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