DOCTRINE OF ULTRA VIRES

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

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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