The doctrine of Ultra Vires is a fundamental law of Company Law. It states that the company’s assets, as defined in its Memorandum of Association, may be removed from the extent permitted by law only. Therefore, if a company commits an act, or enters into an agreement beyond the control of the directors and / or the company itself, the said action / contract does not apply and does not legally bind the company.

The term Ultra Vires means ‘Beyond Powers’. According to legal terms, it only applies to actions that are beyond the jurisdiction of the perpetrator. This works by assuming that energy is naturally limited. As the Doctrine of Ultra Vires restricts the company to the items specified in the memorandum, the company may:

• Prohibited use of its funds for purposes other than those specified in the Memorandum

• Prohibited trading other than the one authorized.

The company would not sue on an ultra vires transaction. Moreover, it cannot be sued. If a company provides goods or provides services or borrows money under an ultra vires agreement, then it will not be able to receive payment or recover the loan.

However, if the lender borrows money from a company that has not been extended yet, he can prevent the company from breaking up with him on an order. The lender has this right because the company does not own the money as it is the ultra vires to the company and the lender remains the owner.

In addition, if a company borrows money from an ultra vires transaction to repay a legal loan, then the lender is entitled to receive his loan from the company.

Sometimes ultra vires action can be inflicted on the company’s shareholders. For example,

• If an action undermines the authority of the directors, shareholders may confirm it.

• If an action deviates too far from the Company Newsletter, the company may change the Articles.

Remember, you cannot bind a company to an ultra vires contract. Estoppel, consent, expiration, delay, or confirmation cannot make you ‘Intravires’.

Summarizes the Doctrine of Ultra Vires

1. The deed, which is lawful in itself, but not authorized by the item of the Memorandum of Association of the Company or the law, is the Ultra Vires company. Therefore, it is null and void.

2. The action of the ultra vires company cannot be guaranteed even with the unanimous consent of all shareholders.

3. If the action is closely associated with the directors of the company, but intra opposes the company itself, the company members may appeal the decision.

4. If the action is the Ultra Vires Articles of Association of the company, then the same may be approved by a special resolution at the general meeting.

The main advantage of Ultra Vires is the protection of shareholders and lenders, it has its drawbacks too. This doctrine prevents a company from changing its operations in a way that is acceptable to all members. In addition, a special resolution may change the item of the Memorandum item. This undermines the very purpose of the doctrine.

Aishwarya Says:

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