Validity of Acts of Directors - Defacto Doctrine Comes to Rescue Subject to Conditions!

In order to be valid, the corporate power must be exercised by the board of directors which is validly constituted. Defects discovered in the appointment / re-appointment of directors could be cured. Acts of directors done in good faith would not get invalidated merely because of subsequent discovery of defective appointment. This law is based on the defacto doctrine contained in Section 291 of the Companies Act, 1956. A shareholder or director who discovers the defect and notifies the concerned, does not need to do anything more than mere but proper intimation in order to stop the mischief from continuing. In order to derive the benefit of this doctrine, it must be proved [when any act of a directors is challenged in a court of law] that (i) the act of the director under challenge was done in good faith for the benefit of the company and (ii) when the impugned act was done, the director in question and the other directors who allowed / approved the impugned act, were not aware of the defect discovered.