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Unit 5: Memorandum of Association

timber, coal, metals, or other materials, and to buy and sell any such materials on commission Notes
or as agents.” The directors agreed to purchase a concession for making a railway in a foreign
country, and afterwards (on account of difficulties existing by the law of that country), agreed to
assign the concession to a Société Anonyme formed in that country, which société was to supply
the materials for the construction of the railway, and to receive periodical payments from the
English company.
The objects of this company, as stated in the Memorandum of Association, were to supply and
sell the materials required to construct railways, but not to undertake their construction. The
contract here was to construct a railway. That was contrary to the memorandum of association;
what was done by the directors in entering into that contract was therefore, in direct contravention
of the provisions of the Company Act, 1862.

It was held that this contract, being of a nature not included in the Memorandum of Association,
was ultra vires not only of the directors but of the whole company, so that even the subsequent
assent of the whole body of shareholders would have no power to ratify it. The shareholders
might have passed a resolution sanctioning the release, or altering the terms in the articles of
association upon which releases might be granted. If they had sanctioned what had been done
without the formality of a resolution, that would have been perfectly sufficient. Thus, the contract
entered into by the company was not a voidable contract merely, but being in violation of the
prohibition contained in the Companies Act, was absolutely void. It is exactly in the same
condition as if no contract at all had been made, and therefore, a ratification of it is not possible.
If there had been an actual ratification, it could not have given life to a contract which had no
existence in itself; but at the utmost it would have amounted to a sanction by the shareholders to
the act of the directors, which, if given before the contract was entered into, would not have
made it valid, as it does not relate to an object within the scope of the memorandum of association.
Later on, in the case of Attorney General v. Great Eastern Railway Co., this doctrine was made
clearer. 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.”

The doctrine of ultra vires was recognised in Indian the case of Jahangir R. Modi v. Shamji Ladha
and has been well established and explained by the Supreme Court in the case of A.
Lakshmanaswami Mudaliar v. Life Insurance Corporation of India. Even in India it has been
held that the company has power to carry out the objects as set out in the objects clause of its
memorandum, and also everything, which is reasonably necessary to carry out those objects.
For example, a company which has been authorized by its memorandum to purchase land had
implied authority to let it and if necessary, to sell it. However, it has been made clear by the
Supreme Court that the company has, no doubt, the power to carry out the objects stated in the
objects clause of its memorandum and also what is conclusive to or incidental to those objects,
but it has no power to travel beyond the objects or to do any act which has not a reasonable
proximate connection with the object or object which would only bring an indirect or remote
benefit to the company.
To ascertain whether a particular act is ultra vires or not, the main purpose must first be ascertained,
then special powers for effecting that purpose must be looked for, if the act is neither within the
main purpose nor the special powers expressly given by the statute, the inquiry should be made
whether the act is incidental to or consequential upon. An act is not ultra vires if it is found:
Within the main purpose, or
Within the special powers expressly given by the statute to effectuate the main purpose, or

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