Doctrine of Ultra Vires

DOCTRINE OF ULTRA VIRES
Meaning :-
(a) Doctrine of Ultra Vires – is a fundamental rule of Co.

law
(b) Ultra means – “Beyond” and Vires means - “ Powers”
(c) Ultravires thus means – an act beyond powers
(d) Doctrine of Ultravires - means an act done beyond
the power and authority of the Co.
(e) The Purpose for which a Co. is formed – is provided
under the object clause of MOA
(f) A co. incorporated under Co. Act, 2013 – is
authorized to do things –
 Authorized by Co. Act, 2013
 Specified under object clause of MOA
 Any other –necessary for attainment of such
objects
(g) Doctrine of ultra vires :- An act of Co. :-

 must not be done beyond object clause
 if done beyond object clause –
 is void ( i.e. does not create any legal
relationship)
 cannot be ratified – even if the members
wish to ratify.
 In short is ultra vires the Co.
(h) Whether a particular Act of a Co. – is within

powers / not? – This is a question of fact and
decided on terms of MOA
An Ultra vires Act is different from Illegal Act /

Transaction :-
(1) Similarity :- Ultra Vires Act / Illegal Act both are void
(i.e. act that does not create any legal relationship)
(2) Dissimilarity :- Ultra vires act is any ct beyond object
clause. Such act can be legal / illegal both
However, Illegal Act – is an act which is against / not
in conformity with law.
Reason for Doctrine of Ultra Vires :-
The reason for which restrictions are imposed under

Doctrine is as follows :-
(1) For Investors / Shareholders of Co. :- to ensure such

Investors – to know the object for which their money
is to be employed
(2) For Creditors :- To ensure that the Co. funds are not
wasted in unauthorized
[Case law :- Ashbury Rly. Carriage & Iron Co. Ltd. v/s Riche
(1875) :-
Facts :-In this case the Co. was incorporated with following
objects :-
(a) to make, sell, or lend on hire, railway carraiges and
wagons;
(b) to carry on the business of mechanical engineers and
general contractors
(c) to purchase, lease, work and sell mines, minerals,
land and buildings.
Co. entered into contract with Riche – for financing
construction of a railway line in Belgium
All members of Co. – ratified the contract but later on
repudiated it
As a result – Riche sued Co. for breach of Contract
Question that was raised here was –
(a) Is the contract covered under meaning of General
Contractors
(b) Is Contract void
(c) Can the contracts be ratified by members of Co.
Judgement :- House of Lords held - Contract was ultra
vires the Co. and void
Hence even subsequent assent of the whole body of
shareholders cannot / has no power to ratify it.]
Effects of ultra vires transaction :-
(1) Injunction :-
 Injunction means temporary stay / stop
 If Co. commits ultra vires Act – any member of
Co. can get injunction from Court – to restrain
ultra vires act of Co.
 ( i.e. to restrain Co. from proceeding with such
Act)
(2) Personal Liability of Directors :-
 If any funds of the Co. – are diverted for the
purposes other than given object – then
Directors of the co. are liable for the Breach of
trust
[Note – this is also one of the duty of Directors of a Co. – to
ensure that funds of the Co. are used for the achievement of
objects (only for which Co. is incorporated)
(3) Breach of warranty of Authority :-
 When an Agent – exceeds his authority – such
agent is personally liable for Breach of
warranty of Authority in a suit by the 3rd party
 Directors are agents of a co. – must act within
limits of Co’s powers
 If Director/’s – induce a 3rd party to enter into a
contract with Co. . The contract being unltra
vires in nature – then the Directors in such case
will be personally liable to 3rd party for the loss.
(4) Ultra Vires acquired property :- If Co. has acquired
property under an ultra vires contract / transaction
then Co. has right -
 to hold that property
+
 protect it against damage by other persons
[ Case :- National Telephone Co. V/s Peter Pest Constables –
Facts :- Telephone Co. – placed telephone wires in certain

areas. However, Tel Co. had no power under MOA to put
wires there.
The Defendant cut the wires.
Judgement :- Co. could sue for the damage to the wires.]
(5) Ultra Vires Contracts :-

