Skip to main content

DOCTRINE OF ULTRA VIRES-BEYOND POWER

DOCTRINE OF ULTRA VIRES-BEYOND POWER


INTRODUCTION

A company is an artificial person, its powers are defined in its memorandum. The Memorandum of Association (MOA) is the constitution of the company. Under Section 4 [1] of the Companies Act, 2013, it contains the name, address, goods and territories of the company and determines the power for the directors of the company. The object clause in the company's memorandum contains the object for which the company is created. If the company or directors and members of the company act beyond their authority, then the item is calculated in the clause, which will be the sum of ultra tires.

“The Latin word Latin ultra vires means beyond power”. An ultra vires act is null and void and cannot be ratified by the directors, even if they wish later. Under section 4(1)(c)[2] of the companies it is stated that any matter which is considered necessary should be mentioned in the object clause of the memorandum because if at a later stage the director or the company considers it If an act / transaction falls under their power and act and violates the contract then section 245 (1) (b) comes into play which prevents the company from doing so.

 

 

 

ULTRA VIRES

Ultra vires is a Latin phrase meaning "beyond powers". An act requiring a legal right, but done without it, is characterized in law as ultra vires. In contrast, a function performed under appropriate authority is intra vires ("within powers"). Acts with inter vires may be equivalently called "valid" and those with ultra vires are "invalid".

 

THE DOCTRINE OF ULTRA VIRES

The Doctrine of Ultra Vires is a fundamental rule of Company Law. It states that the objects of a company, as specified in its Memorandum of Association, can be departed from only to the extent permitted by the Act.

In legal terms, it is applicable only to the acts performed in excess of the legal powers of the doer.

This works on an assumption that the powers are limited in nature. Since the Doctrine of Ultra Vires limits the company to the objects specified in the memorandum, the company can be:

·        Restrained from using its funds for purposes other than those specified in the Memorandum.

·        Restrained from carrying on trade different from the one authorized.

 


ORIGIN OF ULTRA VIRES THEORY

The principle of ultra vires has given protection to the company to investors and creditors. The theory of ultra vires did not establish its roots. It established its roots in 1875, when the directors and company of V Hector Riche (1874–75) LR7HL 653 of the Ashbury Railway Carriage and Iron Company (Ltd), as decided by the House of Lords, were founded. A company named "Ashbury Railway Carriage and Iron Company" is incorporated under the Companies Act, 1862.

 


 ASHBURY RAILWAY CARRIAGE & IRON COMPANY (LIMITED) V HECTOR RICHE, (1874-75) LR 7 HL 653

Under the Companies Act, 1862, a company called "Ashbury Railway Carriage and Iron Company" is incorporated. The items listed in the object clause of the memorandum of association were:

·        For making, selling and selling, or leasing, railway carriages and wagons,

·        And all kinds of railway plants, fittings, machinery and rolling-stock;

·        To pursue the business of mechanical engineers and general contractors;

·        Buying, leasing, working and selling mines, minerals, land and buildings;

·        For purchase and sale as traders, wood, coal, metal or other materials,

·        And also to buy and sell any such material as commissions or agents.

The directors agreed to contract for the construction of a railway line in Belgium. The contract was between Ashbury Railway Carriage & Iron Company and Hector Riche. The contract was for the supply of material required for the construction of railway lines.

 

Under the object clause of this company, goods were to be supplied and sold for the necessary materials for the construction of railways. This does not include the construction of railway lines. Here the contract was for the construction of a railway. That was contrary to the memorandum of association. Hence the contract was ultra vires for the company.

 

AS HELD BY THE HOUSE OF LORDS, the contract was not only that of the director but also of the entire company. Even if most shareholders confirm this, it cannot change. It will still be the ultra wires of the entire company.

 


THEORY DEVELOPMENT

Shuttleworth v Cox Brothers & Co (Maidenhead), Ltd. and others, [1927] 2 KB 9

It was held that if a contract is subject to the statutory powers of change contained in the articles and such change is made in good faith and for the benefit of the company then it will not be considered a breach of contract and will be valid.

 


In re New British Iron Company, [1898] 1 Ch. 324

It was believed that in this particular case at the time of the closing of the company the directors would be ranked as ordinary creditors with respect to their remuneration. This is said because the articles are generally considered not as a contract between the company and the directors but only between the shareholders. However, in this particular case, the directors were employed, and they accepted the office based on the articles of association. They were therefore treated as creditors at the time of the company's closing.

 

Rayfield v Hands and Others, [1957 r. No. 603.]

