DOCTRINE OF ULTRA VIRES BY Trapti Pareek

Introduction
The Phrase ‘Ultra Vires’ consists of two Latin words Ultra and Vires, ‘Ultra’ Means beyond and ‘Vires’ Means powers. Thus, ultra vires simply means beyond one’s powers. In relation to a company, the phrase ultra vires means the acts beyond the legal powers or objects of the company. A Company is prohibited to go beyond the memorandum by the doctrine of Ultra Vires. An ultra Vires or Contract is null and void, and hence, not binding on the company. All the more, it cannot be ratified even by unanimous consent of  all the members of the company. Neither the company nor the other contracting party can sue on it. It may be noted that an ultra vires act is simply beyond the objects or scope of memorandum of a Company. Such an Act need not be illegal or against the public
policy, or public interest under any law of the land. It is void only because it is beyond the powers of the company.

Ultra Vires Acts:

i. Acts which do not fall within the objects of the company – Acts or contracts which do not fall within the Scope of Objects of the Company are Ultra Vires Company. Such acts or contracts are null and Void and cannot be ratified even by consent of all the members of the company.

ii. Acts which do not fall within the scope of matters considered necessary in furtherance of the objects-
Sometimes, the acts done or contracts made by acts done or contracts made by a company do not fall within the scope of matters considered necessary in furtherance of the objects of the company such acts or contracts are also
said to be ultra vires Company. But, no company can be allowed to do any act or to contribute to charity for
any purpose which is not considered necessary in furtherance of company’s Objects.

iii. Acts done after the objects have become impossible –  Sometimes, it becomes impossible to pursue objects of the company. In such a case, the company is not empowered to do any act which falls within the scope of matters necessary for furtherance of objects of the company. In such a case, the company may be wound up by the court.

Consequences/Effects
i. Void ab initio – The ultra vires acts are void ab initio, i.e., from the beginnings. The company is not bound by such acts.

ii. No ratification – Ultra vires acts cannot be ratifies eveb by unanimous consent of the members.

iii. Injunction Sometimes, the members of company are aware that the company has undertaken, or is about to undertake some ultra vires act. In such a case, any members of the company can get an injunction from the court restraining the company from doing the ultra vires act.

iv. Liability of Directors. It is the duty of the directors that they utilize the funds of a company only for authorized and valid acts and such act may not be beyond the objects mentioned in MoA. If the directors of a company act an ultra vires activity, they will be held personally liable for the loss incurred.

 Exception

  •  Rectification of act ultra vires Articles.
  • Ratification of Act ultra Vires Directors.
  •  No Liability for Acts done in Good Faith
  • Right to recover Ultra Vires Lent Money.
  •  No Right on Ultra Vires Lent Money.
  •  Liability to pay ultra Vires Loans used intra Vires Debts.
  • Liability For ultra Vires Loans through Misrepresentation.
  •  Liability of director for Ultra Vires Payments.
  • Liability for irregular acts.
  • Liability when acts done are proved to be acts necessary for furtherance of the objects.

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