1.    Concept

·       Doctrine of ultra vires deals with the consequences of actions which exceed to the limits which are mentioned in the MOA of the company.

·       MOA is the basic constitution and basic charter of the company that is the document which describe the scope of company action so that is the binding document of company.

·       So, if any actions exceed either by the any member of the company, its director or shareholder to the mention limit of MOA refers as the act of ULTRA VIRES.

2.    Meaning & word derivation.

         The expression ultra vires is the combination of two words

         Ultra and vires.

         Ultra ‘’meaning ‘’beyond

         And vires ‘’meaning ‘’ power

         So, ultra vires ‘’meaning ‘’ that beyond the power

3.    Definition.

  When company or the members of company either director or shareholder commit any action which exceeds to the authority of the MOA   then that is referred as Ultravires.

     4.    Purpose of doctrine of ultra vires.

1.    That protect the interest of shareholders

2.    That protect the interest of creditors

3.    That maintains check and balance on the working of the Director.

5.    Situation /condition for the implementation of doctrine of ultra vires.

·       The doctrine of ultra vires implement when

1.    When the any action are commit which beyond the object limit of the company which are mentioned in the MOA.

2.    WHEN the company or the director of the company commit any act or enter into any contract which exceed to the authority of MOA.

6.    Features of doctrine of ultra vires.

1.               1.  Fundamental rule of company law.

·       Doctrine of ultra vires acts as the fundamental rule of company law because that acts as in the result of the contravention of the MOA.

·       Because MOA is the basic constitution of the company which mentioned all the rights and liabilities of company and its members so if any contravention is happen against these mentioned limits than that’s discuss doctrine elaborate that what would be the penalties for the violators and steps taking against him so, that’s why act as the fundamental rule of company law.

 

2.              2. Relation between S.H AND B.O.D and company.

·       As doctrine of ultra vires implement as In the result of the contravention of the MOA and MOA is the major document of the company that deals with the relations ,dealings of the matters of company with its members and members to members [shareholder and board of director ]

·       So as implement in the result of the contravention of the MOA and as MOA deals with the relation between S.H AND B.O.D so that’s discussed doctrine also deals with such type of relations.

 

3.              3. Not binding on company /ultra vires contract is not bound.

·       The all ultra vires contract are made by the company either by company and its director is void and not binding on the company.

·       Logic.

Because that’s doctrine implement in as the result of the contravention /violation of the MOA which is the basic document /constitution of the company so if anything is against the constitution of the company then how that can be legal and binding on company .

4.             4.Ultra vires contract cannot be ratified.

·       The all ultra vires contract made by the company either by company or its director cannot be ratified by anyone in company otherwise in the result of the violation of MOA and the person who ratify that will be personally liable for his action and all possible consequences .

·       Logic.

·       Because that’s doctrine implement in as the result of the contravention /violation of the MOA which is the basic document /constitution of the company so if anything is against the constitution of the company then how that can be legal and ratify

5.Limit the company.

           Doctrine of ultra vires limit zed the company to do any act which is exceed to the object of the company which are specified in the MOA  of the company so, to attain this purpose perform 2 things .

1.    That restraint from the use of force for the other purpose which are not specified in MOA.

2.    And that restraint from carrying the trade which are not specified in MOA.

6.                 6. Protect investor.

·       In company investor are basically the shareholder who invest in the business of company to earn /gain profit as the result of the business of company

·       So to gain profit that is require that the object of business of company which are mentioned in MOA are followed otherwise that would be violation and consequences of loss

·       So, that’s doctrine of ultra vires protect the interest of investor in 2 ways.

1.    Firstly, if MOA business object violate then violator would be personally liable for all loss /consequences so the interest of investor are secure by such way.

2.    Secondly, due to fear of penalty no one violate the MOA business object of company so, ultimately the interest of investor keep secure.

7.                7.Protect the creditor.

           Creditors are those in company

         1. To whom the company takes loan in crisis.

         2. And to whom from which the company take loan to expend company business.

 So for the valid use of that taken loan is that it’s must be used in authorative activities not in un  authorative activities like against the  business object of company otherwise the doer are personally  liable so ,Doctrine of ultra vires protect the interest of creditor by 2 ways .

1.    Firstly, if the loans are used in UN authorative use the user are personally liable to bear all consequences like payment of loss to creditor so by such way that’s doctrine secure the interest of creditor.

2.    Secondly, due to fear of penalty no one used loan in UN authorities use and interest of creditor secure ultimately.

7. Penalty for Ultra vires.

Any directors of company who perform ultra vires are liable to penalty of level 3 on standard scale and personally liable for his ultra vires action.