 A ultra vires contract of Co. – is void ab initio –
(i.e. has no legal effect)
 An ultra vires contract – cannot become intra
vires by reason of –
 Estoppel
 Ratification
 Lapse of time
 Time delay
 Any performance on either side – cannot give /
provide :-
 Unlawful contract any validity
 Be foundation of any right of action on it
(i.e. right to sue and be sued is not
available)
(6) Ultra Vires Torts :-

 Co. is not liable t civil wrongs / Torts –
committed by its servants during the course of
ultra vires transaction
 There are however- certain exception to the
above rule – (i.e. Co. is liable for the torts
committed by its servants) -
 If activity ( during the course of which it
was committed) – falls withi the scope of
MOA
 The servant committed torts in course of
his employment
EXCEPTION TO THE DOCTRINE OF ULTRA VIRES :-
(i.e. where ultra vires act are considered as Intra vires the
Co.)
(1) If act :-
 Is ultra vires the Directors of the Co.
 But intravires the Co.
Then – Co. may by consent ratify such act and
subsequently accept / adopt such Act.
[Note : can be Accepted / adopted :- either by

 By Ratification :- can be made by shareholders
+
can be made by passing resolution in general
meeting
 By Acquiescence (means reluctant acceptance
of something without opposition) – provided
they have a knowledge of facts relating to
transactions to be
(eg – BOD were authorized to invest upto 10 Crores.
However, BOD invested 12 Crores. This is beyond powers
but can be ratified by shareholders.
(2) If the Act is – ultra vires the Articles of the Co.

 Here Articles of the Co. can be altered to include
the act within the powers of the Co.
 (i.e. the Co. – can ratify such act by altering the
Articles by special resolution
 Provided such act can be validated by cnsent of
shareholders ( i.e. power to alter the Articles is
within the powers of the Co.)
(3) If Act is intra vires the Co. (i.e. within power of Co. )
but irregularly done – Here shareholders may ratify
such Act.
(4) If a Person – borrows money from Co. under ultra
vires contract then Co. may sue such person for
recovery.
(5) If Act is ultra vires the co. – then rights arising
independent of the Act (i.e. not related / free from
such Act) are not affected.
(6) If Co. purchase property / taken loan from 3 rd part
under ultra vires contract – In such case :- the 3 rd
party has right –
 To follow hs property / money
 Obtain injunction from Court – restraining the
co. from parting with the property / money
(7) If Co. takes ultra vires loan and uses it to pay intra
vires loan. The person who gave the loan under ultra
vires contract –
 Is substituted in place of Creditor who has paid
off
 Can as such recover the money
IMPORTANT POINTS TO NOTE :-
(1) Provision in case of conflict between MOA &

Provisions of co. Act, 2013:-
 Provided u/s 6
 Under this section any provision of MOA, AOA,
Agreement, Resolution is repugnant / contrary
to any provision of Co. Act, 2013 – is void
(whether passed before of after the
commencement of Co. act, 2013)
 (i.e. the provisions of the Co. Act, 2013 – shal
prevail
(2) Alteration of MOA / AOA must be noted in every
copy issued :-
 Provided u/s 5
 If Co. fails to do so then Co. + every officer in
default – is liable to –
 penalty of Rs 1000/- (for every copy f
MOA and AOA issued without such
alteration being noted / which is without
such alteration)

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DOCTRINE OF ULTRA VIRES

(a) Doctrine of Ultra Vires – is a fundamental rule of Co.

(g) Doctrine of ultra vires :- An act of Co. :-

(h) Whether a particular Act of a Co. – is within

An Ultra vires Act is different from Illegal Act /

Reason for Doctrine of Ultra Vires :-

The reason for which restrictions are imposed under

(1) For Investors / Shareholders of Co. :- to ensure such

Effects of ultra vires transaction :-

[ Case :- National Telephone Co. V/s Peter Pest Constables –

Facts :- Telephone Co. – placed telephone wires in certain

Judgement :- Co. could sue for the damage to the wires.]

(5) Ultra Vires Contracts :-

(6) Ultra Vires Torts :-

EXCEPTION TO THE DOCTRINE OF ULTRA VIRES :-

[Note : can be Accepted / adopted :- either by

(2) If the Act is – ultra vires the Articles of the Co.

(1) Provision in case of conflict between MOA &

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