This is called the doctrine of ultra vires, which has been formally acknowledged in Ashtray Railway Carriage and iron company ltd v. Riche1. Thus “gifts to foster research relevant to the company’s activities” and “payments to widows of ex-employees on the footing that such payments encourage persons to enter the employment of the company” have been upheld as valid and intra vires. An act which is intra vires the powers conferred on the company but outside the authority of directors may be ratified in a proper manner.4, Ultra vires contracts are void-ab-initio and cannot become intra vires by reason of estoppel, ratification, and lapse of time. Unregistered companies such as sole proprietorships and partnerships do not fall within the protection of the doctrine of ultra vires. The power of the Board as regards contribution to funds, which do directly relate to business of the company is unrestricted. An act which is intra vires the company but outside the authority of the directors may be ratified by the company in proper form [Rajendra Nath Dutta v. Shilendra Nath Mukherjee, (1982) 52 Com Cases 293 (Cal.)]. The wrongful application of the assets of the company may lead to insolvency leaving creditors at a loss. The fact that corporate capital cannot be utilized on any activities not directly within the terms of the objects in the memorandum of association allows creditors a sense of security and stability. Ashbury Railway Carriage and Iron Company Ltd., this company was incorporated under the Companies Act 1862. All actions/transactions of a corporation come under the preview of the doctrine of ultra vires. Re William Thomas & Co. Ltd. (1915) 1 Ch 325]; taking shares of other companies where such investment authorises the doing indirectly that which will not be intra vires if done directly; promoting other companies or helping them financially [Joint Stock Discount Co. v. Brown, (1869) LR 8 EQ 381]; a power to sell and dispose of the whole of a company’s undertaking; a power to use funds for political purposes; a power to give gifts and make donations or contribution for charities not relating to the objects stated in the memorandum. [See Egyptian Salt and Soda Co. v. Port Said Salt Association]. The doctrine is an assurance to the shareholders and the creditors that the expenditure of funds of a company shall be limited for the purpose specified in its memorandum. 3 of the said company,  its objects were "to make and sell, or lend on hire, railway-carriage and wagon and also to carry on the business of mechanical engineers and general contractors. When the company was ordered to be wound up, a question was raised whether the depositors were creditors of the company and whether the contributories could be asked to contribute towards payment of deposits. out B Com lecture & lessons summary in the same course for B Com Syllabus. your solution of Doctrine of Ultra Vires - Documents, Company Law B Com Notes | EduRev search giving you solved answers for the same. The ultra vires act is completely different from an illegal act. Complete [Re Barned’s Banking Co., ex parte and The Contract Corporation (1867) 3 Ch. While the objects are to be specified, the powers exercisable in respect of them may be express or implied and need not be specified. This document is highly rated … To Study Doctrine of Ultra Vires - Documents, Company Law B Com Notes | EduRev for B Com Directors could not spend company’s money on any charitable or general objects. Discuss the doctrine of ultra vires and its effect in Malaysian Company Law. Co., (1880) 5 A.C. 473]. We are trying to write down these notes in easy language for a better understanding of the topic. The first time the strict doctrine of Ultra vires was tempered by the House of Lords was in 1880, in an application for a perpetual injunction with regard to a contract entered (in this instance) by a company incorporated by statute. This doctrine prohibits the Company to use the money of the investors for the purpose other than that are stated in object clause of the Company enumerated in Memorandum of Association. “A few ghosty relics of ultra vires continue to haunt us, Creditors cannot file a suit against the company for ultra virus contracts. using search above. The expression “ultra vires” comprises of two terms “ultra” and “virus”. It has gotten 1681 views and also has 4.9 rating. The ancient Doctrine of Pious Obligation was governed by... Nistar Patrak Section 161 of the Maharashtra Land Revenue Code 1966 explains the Nistar Patrak. Even though the doctrine of ultra vires had not been officially codified since the early times, its significance cannot be discounted. It can cause hardships to those who prevent it. Also, as stated earlier, the company cannot make it valid, even if every member assents to it. In a case, a company had accepted deposits from outsiders which was outside the scope of the Memorandum. The company entered into a contract with M/s. However, prior consent of the company in general meeting, has to be obtained in order to contribute for any bona fide charitable or other purpose any amount exceeding five per cent of the average net profits for the three immediately preceding financial years. The following powers have been held not to be implied and it is, therefore, prudent to include them expressly in the objects clauses: Shareholder’s right in respect of ultra vires acts. A bank or any other person lending to a company, for purposes ultra vires the memorandum, cannot recover [National Provincial Bank v. Introductions Ltd., (1969) 1 All. App. If a corporation enters into a transaction which is beyond the powers expressly or impliedly contained in the Memorandum or its articles of incorporation, the transaction shall be declared void-ab-initio and is incapable of ratification even if all the members are willing to ratify it. It is said that the doctrine of ultra vires has ceased to be a protection to anyone and has become a trap for unwary third party and a nuisance to a company itself. If the act is ultra vire the directors only, the shareholders have been embodied with the power of ratification. Where the directors exceed their authority the same may be ratified by the general body of the shareholders. It has been opined by various thinkers that the doctrine of ultra vires is an unnecessary constraint on the freedom of operations of companies. An ultra vires contract is as null and void as a contract with a minor [Steel Equipment & Construction Co. (P) Ltd. Re (1968) 38 Com Cases 82, (1967) 1 Comp LJ 172 (Cal)]. Thus the term ultra virus defines an act initiated beyond the power conferred on the corporation by the object clause of memorandum of association. Charity is allowed only to the extent to which it is necessary in the reasonable management of the affairs of the company. It also pays a reasonable role in prevention concentration of economic power. If a corporation enters into a transaction which is beyond the powers expressly or impliedly contained in the Memorandum or its articles of incorporation, the transaction shall be declared void-ab-initio and is incapable of ratification even if all the members are willing to ratify it. The principle underlying the exercise of such powers is that a company, in carrying on the business for which it is constituted, must be able to pursue those things which may be regarded as incidental to or consequential upon that business. beyond the powers of the Company. The censorship of ultra vires is limited to transactions beyond the scope of a company as reflected in the memorandum of associations.