What is doctrine of Ultra Vires?
Every company has an objective of performing its core business activities and
these predominant anticipations are mentioned in the Object Clause [i]of the
Memorandum of Association (MOA[ii]) which is the third mandatory clause
mentioned under section 4(1)[c] [iii]of companies act 2013.
The doctrine of Ultra Vires means " beyond the power
" this doctrine prohibits
those operations that are not in the ambit of the object of the companies which
are mentioned in the Memorandum in other words if a company performs any
business operations which is beyond its power then only this doctrine comes into
As a consequence of above mentioned general rules, The act of ultra vires becomes void which never binds the company, and both companies as well as
the parties who are entitled to the contract do not have the authority to sue or
to be sued.
Origin of Ultra vires.
The House of Lords first articulated the doctrine of ultra vires in a landmark
case, Asbury Railway Carriage and Iron Co. Ltd. V . Riche
,  L.R 7
H.L.653.[iv] to understand this concept in a better manner let's have a brief
analysis of the case;
The Object clause mentioned in the Memorandum stated:
"The main objective of
incorporating the company was to make a sell or land or hire railways plants for
carrying out furtherance of business related to mechanical engineers and general
There was a contract between the company and M/S Riche which was a firm related
to railway contractors and dealt with providing finance to construct railway
lines in Belgium. Riche brought allegations by claiming damages against the
company assuming that the word General contractors mentioned in the Object
Clause permits the company to execute the contract So it comes under the
authority of the company though it was also approved by a majority of the
Question raised before the honorable House of Lords:
- Whether the denial of the company for entering into the contract of that
particular work which was not mentioned in the Object of the Memorandum even
after the shareholders' approval valid or not?
- Second was what did the term General contractors actually meant?
Finally, the House of Lords declared that the contract was ultra vires concerned
which should be null and void irrespective of the fact that shareholders
admitted "The contract which they desire to make will be authorized to directors
"even after this it will be ultra vires. So the company was not liable for those
activities which is not in the power. The term general contractor was
implemented and specified to mechanical engineers.
Significance Of The Doctrine
An act that is ultra vires in nature is always incompetent for ratification
however if the act falls within the jurisdiction of the company but outside the
authority of the directors, it can be ratified.
A is a director of X private limited company and does not have the
authority to grant or take loans but Y who is a shareholder has the authority to
do so as mentioned in the Memorandum Y can grant or take loans because it's in
the ambit of the company even if the directors cannot.
The application of the Doctrine of Ultra vires shall be reasonable unless it is
prohibited in my opinion if the operations act in furtherance of business then
after amending the object in Memorandum and implementing the principle of
reasonable constructions only matters shall be taken into consideration. The
main intention of this doctrine is to protect the interest of shareholders and
creditors. Members have the privilege of attending an injunction in case of an
ultra vires act.
Written by Dharmashoka Panda
- Out of 6 mandatory clause object clause is the third one where the main
objective of business activities are mentioned
- MOA and AOA are also known as backbone of the company as mentioned in the
companies act 2013 and are responsible for external and internal affairs of the
- Companies Act 2013
- Asbury Railway Carriage and Iron Co. Ltd. V . Riche), L.R 7 H.L.653.
, Institution; Birla Global University,
Birla School of Law (4th year).
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