Field-Davis Limited was a private company doing business as builders and contractors. The plaintiff, Frank Leslie Rayfield, was the registered holder in 725 of those shares, and the defendants were Gordon Wyndham Hands, Alfred William Scales and Donald Davis. All Content Bar Company's sole director. They were a provision in the articles of association of the company where it was necessary that if they wanted to sell their shares, they would inform the directors, who would purchase them equally at a reasonable valuation. However, when he informed the directors, he refused to buy them, saying that he was not under any obligation by the articles.

 

The plaintiff claimed that the fair value of the shares should be determined and the directors should be ordered to buy them at fair value. It was held that the company's articles required directors to purchase shares at fair value, but the relationship between them was not as a member and director but as a member and member.

LEGAL ISSUES RELATED TO ULTRA WIRES CAN ARISE IN VARIOUS CONTEXTS:

·        Companies and other legal persons sometimes have limited legal capacity to act, and attempts to engage in activities beyond their legal capacity can be ultra virus. Most countries have legally restricted the principle of ultra vires in relation to companies.

 

·        Similarly, statutory and governmental bodies may have limits on the acts and activities to which they are legally attached.

 

·        Subordinate legislation that has been passed without proper legal authority may be invalid beyond the powers of the issuing authority.

 

 

WHAT IS THE NEED OR PURPOSE OF THE THEORY OF ULTRA-WIRES?

This principle assures creditors and shareholders of the company that the company's funds will only be used for the purpose specified in the company's memorandum.

 In this manner, investors of the company can ensure that their money will not be used for a purpose that is not specified at the time of investment.

If the assets of the company are misapplied, it can result in insolvency of the company, meaning that the company's creditors will not be paid. This principle helps prevent such a situation.

This principle draws a clear line beyond which directors of the company are not authorized to act. It puts a check on the activities of the directors and prevents them from leaving for the purpose of the company.




ULTRA VIRES LAW IN OTHER COUNTRIES

UNITED KINGDOM

In the United Kingdom, sections 31 and 39 of the Companies Act 2006 reduced the applicability of ultra vires in corporate law, although it may still apply in relation to donations and a shareholder may apply for an injunction, Already, to stop an act that claims to be ultra vires

 


AUSTRALIA

In many jurisdictions such as Australia, the law provides that a corporation has all rights to one natural person and the other; Furthermore, the validity of state-of-the-art works is preserved.

 


UNITED STATES OF AMERICA

According to US laws, the concept of Ultra virus can still originate in some states in the following types of activities:

·        Charitable or political contribution

·        Guaranteed to be indebted to another

·        Loans to officers or directors

·        Pensions, bonuses, stock option plans, job severance payments, and other fringe benefits

·        Power to acquire shares of other corporations

·        Power to enter into a partnership

 

 

ADMINISTRATIVE LAW IN CONTEXT OF LAW OF ULTRA VIRUS

In administrative law, an act may be judicially reviewable for ultra vires in the narrow or broad sense. Narrow ultra vires apply if an administrator did not have sufficient decision-making power or was fabricated with procedural defects. If the power is misused (eg inappropriate behavior or bad faith) or failure to exercise administrative discretion (eg, acting at the behest of someone else or enforcing government policy) or application of discretionary powers broad ultra vires apply Occur. Irrational and wrong way. If they are satisfied then either doctrine may be entitled to a claimant for various indictable claims, equitable remedies or statutory orders.

 



DIFFERENCE BETWEEN AN ULTRA-WIRES AND AN ILLEGAL TASK

An ultra-vires act is completely different from an illegal act. People often mistakenly use them as synonyms of each other, while they are not.

Anything specified in the company's memorandum that goes beyond the company's objectives is ultra-virus. However, anything that is a crime or draws civil liabilities or is prohibited by law is illegal. Whatever is ultra-wires, it may or may not be illegal.

 



DEVELOPMENT OF ULTRA VIRUS THEORY - INDIA

In India, the concept of ultra wires was first detected by JAHANGIR R. IN MODI V. SHAMJI LADHA, the plaintiff bought 600 shares of a company. And the directors also bought the defendants a certain number of shares in the same company. The object clause of the company's memorandum, however, did not allow its directors to sell or buy the company's shares. The plaintiff sued the directors and sought compensation from the court for the damages caused by such purchases.

The Bombay High Court held that "a shareholder may maintain an action against directors to compel them to reinstate funds for the company which is employed by them in a transaction that they have no right to Not a party to suit without forming a company.

