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Affluence

The expression “ratification” was precisely defined by the English Court in one old case, Hartman v. Hornsby as under “Ratification” is the approval by act, word, or conduct, of that which was attempted (of accomplishment), but which was improperly or without proper authority performed in the first instance.”

The concept of Ratification is derived from Legal Maxim Omnis ratihabitio retrorahitur et mandato priori aequiparatur”, which means that every ratification is dragged back and treated as equal to a command or previous authority. In simple terms, it means that the Doctrine of ratification comes into the picture if a person has done something on behalf of another person without any authority, knowledge, or consent, then if such “other person” ratifies the same, then the same result would come as if the act was done on his own.

In the Context of Companies Act, 2013, Ratification is a procedure through which an irregularity in the running of the company is sanctioned by the shareholders and a director is absolved from his/her personal liability to the company arising from a breach of duty. However, shareholders can ratify only certain kinds of breaches; this means adopting, where a director lacked authority to transact on behalf of the company, or affirming, where a transaction entered into by a director was voidable. Certain breaches such as fraud committed by administrators, however, are non-ratifiable breaches. Ratification in order to be effective can only be by an authority that is in existence on the day the transaction was entered into and it should also be competent to ratify.

The provisions of ratification can be traced in the following sections of the Companies Act, 2013:

  • Section 173 – Meetings of the Board of Directors: A meeting of the Board shall be called by giving not less than seven days‘ notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means. Provided that a meeting of the Board may be called at shorter notice to transact urgent business subject to the condition that at least one independent director if any, shall be present at the meeting. Provided further that in case of absence of independent directors from such a meeting of the Board, decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director, if any.
  • Section 188- Related Party Transactions: Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a resolution in the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board and if the contract or arrangement is with a related party to any director, or is authorized by any other director, the directors concerned shall indemnify the Company against any loss incurred by it.

The Court has interpreted the word “ratification” through its various judgments in the cases such as:

  • Parmeshwari Prasad Gupta vs The Union Of India in which the Supreme Court has held that though the telegram and the letter of the chairman terminating the services of the appellant were in pursuance of an invalid resolution, the subsequent resolution passed by the board confirming the action of the chairman amounted to ratification by the board of the action of the chairman. The Supreme Court observed that “Ratification is related back to the date of the act ratified.”
  • It can also be observed from Maharashtra State Mining Corporation vs Sunil S/o Pundikaro Pathak, that the Managing Director’s order dismissing the respondent from the service was admittedly ratified by the Board of Directors in a validly held Board Meeting, and the Board of Directors unquestionably had the power to terminate the services of the respondent. On the basis of the authorities noted, it must follow that since the order of the Managing Director had been ratified by the Board of Directors such ratification related back to the date of the order and validated it.
  • The most recent case of Terrascope Ventures Limited vs. SEBI was the one in which the SAT observed that the expression “Ratifies/ratification means making valid of an act already done. It further stated that the ratification is done by Special Resolution on September 29, 2017, approved the acts and deeds of the Company which were improperly done or performed in the first instance and, therefore it was incorrect on the part of the AO to hold that passed illegal acts or deeds cannot be legitimized by subsequent ratification by passing a resolution by the shareholders of the Company.” SAT observed that once the utilization of the proceeds has been ratified by the shareholders of TVL, the acts and deeds done become valid and authorized and therefore there was no variation in the utilization of the proceeds. SAT observed that the show cause notice alleging variation in the utilization of the proceeds was, thus, erroneous.
  • In the case of Rajendra Nath Dutta and Ors. vs Shibendra Nath Mukherjee And Ors, the learned counsel argued that the execution of the document by the managing directors, without the common seal, is an ultra vires act and a subsequent resolution cannot ratify it.  Based on this argument the court further held that “while an act which is ultra vires the company is incapable of ratification, an act which is intra vires the company but outside the authority of the directors may be ratified by the company in proper form.”

Conclusion:

Hence from the above-mentioned provisions and case laws, it can be concluded that acts, deeds, and decisions which are subject to ratification are voidable in nature. Ratification clearly says that where acts are done by one person on the behalf of another, but without his knowledge or authority, he may elect to ratify or disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority. Moreover, in an act which is Ultra Vires the directors of the company can be ratified by the Shareholders. If it is Ultra Vires the Articles of Association of a Company then it can be ratified by a special resolution. However, an act Ultra Vires the Company i.e. which is not authorized in the Memorandum of Association or the Statute of a company cannot be ratified even by unanimous consent of shareholders. Ratification can only be done on the acts which can be made valid or binding by the authority. 

Disclaimer: This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. This article cannot be relied upon to cover the specific situation and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Affluence Advisory Private Limited to discuss these matters in the context of your particular circumstances. Affluence Advisory Private Limited, Its Partners, Directors, Employees, and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.

