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Mumbai University · FY LLB · Sem II
Doctrine of Ultra Vires
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Doctrine of Ultra Vires
Q2Short NotesAttempt Any Two • 6 marks each • Total: 12 marks2025
(d)Doctrine of Ultra Vires

Meaning

Ultra vires (Latin: "beyond the powers") describes any act done by a company which is beyond the scope of powers conferred by the objects clause of its Memorandum of Association. Such an act is void ab initio and cannot be ratified even by a unanimous resolution of all shareholders.

Origin — Leading Case

Ashbury Railway Carriage & Iron Co. v. Riche (1875) — The company's objects clause permitted manufacturing and selling railway wagons. Its directors contracted to build a railway in Belgium. The House of Lords held the contract was ultra vires the objects clause and therefore void. Ratification by shareholders was not possible.

Consequences of Ultra Vires Acts

  1. Void ab initio: The act is void and unenforceable by or against the company.
  2. Injunction: Any shareholder may obtain an injunction from a court to restrain the company from performing an ultra vires act.
  3. Directors' personal liability: Directors who authorised an ultra vires act are personally liable for any loss caused to the company.
  4. No ratification: Even a unanimous resolution of all shareholders cannot make an ultra vires act valid.
  5. Recovery of property: If company money was transferred for an ultra vires purpose, shareholders or the liquidator can recover it.

Distinction from Related Concepts

ConceptMeaningEffect
Ultra vires the companyBeyond the objects clause of MoAVoid; not ratifiable
Ultra vires the directorsBeyond directors' authority but within company's powersVoidable; ratifiable by shareholders
Ultra vires the ActViolates a mandatory provision of the Companies ActVoid; creates statutory penalty

Position under Companies Act 2013

The rigour of the doctrine has been somewhat reduced. Under Section 4(1)(c), the memorandum must state the objects of the company, but the objects clause can now be stated broadly. Alteration of objects is permitted by special resolution under Section 13. Nevertheless, acts that fall outside the objects clause remain ultra vires and void. Under Section 245, members may bring a class action before the NCLT to restrain ultra vires acts.

Justification of the Doctrine

The doctrine protects shareholders (who invest money for specific purposes) and creditors (who extend credit based on the company's stated activities). It prevents companies from secretly deviating from their declared objects and using shareholder funds for unauthorized purposes.