Applicability of Doctrine of Ultra Vires on Companies
20 Pages Posted: 27 Feb 2010
Date Written: February 25, 2010
In this Paper, we endeavour to discuss the intricacies involved in doctrine of ultra vires vis-à-vis Company Law. The areas that we shall discuss are viz. origin and establishment of the doctrine, whether investors and creditors are protected by this doctrine‘ We shall also deal with as to how this doctrine is ascertained.
The research shall also include effect of ultra vires transactions, liability of the directors and exceptions to this doctrine with the help of decided case laws. The paper also focuses on the comparison between English Law and Indian Law regarding the doctrine of ultra vires.
The object clause of the Memorandum of the company contains the object for which the company is formed. An act of the company must not be beyond the objects clause, otherwise it will be ultra vires and, therefore, void and cannot be ratified even if all the members wish to ratify it. This is called the doctrine of ultra vires, which has been firmly established in the case of Ashtray Railway Carriage and Iron Company Ltd v. Riche. The expression “ultra vires” consists of two words: ‘ultra’ and ‘vires’. ‘Ultra’ means beyond and ‘Vires’ means powers. Thus the expression ultra vires means an act beyond the powers. Here the expression ultra vires is used to indicate an act of the company which is beyond the powers conferred on the company by the objects clause of its memorandum. An ultra vires act is void and cannot be ratified even if all the directors wish to ratify it. Sometimes the expression ultra vires is used to describe the situation when the directors of a company have exceeded the powers delegated to them. Where a company exceeds its power as conferred on it by the objects clause of its memorandum, it is not bound by it because it lacks legal capacity to incur responsibility for the action, but when the directors of a company have exceeded the powers delegated to them. This use must be avoided for it is apt to cause confusion between two entirely distinct legal principles. Consequently, here we restrict the meaning of ultra vires objects clause of the company’s memorandum.
Keywords: doctrine of ultra vires, ultra vires, companies law, company, law, legal, business law
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