neeraj law ppt

8/3/2019 Neeraj Law Ppt

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Doctrine of ultra

vires

Presented by :

Pradnyesh Ganu ( Roll no: 10 )

Avidh Gharat ( Roll no: 11 )

Prachi Gharat ( Roll no: 12 )

Madhavi Sawardekar ( Roll no: 42 )

Ahmed Shaikh ( Roll no: 43 )

Neeraj Sharma ( Roll no: 44 )


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Introduction

Ultra vires consists of two words: ultra and

vires.

a) Ultra Beyondb) Vires Powers

Expression ultra vires means an act beyondthe powers.


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Contd

An ultra vires act is void and cannot be ratified

even if all the directors wish to ratify it.

Directors of a company have exceeded thepowers delegated to them.

Introduced in relation to the statutory

companies.

introduction of the principle of limited liability

N1


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Slide 3

N1 Neeraj, 3/29/2011


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Is It Ultra Vires Or Illegal?

The ultra vires act or transaction is different froman illegal act or transaction, although both arevoid.

An act of a company which is beyond its objectsclause is ultra vires and, therefore, void, even if itis illegal.

Similarly an illegal act will be void even if it fallswithin the objects clause.

Unfortunately the doctrine ofultra vires has oftenbeen used in connection with illegal and

forbidden act.


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Protection Of Creditors And Investors

Developed to protect the investors and

creditors of the company.

To employ the money of the investors for apurpose other than those stated in the objects

clause of its memorandum.

The investors and the company may be

assured by this rule that their investment will

not be employed for the objects or activities.


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Ashbury Railway Carriage and Iron

Company Ltd v. Riche

To make and sell, or lend on hire railway

carriages and wagons, and all kinds of railway

plant, fittings, machinery and rolling stock.

To carry on the business of mechanical

engineers and general contractors to purchase

and sell as merchants timber, coal, metal or

other materials; and to buy and sell any

materials on commissions or as agents.


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Contd

The directors of the company entered into a

contract with Riches for financing a

construction of a railway line in Belgium.

The contract was ratified by all the members

of the company, but later on it was repudiated

by the company.

Riche sued the company for breach of

contract.


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Issue

Whether the contract was

valid and if not, whether itcould be ratified by the

members of the company?


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Contd..

The House of Lords held unanimously that:

(a) The contract was beyond the objects as

defined in the objects clause of itsmemorandum and, therefore it was void.

(b) The company had no capacity to ratify the

contract.


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Decision

The House of Lords has held that an ultra viresact or contract is void in it inception

It is void because the company had not the

capacity to make it and since the company lacksthe capacity to make such contract, how it canhave capacity to ratify it.

If the shareholders are permitted to ratify anultra vires act or contract, it will be nothing but

permitting them to do the very thing which, bythe Act of Parliament, they are prohibited fromdoing.


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Ascertainment Of The Ultra Vires

The main purpose must first be ascertained.

Then special powers for effecting that purpose

must be looked for

If the act is neither within the main purpose nor

the special powers expressly given by the statute,

the inquiry should be made whether the act is

incidental to or consequential.


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Conclusion

(a) An ultra vires act is void and cannot be ratified

even if all the directors wish to ratify it.

(b) The provisions similar to those inserted in the

European Communities Act, 1972 should also

be inserted in the Indian Companies Act, 1956 to

protect the innocent third party.

(c) The tendency of inserting independent objects

clause to exclude the main objects rule of

construction is dangerous also because it makes the

distinction between the object and power obscure.


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