What is doctrine of ultra-vires ?

Ans.

DOCTRINE OF ULTRA-VIRES

A company is an artificial person which performs all its works with its common seal. It cannot work like a natural person. It is established for the attainment of some specific objects which are clearly stated in the memorandum of association of the company. It cannot go beyond object specified in its memorandum. It does any act for which it is not authorized by its memorandum such as work has no legal effect this is called the doctrine of ultra-vires.

All the acts or transactions of a company beyond the power of the object clause of the memorandum are known as ultra vires. All ultra vires acts of a company shall be fully null and void and can never be satisfied and valid even though all the shareholders of the company agree to satisfy such trans-actions, Such activities of the company which are not under the Companies Act., Memorandum of Association or Articles of Association are known as ultra vires activities. Internal and external rules of the company are provided in the Articles of Association and Memorandum of Association. The infringement of the rules made under the above mentioned documents is called as ultra vires.

This doctrine of ultra-vires was commenced in 1862. In India this was started in 1866.

Parts: (i) Ultra-vires the Companies Act; (ii) Ultra-vires the MOA; (iii) Ultra-vires the AOA.

EFFECTS OF ULTRA-VIRES

(1) The Company is not Bound by Ultra Vires Acts- A company is not bound by the ultra-vires acts and it can never satisfy these acts even though all the shareholders agree to satisfy.

(2) Personal Liability of Directors – A company is an artificial person managed by its directors. They must perform their duties in such a manner that the capital and assets of the company may be utilized in its best possible interest. If any part of the capital of company is used in a manner, which is ultra vires Memorandum of Association, the directors will be personally responsible for all such acts.

(3) Injunction Order- If any member of a company feels that the company is going to do anything ultra vires, he may go to the court and obtain: n injunction order to get the work stayed.

(4) Ultra vires Contracts are Void and Illegal – If a company has entered into any contract which is ultra vires its memorandum, all such contracts are completely void and these can never be satisfied.

(5) Liability of the Director for Breach of Duty – Directors are low as the agents of the company who must work within the limit and powers of the company. If it is proved that they have induced any one to enter to any contract ultra vires the memorandum of company, they will be held personally responsible for such contract and liable for breach of their duties, icy will have to compensate all the losses of that person.

(6) No Suit can be Filed – A company cannot sue any other person for its ultra vires acts and similarly it cannot be sued by others.