Page 71 - DCOM106_COMPANY_LAW

Company Law

Notes The company in general meeting may ratify the act of directors as it is intra vires the company,
though ultra vires the powers of the directors of the company:
Any property acquired by a company under an ultra vires transaction may be protected by
the company against damage by third persons.
Directors and other officers can be held liable to compensate the company for any loss
occasioned to it by an ultra vires act.
Directors and other officers shall be personally accountable to the third parties
Money or property gained through an ultra vires transaction available in specie or capable
of being identified shall be restituted (restored) to the other party.
In case, an ultra vires loan, taken by a company is used for payment of its intra vires debts,
the lender of the ultra vires loan is substituted in place of the creditor who has been paid off
and as such can recover the money.

Self Assessment

8. Which of the following need not have MOA
(a) Public company (b) Private company
(c) Government company (d) Statutory Corporation

9. A company can change its name by passing
(a) Ordinary resolution
(b) Special resolution

(c) Either by special resolution or by ordinary resolution
(d) None of the above
10. Ultra vires means
(a) Beyond the power (b) with in the power
(c) Both (d) None of the above

11. Ultra vires loans granted by the company are
(a) Void (b) Voidable
(c) Valid (d) None of the above

5.4.1 The Effects and Exceptions of the Doctrine of Ultra vires – An
Elaboration

Doctrine of ultra vires has been developed to protect the investors and creditors of the company.
The doctrine of ultra vires could not be established firmly until 1875 when the Directors, & C., of
the Ashbury Railway Carriage and Iron Company (Limited) v Hector Riche, (1874-75) L.R. 7 H.L.
653 (discussed above also) was decided by the House of Lords. A company called “The Ashbury
Railway Carriage and Iron Company,” was incorporated under the Companies Act, 1862. Its
objects, as stated in the Memorandum of Association, were “to make, and sell, or lend on hire,
railway carriages and wagons, and all kinds of railway plant, fittings, machinery, and rolling-
stock; to carry on the business of mechanical engineers and general contractors; to purchase,
lease, work, and sell mines, minerals, land, and buildings; to purchase and sell, as merchants,

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