What is meant by the doctrine of ultra vires in company law. According to s18 contract act 1965, every company formed should have a memorandum printed and divided into paragraph and with the date stated. Business company that ultra vires acts are invalid. The object clause of the memorandum of the company contains the object for which the company is formed. In the case of ashbury railway and iron co v rich it was described that, a company incorporated under the companies act has power to do only those things which are authorized by the memorandum of association.
Doctrine of ultra vires documents, company law b com. Apr 06, 2020 doctrine of ultra vires documents, company law b com notes edurev is made by best teachers of b com. Companies act 1989, the ultra vires rule was a regulatory device which sought to. There are certain acts under the company law, which though not expressly stated in the memorandum, are deemed impliedly within the authority of the company and.
An act is called ultravires the memorandum of the company if, it is done beyond the powers provided by the memorandum to the company. Rise and fall of the ultra vires doctrine in united. Ultra vires doctrine under company law all you need to know. The literal meaning of this doctrine is acts done beyond power. It has been observed that company has an independent legal existence and is a separate body corporate distinct from its. In the case of a company whatever is not stated in the memorandum as the objects or powers is prohibited by the doctrine of ultra vires. The ultra vires doctrine typically applies to a corporate body, such as a limited company, a government department or a local council so that any act done by the. Any act which requires legal authority, and if done with such an authority, it is characterized in law as intra vires literally meaning within the powers, and if done without such authority, it is ultra vires.
The word ultra means beyond and the word vires means powers. Ashbury carriage company v riche 1875 the acc was an incorporated company under the companies act of 1862. As a result, an act which is ultra vires is void, and does not bind the company. N, revisiting the doctrine of ultra vires under cama,2004.
In s18 b contract act 1965, it shows that the requirement of the memorandum of association ma required a statement of object clause. Doctrine of ultra vires the concept of doctrine of ultra. The doctrine of ultra vires applies to the memorandum of association of a company. This doctrine prevents a company to employ the money of the investors for a purpose other than those stated in the objects clause of its memorandum. Ultra vires is a latin phrase meaning beyond the powers. It is a binding document which describes the scope of the company among other things. After years of the ultra vires doctrine frustrating commercial dealings and prejudicing outsiders, parliament saw fit to effectively abolish it by enacting s 36 of the companies act 61 of 1973 the 1973 act. Doctrine of ultra vires with respect to an indian company. The latin phrase ultra vires is a combination of latin words which refers to beyond the powers.
The doctrine of ultra vires under malaysian company law. The doctrine of ultra vires is a fundamental rule of company law. In ashbury railway carriage and iron company ltd v. Its importance as case law has been diminished as a result of the companies act 2006 s 31, which allows for unlimited objects for which a company may be carried on. If the act done or contract made by the company is beyond the powers given in the objects clause of the memorandum, it is called an act, which is ultra vires the memorandum. All those companies that have not been registered, such as partnerships and sole proprietorships will not come under the scope of the doctrine of ultra vires. An act which requires legal authority but is done without it, is characterised in law as ultra vires.
The ultra vires doctrine is to protect members and creditors. An act of the company must not be beyond the objects clause. Position of doctrine of ultra vires in sri lankan company law. The lending of funds ultra vires, the company has no rights a under the company s act b contract act c under equity d none of the above 14. The doctrine of ultra vires assumed a vital part in the improvement of corporate development. However, in so far as the 1856 act failed to stipulate any.
These changes have already rolled out with no interruptions, and will allow us to continue offering the same great service at your busiest time in the year. Any act which is consequential to the object clause but not mentioned in the moa unless prohibited by the companies act. Ashbury rly carriage and iron co ltd v riche wikipedia. Applicability of doctrine of ultra vires on companies by. The doctrine, under current business practices has been prejudicial to creditors.
The memorandum of association contains the permitted range of activities in its objects clause and a company cannot practice any other activity which is not defined under the scope of objectives mentioned in the memorandum. The members of a company even a single member can get an order of injunction from the court restraining the company from going ahead with the ultra vires act. Slade lj destroyed any suggestion that the doctrine of ultra vires was interwoven. Weve taken precautionary measures to enable all staff to work away from the office. Neither the company nor the contracting party can sue on it. Any act done outside the express or implied objects is ultra vires. This doctrine can be considered as the central principle in the whole of administrative law. An act, legal in itself, but not authorized by the object clause of the memorandum of association of a company or statute, is ultra vires the company. The memorandum of association contains the permitted range of activities in its objects clause and a company cannot practice any other activity which is not defined under the scop. An act of a company, which is beyond its objects clause, is ultra vires and, therefore, void, even if it is illegal. Ultra vires acts fall outside the powers that are specifically listed in a corporate charter or state law.
