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 object clause
otherwise it will be ultra vires and therefore, void and cannot be ratifed even if all the
member wish to ratify.
In Ashbury Railway Carriage and Iron Company td v. Riche, !"#$%& .R. $ '.. (%)., In
thiscase, the objects of the company as stated in the objects clause of its memorandum,
were *to ma+e and sell, or lend on hire railway carriages and wagons, and all +inds of
railway plaint, fttings, machinery and rolling stoc+ to carry on the business of
mechanical engineers and general contractors to purchase and sell as merchants timber,
coal, metal or other materials, and to buy and sell any materials on commissions or as
agents.- The directors of the company entered into a contract with Riches for fnancing a
construction of a railway line in .elgium. All the members of the company ratifed the
contract, but later on the company repudiated it. Riche sued the company for breach of
contract.
Doctrine of Constructive Notice
The /emorandum and Articles, on registration, assume the character of public
documents. The o0ce of the Registrar is a public o0ce and documents registered there
are open and accessible to the public at large. Therefore, every outsider dealing with the
company is deemed to have notice of the contents of the /emorandum and Articles. This
is +nown as Constructive Notice of /emorandum and Articles.
1nder the doctrine of constructive notice, every person dealing or proposing to
enter into a contract with the company is deemed to have constructive notice of the
contents of its /emorandum and Articles. 2hether he actually reads them or not, it is
presumed that he has read these documents and has ascertained the e3act powers of
the company to enter into contract, the e3tent to which these powers have been
delegated to the directors and the limitations to such powers. 'e is presumed not only to
have read them, but to have understood them properly. Conse4uently, if a person enters
into a contract which is ultra vires the /emorandum, or beyond the authority of the
directors conferred by the Articles, then the contract becomes invalid and he cannot
enforce it, not5withstanding the fact that he acted in good faith and money was applied
for the purposes of the company.
Doctrine of Indoor Management
According to this doctrine, after satisfying themselves that the proposed transaction is
intra vires the memorandum and articles, persons dealing with the company are not
bound to en4uire whether the internal proceedings were correctly followed. They are
entitled to assume that the internal proceedings relating to the contract are regular as
per the memorandum and articles. 2hen an outsider enters into a contract with the
company, he is presumed to have +nowledge of the provisions of memorandum and
articles as per the doctrine of constructive notice. .ut he is not re4uired to go beyond
that and to en4uire whether the internal proceedings re4uired by these documents have
been regularly followed by the company. They need not en4uire whether the necessary
meeting was convened and held properly or whether necessary resolution was passed
properly. They are entitled to ta+e it for granted that the company had gone through all
these proceedings in a regular manner. This is +nown as the Doctrine of Indoor
Management.
The doctrine of indoor management was frst propounded by ord 'atherlyin the
celebrated case Royal British Bank vs. Turquand. The directors of the .an+ had issued a
bond to Tur4uand. The company was empowered by its Articles to issue such bonds
provided it was authori6ed by a resolution of the company in general meeting. In this
case no such resolution had been passed. It was held that Tur4uand could recover the
amount of bond from the company on the ground that he was entitled to assume that
the necessary resolution had been passed by the company.
7o beneft under the doctrine of indoor management can be claimed by a person
under the following circumstances8
2here a person dealing with the company has actual or constructive notice of any
irregularity in the internal proceedings of the company.
2here a person did not in fact consult the /emorandum and Articles of the
company and conse4uently did not act on +nowledge of these documents.
2here a person dealing with the company was negligent and, had he not been
negligent, could have discovered the irregularity by proper en4uiries.
2here a person dealing with the company relies upon a forged document or the
act done by the company is void.
2here a person enters into a contract with an agent or o0cer of the company and
the act of the agent9o0cer is beyond the authority granted to him
Lifting of Corporate Veil
:rom the juristic point of view, a company is a legal person distinct from its members
;<alomon v. <alomon and Co. td. !"#=$& A.C >>?. This principle may be referred to as the
*@eil of incorporation-. The courts in general consider themselves bound by this principle.
The eAect of this Brinciple is that there is a fctional veil between the company and its
members. That is, the company has a corporate personality which is distinct from its
members. .ut, in a number of circumstances, the Court will pierce the corporate veil or
will ignore the corporate veil to reach the person behind the veil or to reveal the true
form and character of the concerned company. The rationale behind this is probably that
the law will not allow the corporate form to be misused or abused. In those
circumstances in which the Court feels that the corporate form is being misused it will rip
through the corporate veil and e3pose its true character and nature disregarding the
<alomon principal as laid down by the 'ouse of ords. .roadly there are two types of
provisions for the lifting of the Corporate @eil5 Cudicial Brovisions and <tatutory Brovisions.
Cudicial Brovisions include :raud, Character of Company, Brotection of revenue, <ingle
Dconomic Dntity etc. while <tatutory Brovisions include Reduction in membership,
/isdescription of name, :raudulent conduct of business, :ailure to refund application
money, etc. This article at frst introduces to the readers the concept of E@eil of
incorporationF, then it e3plains the meaning of the term5*ifting Gf The Corporate @eil-, it
then points out the Cudicial as well as the <tatutory provisions for ifting of The Corporate
@eil with the help of various case5laws.