 

The other important case that helps to shape the concept of ultra vires. LAKSHMANASWAMY MUDALIAR V. LIFE INSURANCE COMPANY , In this case, the company's memorandum stated that the directors were authorized to donate a portion of the company's profits to a charitable organization that would help the public or any charity. As per the shareholder's resolution, the directors paid Rs. 2 lakhs to a charitable organization for promoting technical and business knowledge. Ultimately, the court conducted ultra vires, stating that directors could not spend the company's money on any charitable trust of their choice. They could only spend such an amount on a charitable trust that would enable them to promote the company's own business, that is, the money could be donated to a charitable trust that enabled them to acquire the company's own items. Although the company's business has been taken over by the Life Insurance Corporation, it had no business left to publicize. The court held that the payment made by the directors to the charitable trust was ineligible, and the trustees acquired no authority over the amount paid by the directors. In addition, the court made the directors of the company personally liable for the payments made by them. The appeal was therefore dismissed.

 


APART FROM THIS, THE SUPREME COURT ALSO GAVE GUIDELINES FOR THE SAME -

1.) "That the company's funds cannot be diverted to every kind of charity, even if the memorandum of the company has unrestricted power to that effect".

 

2.) "The objects should be separated from the powers. And in the memorandum the objects should be stated but not the powers. Even if the powers are called, they are used only to affect the objects of the company.

 

3.) "that there should be a close relationship between the gift and the business interests of the company".

 



EFFECT OF ULTRA WIRES ACT

The effects of an ultra vires act can be expressed as follows:

1. An Ultra Wires Act will be completely void and will not bind the company; Neither the company nor outsiders can enforce the contract.

 

2. Any member of the company may bring an injunction against the company for preventing it from committing any ultra vires act.

 

3. The directors of the company shall be personally responsible for making good the funds used for ultra vires acts.

 

4. Where a company's money has been used for ultra vires to acquire certain assets, the company's right over such property is reserved.

 

5. Since ultra wires contracts are considered invalid from the outset, it cannot become intra vires due to estoppel or retification.

 

6. Ultra vires do not create a relationship between the lending debtor and the creditor. In such a case, the only possible remedy is in REM and not in person.

 

 

 

CAN THE ULTRA WIRES ACT BE RATIFIED?

An ultra virus act cannot also be ratified by the entire body of shareholders and can be made binding on the company. In other words, even shareholders cannot ratify act of ultra vires. This is the specialty of this theory.

 



ULTRA-VIRES ACT CAN GENERALLY BE OF FOUR TYPES:


1.     ACTS THAT ARE ULTRA VIRES FOR THE COMPANIES ACT

Any act or contract entered into by a company that is over-wired for the Companies Act is void-ab initio, even if the memorandum or articles of the company authorize it. Such an act cannot be attested under any circumstances. Similarly, some acts are considered intra-vires for the company even though they are not mentioned in the memorandum or articles as the Companies Act authorizes them.

 

2.     ACTS THAT ARE ULTRA-VIRES FOR COMPANY MEMORANDUM

An act is called a company memorandum ultra-virus if it is done beyond the powers conferred by the memorandum to the company. If a part of the act or contract is within the authority provided by the memorandum and the remaining part is beyond the authority, and the two parts can be separated. Then only the part which is beyond powers is considered as ultra-virus, and the part which is within the authority is considered as intra-virus. However, if they cannot be separated then the entire contract or act will be considered ultra-virus and hence, void. Such acts cannot also be certified by shareholders as they are zero-abito.

 

3.     ACTS THAT ARE ULTRA-VIRUS FOR ARTICLES, BUT INTRA-WIRES FOR MEMOS

All acts or contracts that are performed or carried out beyond the powers conferred by the articles but are within the rights and entitlements granted by the memorandum, which are called ultra-virus to the articles, but intra-vires the memorandum . Such acts and contracts may be ratified for shareholders (even retroactively) by making changes to the articles to that effect.

 

 

4.     INSTRUCTIONS THAT ARE ULTRA-WIRES FOR THE DIRECTORS BUT ARE INTRA-WIRES FOR THE COMPANY

All functions or contracts that are performed beyond the powers conferred on them by the directors are called acts which ultra-vires the directors but intra-vires the company. The company can confirm such acts and they will then become binding.

 

 

 

EXCEPTION TO THE PRINCIPLE

·        Any work that is done irregularly, but otherwise it is intra-vires of the company, can be validated by the shareholders of the company with their consent.

