Mudaliar v. LIC

Arguments

Appellants

Donation was permissible as a corporate act and within general powers.
Articles and shareholder approval supported the payment.
The payment benefited goodwill and was not improper.

Respondent (LIC)

Donation did not serve the company’s life insurance objects; thus ultra vires.
Under s.15(1)(a), such non-essential payments must be restored.
Articles cannot expand MOA; shareholder assent cannot validate a void act.

Judgment

The Supreme Court upheld LIC’s claim. The ₹2 lakh donation was ultra vires the company’s objects. A void act cannot be ratified. Directors who approved the payment are personally liable to make good the amount.

Essentials only: Acts must be essential or incidental to the MOA objects.
No enlargement: Articles and shareholder resolutions cannot enlarge MOA scope.
Recovery: Section 15(1)(a) allows restoration of such payments to LIC.

Judgment outcome in Lakshmanaswami Mudaliar v. LIC

Ratio Decidendi

Ultra vires acts are void and non-ratifiable. Only acts essential or incidental to the MOA objects are valid. AOA cannot extend MOA; directors are accountable for ultra vires disbursements.

Why It Matters

Protects shareholders and policyholders from unauthorized spending.
Clarifies the boundary between MOA and AOA.
Sets director liability for ultra vires payments.

Key Takeaways

MOA governs: Only essential/incidental acts to objects are valid.
Void ≠ ratifiable: Ultra vires acts cannot be cured by consent.
Directors pay: Those approving ultra vires payments must restore funds.

Mnemonic + 3-Step Hook

Mnemonic: “MOA Means Only Allowed.”

MOA: Read objects fairly and strictly.
Only: Essential or incidental acts pass.
Allowed: Others are void; directors must repay.

IRAC Outline

Issue: Is the ₹2 lakh donation within company powers and can LIC recover it?

Rule: Ultra vires acts (beyond MOA objects) are void, non-ratifiable; AOA cannot enlarge MOA; s.15(1)(a) enables recovery.

Application: Donation not essential/incidental to life insurance business; resolutions/articles cannot validate it; LIC may seek restoration.

Conclusion: Donation ultra vires; amount recoverable; directors liable.

Glossary

MOA: Memorandum of Association; defines company objects and powers.
AOA: Articles of Association; internal rules; cannot extend MOA objects.
Ultra Vires: Beyond powers given by law or MOA; such acts are void.
Section 15(1)(a) LIC Act: Allows relief for payments not reasonably necessary for controlled business.