UMMARA MUSTAFA

HANDOUTS:-
DOCTRINE OF ULTRA VIRES:-
The Memorandum of Association defines the scope of the company’s activities and its
relations with the outside world. The memorandum of association of a company contains
the objects of the company which it shall pursue. It not only shows the objects of
formation of the company but also determines the scope of its operations beyond which
its actions cannot go. The objects clause is of great importance because it determines the
purpose and the capacity of the company. It indicates the purpose for which the company
has been set up and its actual capability, besides its sphere of activities. It states
affirmatively the ambit and extent of powers of the company and, stated negatively, that
nothing should be done beyond that ambit and that no attempt shall be made to use the
company for any other purpose than that which is specified. The purpose of the objects
clause is to enable the persons dealing with the company to know its permitted range of
activities. The acts beyond this ambit are ultra vires and hence void. It is ultra vires for a
company to act beyond the limits of its memorandum. Any attempted departure will be
invalid and cannot be validated even if assented to by all the shareholders of the
company. This is called the doctrine of ultra vires. The expression “ultra vires” consists of
two words: ‘ultra’ and ‘vires’. ‘Ultra’ means beyond and ‘Vires’ means powers. Ultra vires
means an act or transaction of a company, which though it may not be illegal, is beyond
the company’s powers by reason of not being within the objects of the memorandum of
association. The memorandum is, so to speak, the limit beyond which a company cannot
travel.
Ashbury Railway Carriage and Iron Company v. Riche (1875)
In this case, a company contracted to build a railway line which ran from Antwerp to
Tournai, in Belgium. The objects clause, however, within the company’s memorandum,
stated that the company had in fact been established; “to make, sell, or lend, railway
carriages, wagons and all kinds of railway plant, fittings, machinery and rolling stock”. In
other words, the objects of the company permitted it to manufacture train stock and
parts for railways; however, they were not to actually construct railway lines themselves.
The court held that the contract with Riche was void, and as such the directors of Ashbury
were entitled to repudiate the contract.
EFFECTS OF ULTRA VIRES TRANSACTIONS:-
(I) Void ab initio – The ultra vires acts are null and void ab initio. The company is
not bound by these acts. Even the company cannot sue or be sued upon.
(II) Ultra vires contracts are void ab initio and hence cannot become intra vires by
reason of estoppel or ratification.
(III) Injunction: The members can get an injunction to restrain a company wherein
ultra vires act has been or is about to be undertaken
(IV) Personal liability of Directors: It is one of the duties of directors to ensure that
the corporate capital is used only for the legitimate business of the company
 UMMARA MUSTAFA

and hence if such capital is diverted to purposes alien to the company’s

memorandum, the directors will be personally liable to replace it.