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  • 01
    Valuation

    Valuation opinion requires the right blend of analysis, experience and professional judgement. Our team has a Registered Valuer as required under

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  • 02
    Due Diligence

    We provide financial, tax and corporate law due diligence support to our clients for inbound and outbound transactions.

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  • 03
    ESOP

    ESOPs are one of the important tools to attract and retain employees and have long term career with the organization.

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    RBI / FEMA Compliance

    There are several compliances specified under FEMA for Indian Companies having FDI and ODI (Indian entities having investments in overseas Joint Venture

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    We carry experience of 15 years for registration of the NBCF with the RBI or carry out the process for change in management and control of the NBFC.

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    Fintech

    FinTech Companies are broadly categorized into digital payments or digital lending Companies. At Affluence,

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    Foreign Entities

    India has emerged as one of the most attractive destinations not only for investments

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    Company Secretarial Compliances

    We provide the entire gamut of Corporate Law Services, essential in rapidly changing regulatory and corporate environment.

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    SEBI Registration and Compliances

    SEBI plays an important role in regulating all the players operating in the Indian capital markets. It attempts to protect the interest of investors and aims at

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    Stressed Asset Resolution under IBC

    We provide advisory and support services to the corporates/other entities, devising and structuring solutions for stress mitigation in their enterprises/units.

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    Initial Public Offer

    On the journey of transformation of a private company into a public company, success depends a great deal on a coordinated team

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    Direct Tax

    The efforts of any management in modern business environment are towards enhancing a shareholder’s value. The taxes (both direct and indirect) and

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    Indirect Tax

    We at Affluence, adopt a comprehensive approach for implementation and compliances related to the GST and with an object to offer seamless services to our clients listed below.

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    Accounts Outsourcing

    In the fast-changing environment, procuring and retaining skilled staff is a challenge. Specially in the case of SMEs, in the absence of accounting manual

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    Risk Advisory

    Today’s businesses across the globe increasingly seek better decision-making and stronger internal controls in order to attain greater shareholder value.

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    Startup and MSME Advisory

    ‘Startup India’ is a flagship initiative of the Government of India, intended to catalyze startup culture and build a strong and inclusive ecosystem for innovation and

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    Assurance

    Assurance and accounting services are directed towards supporting stakeholders such as lenders and investors. Our standardized

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    Directors Due Diligence

    Director stand in a fiduciary position with the Company and Director will be held liable if Director do not act diligently in discharging his/her duties.

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People are our greatest asset and we believe in our people. Our multi disciplinary team would always go that extra mile to ensure that all the client deliverables are prepared within agreed time frame to technical standards and presentational quality. Our success is greatly dependent on quality and performance of our people.

  • CA Nimish Khakhar

    Nimish Khakhar

    He is a fellow member of the Institute of Chartered Accountants of India. He has over 23 years of experience in Transaction (M &A) and Transaction Support Services (Vendor and Buyer side Due Diligence). His Portfolio includes both Brick and Mortar and Modern Trade Businesses. He has played key roles in a few large M & A transactions and is also been actively involved in advising Unicorns since the commencement of operations.

  • CS S. N. Baheti

    S. N. Baheti

    He is an Associate Member of the Institute of Company Secretaries of India. He has 42 years of work experience in banking and financial services (including 34 years in IDBI group), with a diversified work profile having all-round exposure to activities of Development Financial Institutions, Infrastructure Debt Fund (NBFC), Mutual Funds, Commercial Banking, NBFC-HFC, and Company Boards including MD and CEO positions and Directorships in large corporates. Presently handling assignments as Insolvency Professional. He has played a key role as RBI representative in the resolution of one of the largest NBFC transaction.

  • Sanjiv Kumar Sachdev

    Sanjiv Kumar Sachdev

    Banking professional with more than 36 years of experience in Bank and more than 25 years of experience in Project Evaluation and financing, Financial Restructuring, Resolution of Stress Accounts, Debt Syndication, Infrastructure projects, Relationship management & networking, Business development, Legal and contractual Documentation and Business Planning. During his tenure with the Bank, he had held important portfolio’s and was heading Large Corporate Group of the Bank. He also worked in Infrastructure Corporate Group for Northern Region. He was involved in various policy meetings for development of Infrastructure Projects organised by various Govt agencies and Indian Banks’ Association. He has been Chairing many consortium meetings of Lenders for Debt Syndication as well as Resolution of Stress Assets.

  • CA Dwiresh Oza

    Dwiresh Oza

    He is having 27 years of extensive professional experience in Corporate Finance, Project Finance, Private Equity, Public/Rights Issues, Due Diligence, Corporate Debt Restructuring (CDR), ERP implementation, 50:50 International Joint Venture, Closely held as well as Listed Manufacturing Accounting, Statutory/Internal/Tax Audit and knowledge of IFRS. Have worked for more than 10 years in Infrastructure, viz. Ports and roads. Have demonstrated the ability to work across teams and with the senior management and Board of Directors in achieving various strategic initiatives on a time-bound and structured approach.

