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DOCTRINE OF ULTRA VIRES

S. N. LAVANYA (121202064)

“Ultra” means beyond

“Vires” means powers

Companies Act mentions Ultra Vires. Its scope wasn’t completely clear until 1875.

Ashbury Railway Carriage & Iron Co. Ltd. Vs. Riche

What is it?

MOA stated that the company will only sell and supply carriage construction material.

Contract with Riche was to construct railway carriages.

The contract void ab initio because its ultra vires.

Ashbury Railway Carriage & Iron Co. Ltd vs. Riche

Lakshmanaswami Mudaliar vs. LIC of India

In meeting decided to donate Rs. 2,00,000 from the share holders’ dividend fund in 1955.

In 1956, LIC Act came into force. This kind of donation was not allowed.

Thus it became ultra vires.

Indian Ultra Vires Case

Injunction – If not spent, the lender can stop the spending.

Tracing – If found in its original form, the lender can recover the money from the company.

Subrogation – If money used to pay lawful debts, the lender will get right to recover the money. Least priority given to him.

ULTRA VIRES BORROWING

Ultra vires the directors but intra vires the company can be ratified by shareholders in AGM.

Intra vires the company but not done in prescribed manner, this can be validated by shareholders’ consent.

Investment acquired through ultra vires transaction. The company still has rights.

EXCEPTIONS

Any act which is consequential to the object clause but not mentioned in the MOA unless prohibited by the Companies Act.

Some activities not specifically mentioned in the MOA, but deemed impliedly as within authority of the company.

Eg: Raising Capital by borrowing.

If ultra vires the articles, the Articles may be altered to make it intra vires.

There is no separate legal provision in the Indian law anywhere for ultra vires transactions.

The ruling of the Ashbury Railway Carriage case is still applied without modifications.

Its still can’t be ratified by the shareholders in the AGM.

PRESENT POSITION OF ULTRA VIRES ACTS

The European Communities Act, 1972 has modified it in favour of the affected party in case of ultra vires transactions.

Ultra vires has only been modified, not abolished.

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