If ultra vires the articles, the articles may be altered to make it intra vires. The doctrine of ultra vires applies to the memorandum of a company. An ultra vires act is one beyond the purposes or powers of a corporation. Memorandum of association of a company defines the powers of a company. Memorandum of association and doctrine of ultra vires. Section 4 1 c of the companies act, 20, states that all the objects for. The crux of the ultra vires doctrine under common law was that any contract entered into by a company which was not in line with the objects in its memorandum of incorporation hereafter memorandum was beyond the company s capacity and therefore void ab initio.
Ashbury railway carriage and iron co ltd v riche 1875 lr 7 hl 653 is a uk company law case, which concerned the objects clause of a company s memorandum of association. Why kenya should reconsider its ultra vires doctrine in corporate law. Discuss the doctrine of ultra vires and its effect in malaysian company law. Doctrine of ultra vires under administrative law by aamir younas raja advocate high court 2 of 2 duration. In this manner, investors of the company can get assured that their money will. Any act done contrary to or in excess of the scope of the activity of the company as laid down by its memorandum of association is ultra vires the company. Thus, a company which owes its incorporation to a statutory authority, cannot effectively do anything beyond the powers expressly or impliedly conferred upon it by the statute or the moa. A memorandum of association of a company is a basic charter of the company. Doctrine of ultra vires under companies act 1956 the doctrine of ultra vires is a latin term which means beyond powers. Thus, in the case of suttons hospital of the year, despite the fact that the company had a separate existence in the eyes of law, the doctrine of ultra vires did not apply. Doctrine of ultra vires explained by advocate sanyog vyas duration.
While applying doctrine of ultra vires, the effects incidental or consequential to the act shall not invalid unless they expressly prohibited by the company s act. Similarly, an illegal act will be void even if it falls within. The doctrine of ultra vires is applicable to all those companies that have been incorporated and have a separate existence in the eyes of law. It is expected that the company will act according to the object clause and will not act outside the object clause, if the company does any act which is not a part of the object clause then that act of the company would be declared ultra vires. While applying doctrine of ultra vires, the effects which are incidental or consequential to the act shall not be invalid unless they are expressly prohibited by the company s act. Though largely obsolete in modern private corporation law, the doctrine remains in full force for government entities. The earliest legal view was that such acts were void. The court may make an order under section 233 if the conduct of a companys act or omission or a resolution is either contrary to the interests of the members. This term is usually used to mean and refer to the acts of the corporations or the companies that are taken outside the power or authority granted to them by law or under the charter of the corporation. If a company departs from its moa such an act is ultra vires. An ultra vires act is void and cannot be ratified even if all the directors wish to ratify it. If a part of the act or contract is within the authority provided by the memorandum and remaining part is beyond the authority, and both the parts can be separated. This invariably means, powers have to be delegated to subordinate bodies for the smooth functioning and administration of these bodies and ventures, as the parliament cannot run all these bodies on its own.
Useful notes on the meaning of doctrine of ultravires. Acts that are intra vires may equivalently be termed valid and those that are ultra vires. Pdf why kenya should reconsider its ultra vires doctrine. The paper also focuses on the comparison between english law and indian law regarding the doctrine of ultra vires. There are certain acts under the company law, which though not expressly stated in the memorandum, are deemed impliedly within the authority of the company and therefore they are. An act ultra virus the directors can be rectified if it is not ultra vires a the articles b the memorandum c company act d none of the above. The doctrine of ultra vires played an important role in the development of corporate powers. The creditors unless they are secured cannot sue on ultra vires transactions perse. Doctrine of ultra vires has been developed to protect the investors and creditors of the company.
Introduction the object clause of the memorandum of the company contains the object for which the company is formed. The abolition of the doctrine of ultra vires under the companies code. The rise and fall ofthe ultra vires rule in corporate law. Nigerian journal of legal studies, imos state university, owerri, nigeria, volix,20102011, pp102104. Introduction ultra means beyond vires means powers an act of the company which beyond the objects clause. In the context of ultra vires doctrine there was a case, which can be regarded as the proof or evidence of its application. Any act that lies beyond the authority of a corporation to perform. There is an agency relationship between the investors who are the real owners and the directors of the company and thereby it is imperative that the there should be limitations with regards to the decision making powers of the directors so as not to indulge in activities that the company is not formed for.
Some activities not specifically mentioned in the moa, but deemed impliedly as within authority of the company. However, there remains the risk that certain transactions might still be held to be invalid as a result of the doctrine. It states that the objects of a company, as specified in its memorandum of association, can be departed from only to the extent permitted by the act. Company law notes kenya pursuant to the 2015 act november 14, 2017.
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