By Mir Dastagir Ali Khan – A30601910053, Business Law, MBA 2nd Semester, Batch (2012), Amity Global Business School.

DOCTRINE OF ULTRA VIRES

WHAT POWERS DOES A COMPANY HAVE?

A “COMPANY” has the powers to do all such things as are:

Authorized to be done by the “Companies Act, 1956”.

Essentials to the attainment of its objects specified in the Memorandum.

Reasonable & fairly incidental to its objects.

DOCTRINE OF ULTRA VIRES “ULTRA” means “BEYOND” & “VIRES”

means “POWERS”.

The term “Ultravires” for a company means that the doing of such a act is beyond the legal power & authority of the company.

If a company performs such a act or list of acts which are not in line with the companies act 1956 they are punishable under law.

WHY DOCTRINE OF ULTRAVIRES?

The purpose of these restrictions are: Investors in the company would get to

know the objects in which their money is being invested.

Ensuring the creditors that their money which is taken care by the company are not being wasted in any unauthorized activity.

ULTRA VIRES ACT IS VOID Any act done by the company in due course of

the business which is “Ultravires” in nature does not establish any legal relationship.

Such an act or all such acts are void from the start and cannot be ratified by the body of shareholders and make it binding on the company.

Another important point is any act which is to be considered as “Ultravires” must be “illegal” in nature.

CASE LAW: ASHBURY RLY CARRAIGE & IRON CO. LTD V. RICHE

A company was incorporated with the following objects:

To make, sell, or lend or hire, railways carriages & wagons.

To carry on the business of mechanical engineers & general contractors.

To purchase, lease, work, sell mines, minerals, land & buildings.

CASE LAW – CONTD The company entered into a contract with

Riche for the financing of the construction of a railway line in Belgium.

The question raised was whether that contract was covered within the meaning of “General Contractors”.

The House of Lords held that the contract was Ultra Vires the company & void so that not even the subsequent assent of the whole body of shareholders could ratify them.

MAIN POINT – DOCTRINE OF ULTRAVIRES

The main point and fact of the doctrine of Ultra Vires is that a company being a corporate person should not be mulcted (Fined or Punished) for its own acts or acts done by the Agents, if they are beyond its powers & privileges.

Case Law: National Telephone Co v. St Peter Port Constables: A telephone company put up telephone wires in a certain area. The company had no power in the Memorandum to put up wires there. The defendants cut down them down.

Held: The company could sue for damages to the wires.

ULTRA VIRES – DIRECTORS & IN THE ARTICLES

In case of Directors: An act or transaction is Ultra Vires the directors (i.e., beyond their powers, but within the powers of the company), the shareholders can ratify it by a resolution in a general meeting.

If an act is within the powers of the company, any irregularities may be cured by the consent of the shareholders [Express Engg. Works Ltd].

IN THE ARTICLES

In case of Articles: If an act or transaction is Ultra Vires the articles, the company can ratify it by altering the Articles by a special resolution.

Again if the act is done irregularly, it can be validated by the consent of the shareholders provided it is within the powers of the company.

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