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& MERCIFUL

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As-salaam-o-alekum

DOCTRINE OF

ULTRA VIRES BADAR UZ

ZAMAN B.A.LL.B V

SEM.

TOPIC

A-DOCTRINE OF ULTRA VIRES (i) MEANING AND CONCEPTB- STATUARY PROVISION C- ORIGIN (EMERGENCE)D- ACTS AMOUNT TO ULTRA VIRESE- BINDING EFFECT OF ULTRA VIRES (i) INJUNCTION (ii) LIABILITY OF DIRECTOR (iii) BREACH OF WARRANTY OF

AUTHORITY (iv) ULTRA VIRES ACCQUIRED

PROPERTY (v) ULTRA VIRES CONTRACTS (vi) LIABLITY FOR ULTRA VIRES

ACTS UNDER TORT LAWF- CONCLUSION BIBLIOGRAPHY

Synopsis

DOCTRINE OF ULTRA VIRES

Ultra vires is a Latin phrase combination of two words ultra meaning beyond and vires means power

acts done beyond the power or authority. A company was required by the legislation to include a statement of

its objects in the memorandum of association and from that company did not have legal capacity to act outside its object

The object clause of the Memorandum of the company contains, object for which the company is formed.

-- An act of the company must not be beyond the objects clause, otherwise it will be ultra vires and, therefore, void and cannot be ratified even if all the members wish to ratify it. This is called the doctrine of ultra vires.

MEANING AND CONCEPT

STATUARY PROVISION -- Company and Allied Matters Act (CAMA) 1990 Section 39(1)

"A Company shall not carry on any business (which)not authorized by its memorandum and shall not exceed the power conferred upon it by its memorandum on this Act".

--Communities Act 1975 The fact that the company could not only be restricted from doing an Ultra vires act at the suit of his member but any contract entered into by the company beyond its power was void

--Companies Act 1956 Section 13 that the memorandum of association shall state the objects of the companies. The objects clause owes its existence to check the misuse of funds by company

--companies act 2013 section 2(56) “memorandum means memorandum of association..” contain six clause (name)(registered office)(OBJECT ) (limited liability)(capital)

(association)

Emergence in English law:Ashbury Railway Carriage & Iron co v. Hector Riche 1875 “The Ashbury Railway Carriage and Iron Company,” was

incorporated under the Companies Act, 1862. Its objects in MoA “to make, and sell, or lend on hire,

railway carriages and waggons , and all kinds of railway plant etc. and to carry on the business of mechanical engineers and general contractors ;

entered into a contact with riche a firm of railway... to finance a construction of railway line in Belgium...

Riche sue and contended that contract was within the general in nature...

Lord Crains Lc bserved... the term general contractor must be taken... to indicate generally.. the contract which are connected with the business....

Continued.......Attorney General v. Great Eastern Railway

Co.(1800)In this case the House of Lords affirmed the

principle laid down in Ashbury Railway Carriage and Iron Company Ltd v. Riche but held that the doctrine of ultra vires “ought to be reasonable, and not unreasonable understood and applied and whatever may fairly be regarded as incidental to, or consequential upon, those things which the legislature has authorized, ought not to be held, by judicial construction, to be ultra vires.”

Continued......In Re New British Iron Company, [1898]It was held that the article is not in itself a contract

between the company and the directors; it is only part of the contract constituted by the articles of memorandum between the members of the company inter se, further .... although these provisions in the articles were only part of the contract between the shareholders inter se,

Continued.....

Evans vs. Brunner & co. Ltd (1921)Company manufactured chemicals... By a resolution

its director to distribute $ 1,00,000 to universities and scientific institution... One member challenged it on the ground of ultra vires

The court held, it was not ultra vires, the distribution was to progressive act of company

EMERGENCE IN INDIAIn India the origin of the doctrine dates back to 1866

when the Bombay High Court applied it in case.Jahangir R. Modi v. Shamji Ladha (1867)This doctrine was applied for the first time in India

in the noted case. Bombay high court held... Purchase of joint stock

by director was ultra vires .

And then this rule has been applied and acted upon in a number of cases.

Continued......Parke v. Daily news ltd. (1962)Company disposed of its newspaper business

and proposed with the sanction of a general meeting to distribute the purchase price among its ex-employees by the way of compensation for the loss of their employment and pension right.

It was held to be Ultra Vires on the ground it was generous to former employees not for the remaining business.

Continued......A lakshamanaswami mudaliar v. Life insurance

company (1963)It was a company having business of life insurance

policy. The director of company were authorised “to make payment for charitable and benevolent object”.... The director paid Rs. 2 lakhs, to promoting technical and business knowledge.

Supreme Court held that “the director could not spend companies money on any charitable or general object which they might choose.” Mr. Justice shah : there must be proximate connection between the gift and the company business interest.

ACTS AMOUNT TO ULTRA VIRES

1. An act which is beyond the M.o.A. (object clause) is ultra vires

2. An act which is beyond the authority of director, general director, managerial director, secretary, executive director etc.

3. An act which is intra vires but done in an irregular manner(ratified by shareholders)

effect OF ULTRA VIRES

If a company enters into transactions, which are ultra vires, it will have the following effects...