  • CA Payal Gada

    Payal Gada

    She is a fellow member of the Institute of Chartered Accountants of India and has 18 years of post-qualification experience. She is a registered valuer with IBBI as Valuation Professional and for the last 8 years, she is working on financial modeling and fair value analysis across different industries for diverse purposes, including regulatory/compliance, investment, and financial reporting. Fair valuation across asset classes including but not limited to business valuation, intangible, ESOPs, convertible instruments, and other complex instruments.

  • CA Rashmi Dubey

    Rashmi Dubey

    She is an associate member of the Institute of Chartered Accountants of India. Over 6 years of post-qualification experience she has specialized in Risk Advisory. Her Risk Advisory experience includes internal audit, ICFR, designing of SOPs, corporate governance, enterprise risk management, internal audits.

  • CS Sachin Kotian

    Sachin Kotian

    He is a fellow member of the Institute of Company Secretaries of India. Over 15 years of experience, he has expanded his advisory and compliance services in respect of Companies Act/ SEBI / RBI / FEMA /NBFC and other Corporate Laws. Further, Research is his area of interest.

  • CS Rajeshri Kanojia

    Rajeshri Kanojia

    She is an associate member of the Institute of Company Secretaries of India with 10 years of experience in secretarial compliance and legal matters. Her forte is RBI and FEMA compliances and she is leading advisory and compliances practice of financial services which includes NBFC and Fintech Companies. Her LLB qualification gives her an edge to attend Corporate agreements and Corporate Laws.

  • CS Vinesh Mestry

    Vinesh Mestry

    He is an associated member of the Institute of Company Secretaries of India. His horizon for more than 7 years in the field of Corporate Law and adjudication-related matters before Regional Directors, NCLT. His LLB qualification gives an additional advantage in matters relating to Compounding, Mergers & Amalgamations before Regional Directors, NCLT & Other Regulatory Authorities.

  • CS Bhavesh Chheda

    Bhavesh Chheda

    He is an associated member of the Institute of Company Secretaries of India. He has experience of more than 8 years and focuses on BSE and NSE Listed Companies and SEBI and Corporate Governance related matters. He also supports the compliance team in respect of Companies Act / RBI / FEMA / Corporate law.

  • CS Tanvi Shah

    Tanvi Shah

    She is an associate member of the Institute of Company Secretaries of India. Over 5 years of post-qualification experience, she focuses on Compliances of Companies Act/RBI/ and NBFC.

  • CS Karishma Parmar

    Karishma Parmar

    She is an associate member of the Institute of Company Secretaries of India. Her interest is in Compliances of Company Law/RBI and NBFC.

  • CA Ambarish Sodha

    Ambarish Sodha

    He is a fellow member of the Institute of Chartered Accountants of India. Over 43 years in direct tax litigation and tax advisory services, he appears before first and second appellate authorities. Over and above Profession, he is actively engaged in several social causes including promoting girls’ education in rural areas.

  • CA Payal Khakhar

    Payal Khakhar

    She is a fellow member of the Institute of Chartered Accountants of India. She has experience with over two decades. She heads indirect tax practice that covers regular GST compliances, GST reviews, and advisory services across different sectors.

  • CA Tejas Sodha

    Tejas Sodha

    He is a fellow member of the Institute of Chartered Accountants of India. He handles Direct tax litigation and compliance for over 12 years and regularly appears before first and second appellate authorities. He advises NRI on direct tax and withholding tax matters. His involvement in complex tax structuring has been appreciated by the Clients.

  • CA Dipesh Sangoi

    Dipesh Sangoi

    He is a fellow member of the Institute of Chartered Accountants of India. He heads Assurance practice and handles listed as well as unlisted companies and MNCs over the last 15 years. He manages Statutory Audits, Bank Audits - Central Statutory and Branch Audits, and Certification work for obtaining Bank Finance and certificates required for Public Issues.

  • CA Payal Doshi

    Payal Doshi

    She is a member of the Institute of Chartered Accountants of India. Her 10 years of experience is channelized towards Statutory Audits of Listed as well as unlisted entities and Tax Audits and Certification work.

  • CA Viral Shah

    Viral Shah

    He is a member of the Institute of Chartered Accountants of India. He has experience of more than 7 years and he is involved in Statutory Audits of Listed as well as Unlisted entities and Tax Audits and Bank Audits.

  • CA Ritesh Jain

    Ritesh Jain

    He is a member of the Institute of Chartered Accountants of India. He is engaged in compliance and management support functions. His industry experience contributes significantly to his delivery.

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