8. Development of ultra vires.

1. Ashbury railway carriage and iron Co.LTD vs. Riche [1875].

A. facts.

·       in that case the object f company ‘’ Ashbury railway carriage and iron Co.LTD’’ is mentioned in the object clause of the memondurum of company which is that company ‘’ make and sell, or lend on hire railway carriages and wagons, and all kinds of railway plaint, fitting, machinery and rolling stock to carry on the business of mechanical engineers [work of manufacturing].

·       So, the director of company did /entered into contract to riches about of financing a construction of a railway line in Belgium.

·       And after making contract all members of company ratified the contract, but later on the company repudiated/end it.

·       And after the repudiation of contract riche sued the company for breach of contract.

B. issue.

The issue is arise.

Whether the contract was valid or if not valid so whether /does that could be ratified by the members of the company.

C.Decision.

·       The decision held that the contract was void because the object of contract was beyond the object limit of the company which is mentioned in the MOA of company.

·       And as the contract was void so how the company has the capacity to ratify the void contract.

2.Evans Vs. Brunner Mond AND company [1921].

 

A. facts.

·       in this case a company was incorporated /formed for carrying of the business relevant to the manufacturing of chemicals and that is mentioned in the object clause of the memondurum of the company that the company has the authority to do all such business and things for the achievements of its above mentioned objects .

·       so, the director of company pass the resolution in which give authority to distribute 100,000 /1 lakh pounds to the reserve accounts of the such universities of UK for the purpose of scientific research and education .

B. issue.

·       The issue arise that the resolution passed by the director its object are not mentioned in the MOA of company so that is ultra vires resolution.

·       The director proved that the company faced great difficulty in finding train men so the purpose of resolution to encourage the scientific training of more men so company would hold the trained staff and that helpful for company progress.

Decision.

The decision held that the resolution was not ultra vires because the expenditure which is authorized by the resolution was necessary for company progress [chemical manufacture] so passing resolution was necessary for attainment of its main object of company.

 

 

3. Attorney General vs. Mersey Railway Co. [1907]

A. facts

·       In that case there was the company which was incorporated /formed for carrying out the hotel business.

·       and that company made the contract with any 3rd party about of the purchasing of the some furniture ,hiring servants and for maintaing of omnibus

·       And such type of dealing of company like purchasing furniture etc. is not clearly mentioned in the object clause of the memondurum of the company.

 

B. issue

·       the issue arise that

The deal of director of about buy of such items is ultra vires or whether such transition is ultra vires.

C. decision.

·       the decisiosn held that as there is not any detail about of the such disputed transaction of the company re mentioned in the MOA of company and even though the object of company are to carrying out the hotel business

·       So such transition of buy furniture, hire servants and maintain omnibus to attend and receive the guest of hotel at railway station its seems reasonable and necessary to fulfill purpose /object of company.

·       Thus the transaction of company is not ultra vires.

 

8.   9. Legal consequences.

When proof that something is done against the given authority of MOA then doctrine of ultra vires implement.

1.    1.Injunction.

·       injunction ‘’meaning ‘’ to stop/restrain  something

·       So, when proof that something is done which is beyond the authority so that will be inject here by implementation of doctrine of ULTRA VIRES.

 

2.    2.Personally liability of directors.

and as director not perform its function within his given authority he exceed to his authority so now company would not liable he would be personally liable for his action consequences .

3.    3.Ultra vires contract.

·       so if any contract made by any director or company itself ,that contract personal liability impose on maker not on company because of this doctrine implementation .

·       because

1.    Ultra vires contract are void because of contravention of MOA.

2.    And ultra vires contract cannot be ratified because ratification itself the violation of MOA.

 

4. Acquire of property.

·       Here acquire ‘’meaning ‘’ purchase

·       Here, there are 2 consequences.

1.    Before payment.

So, if any director of the company buys any property by exceeding his authority and payment is not made of such buy property then that transaction can be simply cancelled by the company.

2.    After payment.

Here there are 3 consequences.

1.    Firstly, if director buy any property and payment can also be made the company can ratify such action and can hold property on its behalf.

2.    Secondly, not ratify the transaction so buyer would be personally liable about payment not company.

3.    But if that transaction is fraud ‘’ means made by director and company also involved so both parties would be liable.

 

 

 

 

5       5. Ultra vires torts.

Here there are two consequences.

1.    By good faith in official duty.

If the shareholder, director or the member of the company commit any tort /civil wrong in their official duty but in good faith so in that case company would be liable for their wrong.

2.    By bad faith in official duty.

If the shareholder, director or the member of the company commit any tort /civil wrong in their official duty but in bad faith then in that case they would be personally liable

9.   10. Conclusion.

after all of the above discussion we can conclude that doctrine of ultra vires play a vital role to regulate the affairs of company with its members and members to members by imposing personal liability on them because of their any exceed authority act so doctrine of Ultra vires is good to secure the interest of shareholder, creditor and maintain check and balance on company affairs.

 

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