How far the acts of a Director,wil,1 be valid, if his appointment is not valid

Section 290 provides that the acts done by a person as a director shall be valid inspite of the fact that his appointmnt may afterwards be

discovered to be invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in the Companies Act or in the

Articles.

The aforesaid provision is designed to protect persons dealing with the company such as creditors and purchasers of shares and debentures.

Acts of a Director will not be valid: Section 290, however, does not apply to an appointment, which is from the very beginning illegal or no appointment at

all. It will not apply to the case of a director, whose term of office has expired but who wrongly continues to act as such director. It does not apply where a

director from the very beginning knew that his appointment was defective.

The effect of Section 290 may be summarised as follows: (a) A party to a transaction may rely on the Section if he does not know of any

irregularity in the appointment of a director.

(b) If the parties knew the facts but the defect was not present in their minds at the time of transaction, this Section will validate the

(c) transaction. Mere

(c)

knowledge of facts constituting the defect is immaterial [Kamal Distillery Co. vs. Ladli Pd. AIR 1960 Pimj. 655].

(c) If a person is put to an enquiry but fails to enquire, he cannot take advantage

of this Section.

(d) A transferee from a party to the transaction is not protected by the Section if

the transferor was not entitled to the protection of this Section.

(e) An act done by a director shall not be valid after his appointment has been shown

to the company to be invalid or to have terminated (proviso to Sec. 290).

The proviso doesn’t require that the invalidity must be established in a Court of Law. If the irregularity constituting invalidity is brought to the notice of the

director or the company that will satisfy the requirements of the proviso [Charterbridge Corprn. Ltd. v. Lloyds Bank Ltd. (1970)].

if) The Section does not validate the acts of persons such as the managing director, manager or secretary [Varkey Souriar vs. Keraleeya Banking Co. Ltd.

(1957) 27 Compo Cas. 591].”

(g) It does not validate an ultra-vires act.