 

·        Any act which is outside the authority of the directors of the company, but otherwise it can be confirmed by the company shareholder.

 

·        If the company acquires property in a manner that is ultra-virus of contract, the company's right over such property will still be protected.

 

·        Any incidental or consequential effect of the Ultra-Wires Act shall not be invalid unless the Companies Act expressly prohibits it.

 

·        If an act is considered within the authority of the company by the act of the company, they will not be considered ultra-virus even if not expressly stated in the memorandum.

 

·        Articles of association may change with retrospective effect to validate an act that is ultra-virus of articles.




THE CONCLUSION

It is clear from the above research paper that the theory of ultra wires plays an important role in companies and the conclusions are as follows: -

 

1.) The principle of ultra vires is null and void and cannot be confirmed by the directors or the company.

 

2.) An ultra vires act cannot be made intra vires through ratification and estoppel.

 

3.) The Companies Act, 2013 provides for a violation of the commodity clause and prohibits a company for ultra vires to operate under section 245 (1) (a) (B). It is a security measure to protect investors and creditors.

 

4.) The principle applies to all companies which have a separate legal existence and are covered under the Companies Act.

 

5.) There is a difference between ultra vires and illegal, however, both are considered zero, eventually.

 

4) The principle of ultra vires has effect - injection, personal liability of directors, subordination and violation of authorization warranty.

 

7.) In the case of England it originated in Ashbury Railway Carriage and Iron Company Limited v. Riche and India, it was founded in Jahangir r. It was done in the case of Modi vs Shamji Ladha.

 

8.) Theory comparing its applicability in various countries like USA and England - its use is restricted while in India the principle is given more importance.


Comments

Popular posts from this blog

SkymoviesHD 2021 – Free Download Bollywood, Hollywood Movies

  What is  "  Skymovieshd"? Skymovies is a piraded movie download website that allows to download and watch high quality movies in Hindi. The Skymovies site offers 3GP, MP4, HD MP4 mobile movies, HD Avi movies, TV show.  SkymoviesHD New Links 2020: The movie is available to download in the following format on SkymoviesHD 360p 480p 720p 1080p HDRip Bluray DVDScr DVDrip skymovies.in skymovies.live sky.co.nz skymovies.com sky-movies.in skymovies.org skymovies.hd skymovies.con skymovies.new skymovies.south skymovies.arg skymovies.in Best Torrent Proxy Skymovies every website close it by gov, the proxy site is also very popular to open it. Through these websites you can open any download website and can download movies and series easily.  Unblock Source Link is the   most popular. Their efforts to control  skymoviesHd   are in vain , despite much efforts by government and officers  .  Currently  lakhs of people are using  websites  like  skymov

MKV Movies- MKVCinemas Free Bollywood Movie Download Hollywood In 300MB

Mkvcinema, mkv movies, mkvcinemas, mkvcinema, mkv movie, mkv cinemas, mkv cinema, mkv movies download, mkvcinema    in, mkv movies hollywood  Everyone loves to watch movies and if they get it for free, then everyone definitely makes it Would like to download. Today we will learn about the subject of one such free movie downloading site through this article. The site is named  mkvcinemas.nl  . I think you must have heard about this website before. So I thought why not give you complete information about  mkvcinemas  movies. As a user, you need to know what  mkvcinemas hollywood  is and how it works. With this, you will learn in this article whether the South's secure site is  mkvcinemas  . So let's start without delay. If you too are reading this post then it means that you also want to download  mkvcinemas 2020  latest URL and  mkvcinemas  latest domain and  mkvcinemas  latest songs. You are probably also worried about the fact that the link which used to work

6 movies coming to OTT in theaters and 4 films released this week

  We grew up watching movies every single weekend in theaters of single weekends. Today, with the rise of multi-screen franchises and OTT platforms, we are spoiled for choice. From new releases to old classics, we can like to watch whatever we want, whenever we want. And yet, online streaming also does not compare to theatrical experience. Whether you love the experience of watching a gorgeous movie in theaters or browsing from the comfort of your couch, there is something new to see every day. What is your collection for this week: Godzilla vs Kang language English Release Date: March 26, 2021 Playing in theaters This fantasy action drama brings two scary monsters Godzilla and Kong face to face. As demons fight it out in battles of grand proportions, humanity must find a way to save and secure its future. Haathi Mere Saathi Language: Hindi (Aranya - Telugu, Kadan - Tamil) Release Date: 24 March 2021 Playing in theaters Released as 'Aranya in Telugu' and 'Kaadan in Tamil