Page 69 - DCOM106_COMPANY_LAW

Company Law

Notes Any act done by the company which is neither authorized by its objects nor by the Companies
Act is ultra vires the powers and authority of the company. An act which is ultra vires the company
is void and cannot bind the company. Since the act is void, it cannot be ratified by the shareholders
either.
In a leading case on the point, it was held that a contract ultra vires the company was void and not
even the subsequent assent of the whole body of the shareholders could ratify it. An ultra vires
contract being void ab initio cannot become intra vires by reasons of estoppel, lapse of time,
ratification, acquiescence, or delay. In this case, the objects of the company provided to make
and sell, or lend or hire railway carriage and wagons and all kinds of railways plants, to carry on
the business of mechanical engineers and general contractors, etc. The company contracted with
Riche to finance the construction of railway line in Belgium. On repudiation of contract by the
company, Riche claimed damages contending that the contract fell within the scope of the words
“general contractors” and further contended that the contract was ratified by a majority of
shareholders. It was observed in the case that the Memorandum of Association had two fold
effects – an affirmative that it states the ambit and extent of powers of the company and negative
that nothing shall be done beyond that ambit. It is specific and the term ‘general contractors’,
therefore, cannot be so widely interpreted. The contract of the company to finance the construction
of railway line was ultra vires the objects of the company. Since the act was ultra vires, the power
and scope of objects of Memorandum could not be ratified either.

The directors though authorized to make payments towards any charitable or any benevolent
object, the payment was held to be ultra vires. It was held that the directors could spend for the
promotion of only such charitable objects as would be useful for the attainment of the company’s
objects. Earlier it has been held in Eastern Countries Rly that “no company can devote any part
of its funds to an object which is neither essential; nor incidental to the fulfillment of its object
howsoever beneficial that object might be”.
Act Ultra vires the Powers of Directors and Ultra vires the Articles but Intra vires the
Memorandum: The directors of the company may act beyond the powers and authority assigned
to them. The directors derive their powers through:

1. Articles of Association
2. Specific authority through resolutions.
3. Companies Act.
An act ultra vires the powers of directors but not ultra vires the company can be ratified by the
share holders. Similarly an act ultra vires the articles of company but within the powers of the
Memorandum (intra vires the memorandum) can be ratified by altering the articles. In short, an
act ultra vires the company is void and cannot be ratified. An act ultra vires the powers of directors
and ultra vires the articles but intra vires the Memorandum can be ratified as such an act is only
irregular.
The aggrieved party has the following relief:
Directors can be made liable to outsiders for breach of an implied warranty of authority.

Any member of the company can get an injunction restraining the company from
performing an ultra vires act or from proceeding with it.
If a director makes an ultra vires payment, he can be compelled to refund the money to the
company.
It has been mentioned earlier that a company cannot go beyond its objects mentioned in its
memorandum. The company’s activities are confined strictly to the objects mentioned in its
memorandum and if they go beyond these objects, then such acts will be ultra vires. The object of

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