(12.10.3) Borrowing Intra Vires the Company but Ultra vires the Directors

If the borrowing is in excess merely of the power of directors but not of the company, e.g., where the articles provide that the directors shall have power to borrow only upto Rs 2,00,000 and for borrowing beyond this amount prior approval of the shareholders in general body meeting must be obtained any borrowing beyond Rs 2,00,000 without shareholders’ approval (i.e., ultra vires the directors) can be ratified and rendered valid by the company. If ratified, the loan shall become perfectly valid and binding upon the company. However, even where the company refuses to ratify the directors’ act, the 'doctrine of indoor management' shall protect a lender provided he can establish that he advanced the money in good faith. The company may in turn proceed against the directors and claim indemnity.