Companies Ultra Vires Acts
Companies Ultra Vires Acts
An Act for the companies was passed in the year 1862, according to which restrictions were applied to the alteration of objects and due to these restrictions only the principles of ‘outside the rights’ commenced. Only the violation of rules pertaining to the outside and internal issues of the company is called as an unauthorised act. These are divided into three parts –
a.Ultra-vires the Company Act.
b.Ultra-vires the Memorandum of Association.
c.Ultra-vires the Articles of Association.
(A) Ultra-vires the Company Act- If a company commits such an act which are outside the rights provided by the Companies Act then these are called ultra vires.
(B) Ultra-vires the Memorandum of Association-Description of the objects of company in its memorandum must necessarily be written in easy and express form. The object clause of the memorandum defines the radius of acts of the company. It has two objects according to the opinion of Lord Parkar. Firstly, to inform the outside parties that what are the power limits of the company and in transactions these limits are being kept with the company or not and secondly that it must be well explained to the investors that what for their money is being used. The company cannot be held responsible by the object clause for the purpose outside acts. If the company does any such work which is beyond the object of its memorandum then it shall be presumed that the company has violated its legal power-limit and those works shall be void. This is defined as ‘Doctrine of Ultra-vires’. Similarly, the functions, which are carried out under the rights as per rules, are called as ‘Inter-vires’
(C) Ultra-vires the Articles of Association- If the power of their right given in the Articles of Association is violated by the directors resulting in an act as ultra-vires, then such acts shall be treated as ultra-vires for the directors and if the company desires then these acts can be ratified by the opinion of the general meeting. But, if an act committed by the company is beyond the power-limits described in the object clause of the company’s memorandum, then that act shall be ultra-vires for the company and if thereafter even if all the members of the company ratify that act collectively, even then that act cannot be justified as legal.
We come to this conclusion of the doctrine of ultravires that the company can do such works only which-
1.are necessary for the fulfillment of the main objects mentioned in its memorandum.
2.company can do such works also which are incidental and consequential or appropriate for its object.
3.company can do those works also other than this during its business for doing which the company is authorised by the Companies Act.
Other than the above said works all the works done by the company shall be treated as illegal and unlawful and shall be effective null and void according to the doctrine of ultra-vires, but there are the following exceptions to this doctrine –
1.Even in case of the property of the company earned by its ultra-vires investors, the right of the company on it shall be secure and safe.
2.If a company concerned work done by the directors of the company is beyond their power of rights, bur not beyond the power-limit of the company then that work shall be legal after the ratification by the shareholders of the company and shall not be treated as ineffective under the doctrine of ultra-vires.
3.While applying the doctrine of ultra-vires, incidental or consequential results due to authorised functions of the company shall not be treated as illegal until these are prohibited expressly by the Companies. Act.
4.If a work done by the Company is within its power limit but it is done irregularly, then it can be made legal by the acceptance of all the shareholders of the company. It is not necessary for this that acceptance
of all the shareholders must be obtained simultaneously at one place.
5.If a work of the company is ultra-vires