Doctrine Of Ultra Vires:
The Doctrine of ultra-vires was given under s. 4(1)(c), s. 245(1)(b) of the
Companies Act, 2013. The term Ultra-vires (Beyond-powers) for a firm refers to
an action that is beyond the company's legal capacity and jurisdiction. If a
corporation does an act or a series of activities that are in violation of the
Companies Act of 1956, they are subject to legal penalties. The word "Ultra
vires" refers to conduct carried out beyond of the legal powers granted by the
The doctrine of ultra vires restricts the company's actions to those defined
under the object clause of MOA. The effects of ultra-vires transactions are
void-ab-initio, they cannot be turned into intra-vires after the ratification by
the share-holders. The injunction orders can be issue. The directors can be
personally made liable. Sometimes, even criminal action can be taken against
- When done in irregular manner, which is otherwise Intra-vires to the
company, in that case; shareholders can ratify.
- Ultra-vires to the directors of the company, which is which is otherwise
Intra-vires to the company, in that case; shareholders can ratify.
- Ultra-vires to the articles of the company, which is otherwise Intra-vires
to the company, in that case; AOA can be altered by passing a resolution.
It is to be noted that if the company acquiring the property is ultra-vires,
the company will have the right over such property and such property will be
Types of ultra vires and their ratification:
- In case of Ultra-vires to the companies act, it is Void-ab-initio,
Shareholders cannot ratify.
- In case of Ultra vires to the memorandum of the company, it is Void-ab-initio
and Shareholders cannot ratify.
- In case of Ultra-vires to the articles of the company which is otherwise
Intra-vires to the company, Shareholders can ratify after alterations.
- In case of Ultra vires to the directors of the company, which is
otherwise Intra-vires to the company, Shareholders can ratify.
Main purpose of the doctrine: The things in which the company's money is
invested would be made known to the company's investors. It is the process of
guaranteeing creditors that the money they have entrusted to the company is not
being squandered on unauthorised activities.
The basic principle and reality of the Ultra Vires concept is that a company, as
a corporate person, must not be mulcted (charged or penalised) for its own
activities or acts performed by its representatives if they are outside of its
rights and privileges. In the case of "National Telephone Co v. St Peter Port
Constables", a telephone company installed telephone lines in a certain region.
The Memorandum gave the business no authority to install cables there. They were
chopped down by the defendants. It was held that the corporation has the right
to sue for destruction to the wires.
Difference between an ultra-vires and an illegal act: An ultra-vires act is not
the same as an illegal act. They are frequently misunderstood as synonyms for
each other, although they are not. Ultra-vires is anything that goes above the
company's stated aims as stated in its memorandum. Anything that is illegal is
an offence, carries civil liability, or is forbidden by law. Anything that is
ultra-vires may/may not be prohibited, but it is void-ab-initio in both cases.
Doctrine of Constructive Notice:
Doctrine lowers the level of complicity in corporate rules and regulations. When
dealing with outsiders, doctrine serves as a safeguard for the company. The MOA
and the AOA of the corporation are filed with the ROC when the company is
formed. These documents serve as the business charter, and the company is
controlled by the laws listed there. A corporation is a public entity, and its
documents, such as the Memorandum of Association and Articles of Association,
are available for public view.
As a result, it is believed that the outsider who is doing business with the
corporation has gone over these documents. Outsiders have a responsibility to be
aware of the company laws and regulations since they are publicly available. The
"Doctrine of Constructive Notice" is the name given to such assumption.
It states that the corporations bylaws must be recognized to the general public
because that material is publicly available. It is not the company's
responsibility to provide this material to the outsider because it is publicly
available. The legal basis for this approach is S. 399 of the CA 2013. The
section, enables an outsider to see and browse through the company records that
are kept by the registrar.
In "Oakbank Oil Co. vs. Crum
", it was held that anyone involved in an
agreement with the company is presumed to have insight and understanding of the
company's MOA and AOA, according. As a result, the person is believed to be
aware of it. This principle is known as doctrine of constructive notice.
Doctrine of Indoor Management:
The nature of the "Doctrine of Indoor Management"
is diametrically opposed with
that of the "doctrine of constructive notice". The first one protects the
outsider from the company's illegal conduct, whereas the second one protects the
corporation from the outsider's illegal conduct. Doctrine of Indoor Management
is also known as the "Turquand's Rule", is an old established idea that was
recognised in the framework of the Doctrine of Constructive Notice 150 years
The doctrine of Indoor Management is an exception to the Doctrine of
Constructive Notice. This doctrine highlights the premise that an outsider
acting in good faith and entering into a deal with a firm can have an assumption
there were no internal anomalies and that the corporation has followed all
An outsider is supposed to know the Charter of a Corporation; but not what
might/might not have actually occurred within the locked doors was held as in
Pacific Coast Coal Mines Ltd v. Arbuthnot
. Justice Bray correctly observed
in Dey v. Pullinger Engg Co
. that the cycle of trade would not flow
properly if individuals dealing with firms were obliged to investigate the
company's internal procedures and machinery to determine if anything was
In Morris v. Kanssen
, Lord Simonds said that people in the industrial
world would have been hesitant to participate into agreements with corporations
if they were to investigate the company's internal dynamics.
Exception: It is critical to broaden the reach of this doctrine; otherwise, it
will be narrow and biased in favour of outsiders to the organisation, posing a
significant risk to the company.
- Knowledge of irregularity:
When an outsider engaging into a contract with a corporation has
constructive or real notice of a problem with the internal corporate
management, he or she is forbidden from seeking relief under the doctrine of
It is important to emphasise that the Doctrine of Indoor Management does not
apply when an outsider depends on a forged document in the name of the
The remedy under this concept is also unavailable where the facts and
circumstances around the contract are sufficiently dubious that they urge
investigation, and the outsider of the corporation fails to conduct an
- Acts beyond the scope of apparent authority:
This remedy cannot be used against acts that are beyond the scope of
apparent authority and the company cannot be held liable.