1.     Injunction: 2.     Personal Liability of Directors: 3. breach of warranty of authority:4.     Ultra Vires Contracts: 5.     Property Acquired Ultra Vires: 6.     Ultra Vires Torts: 

(i) Injunction ::The members can get an injunction to the restrain the company where an ultra vires act has been or is about to be undertaken.*

(Whenever a company goes beyond the scope of the object clause, any of its members can get an injunction from the court to restrain the company from undertaking the ultra vires act.)

* (Attorney general vs. great Eastern Railway Co 1880 )

(ii) LIABILITY OF DIRECTOR::

The funds of a company can only be utilised for carrying out its authorised object .

Emphasising this point, lord Herschel.. A company can not employ its funds for the purposes of any transaction which do not come within the objects specified in the M.o.A . so.. if a director of a company make an ultra vires payment , he can be held personally liable and compelled to refund the money*

*Trevor vs. Whitworth

(iii) BREACH OF WARRANTY OF AUTHORITY::

The directors being the agent of the company can do nothing which the company itself can not do under its memorandum, and therefore, any contract which is ultra vires the company will be void and without affect what so ever if they do not they would be held personally liable for breach of warranty*

* Weeks vs. Propert (1873)

Where company money has been utilised in ultra vires dealings in order to acquired certain property, the company’s right over such property shall remain secured*

* Ad sait vs. Bank of mysore

(iV) property acquired ultravires dealing::

(v) ULTRA VIRES CONTRACTS ::

Ultra vires contract are void ab initio and can not become valid by ratification or by estoppel.

If a person entered into contract without going through its memorandum and contract turns ultra vires... Company can not liable.*

*Re beauforte (london) limited

(vi) LIABILITY UNDER TORT LAW::

Liability for ultra vires acts under tort law...A company is liable in torts if it is shown that -1. the activity in course of which the alleged tort

has been committed falls within the ambit of memorandum of the company.

2. the tort was committed by the servant within the scope of his employment,

RECENT CASE LAWS Anand Prakash And Anr. vs Assistant

Registrar, (27 January, 1966 AIR

All 22)Dr. Rakeshwas Dass Jain filed an arbitration petition

before the Assistant Registrar Co-operative Societies, Muzaffarnagar. He alleged that the proceedings conducted at the annual general meeting after it were illegal and ultra vires.

The same view was expressed by the Supreme Court which was held by Privy Council In International Railway Co. v. N. P. Commission. (AIR 1937 PC 214)

Continued.......Miri Piri College Bachao v. Shiromani Gurdwa

(15 May, 2009)Petition filed in Public Interest, against Shiromani

Gurdwara Prabandhak Committee from transferring any property in the name of respondent No.4

under the provisions of the Act transfer for specified for religious, charitable, or educational purpose and shall be devoted for the purpose specified.

The principle referred in above case which was in Attorney General Vs. Great Eastern Railway (1880) 5 AC 473 in the following words:-

" The doctrine of ultra vires ought to be reasonably, and not unreasonable, understood and applied and whatever may be fairly regarded as incidental to, or consequential...”

APART FROM COMPANY.....The question is Whether doctrine of ultra vires to be

made applicable to LLP?LLP ----(stand limited liability partnership)LLP has combines the advantages of both the Company and

Partnership into a single form of organization. In an LLP one partner is not responsible another partner's

misconduct or negligence; LLP is not liable for any unauthorized act done by any partner.

As per aforesaid principles/judgments, doctrine of ultra vires should be applicable to LLP

because :(a) LLP is an Artificial Person (b) has separate Legal

entity (c) Liability of partners is limited (d)is governed by LLP agreement (e) not liable for other partner act

Continued....B. Rajagopal v. Jomy Xavier

(3 March, 2010)

The appellant was a workman of a coffee estate in Nelliampathy, owned by a partnership firm, 0ne partner sue other (Managing Partner) on the ground that the act of partner was ultra vires.

The court that the unlimited liability partnership firm have no character of company... So this doctrine not imposed in such firm.

CONCLUSIONThe doctrine of ultra vires activated where the

act of company or director beyond the authority. There is no specific statutory provision but followed thoroughly in company law. It is an important rule for member or other person to secure his money or money’s worth. It firstly emerged in English law and then regulary followed in India since 1867 after the decision of Bombay high court in JAHANGIR R. V. SHAMJI LADHA.

BIBLIOGRAPHY1. Company law – DR. R.K. BANGIA

25th edition (2013) ALLAHABAD LAW AGENCY

ALLAHABAD (INDIA)2. Company law – AVTAR SINGH

15th edition (2009) EASTERN BOOK COMPANY LUCKNOW (INDIA)

3. Company law – KAILASH RAI 5th edition (2010) ALLAHABAD LAW AGENCY ALLAHABAD (INDIA)

4. THE NEW COMPANY LAW- DR. N. V. PARANJAPE

6TH EDITION (2015) CENTRAL LAW

AGENCY ALLAHABAD (INDIA)

www.indianqanoon.com

www.wikipedia.com

www.lawteacher.net

www.legalindia.com

THANK

YOU

PRESENTED BY BADRUZ ZAMAN Vth Semester 13BALLB-26 FA7039SUBMITTED TO,MS. SHAILA MEHMOODASSISTANT PROFESSORA.M.U. CENTRE MURSHDABAD(faculty of law)