📌 Doctrine of Ultra Vires

1️⃣ Meaning & Concept

The term "Ultra Vires" is Latin for "beyond powers." The Doctrine of Ultra Vires states that:
👉 A company must act within the powers granted by its Memorandum of Association (MoA).
👉 Any act beyond the scope of the MoA is considered Ultra Vires (invalid and void).
👉 Shareholders, directors, or even third parties cannot ratify Ultra Vires acts.

🔹 Example: If the MoA states that a company can only manufacture textiles but it starts a real estate business, such an act is Ultra Vires and illegal.

2️⃣ Legal Recognition (Companies Act, 2013)

📌 Section 4(1)(c): Object Clause in MoA

• Defines the scope of activities a company can legally undertake.

📌 Section 245: Oppression & Mismanagement

• Shareholders can file a suit if the company indulges in Ultra Vires acts.

📌 Section 271: Grounds for Winding Up

• A company can be compulsorily wound up if it acts beyond its powers.

3️⃣ Landmark Case Laws

📌 Foreign Case Law:

📍 Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875) LR 7 HL 653

• Facts: The company was formed to manufacture railway carriages but entered into a railway financing contract.

• Held: The contract was Ultra Vires and void, as it was beyond the company’s MoA.

📍 Attorney-General v. Great Eastern Railway Co. (1880) 5 AC 473

• Held: A company can only perform acts expressly stated in its MoA and those reasonably necessary for its operations.

📌 Indian Case Laws:

📍 A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, AIR 1963 SC 1185

• Facts: A company donated a large sum to a charity, even though its MoA did not permit it.

• Held: The donation was Ultra Vires and void, as it was beyond the company's object clause.

📍 J.K. Industries Ltd. v. Chief Inspector of Factories, (1996) 6 SCC 665

• The Supreme Court ruled that statutory compliance cannot be avoided using the Ultra Vires doctrine.

📍 Re. Jon Beauforte (1953) Ch 131

• Facts: A company engaged in ultra vires activities and then went insolvent.

• Held: Creditors could not recover money, as the transactions were void from the beginning.

4️⃣ Types of Ultra Vires Acts

A. Ultra Vires the Memorandum of Association (MoA)

🚨 Acts beyond the company’s stated objects in the MoA are completely void and cannot be ratified.
📍 Case: Ashbury Railway Co. v. Riche (1875) LR 7 HL 653

B. Ultra Vires the Articles of Association (AoA)

🚨 Acts beyond the powers in the AoA can be ratified by shareholders.
📍 Case: Hickman v. Kent or Romney Marsh Sheep-Breeders' Association (1915) 1 Ch 881

C. Ultra Vires the Directors

🚨 If directors act beyond their powers, the company may approve or reject the act.
📍 Case: Bharat Insurance Co. Ltd. v. Kanhaiya Lal, AIR 1935 Lah 792

D. Ultra Vires the Statute

🚨 If an act violates the Companies Act, 2013, it is illegal and void.
📍 Case: Delhi Development Authority v. Skipper Construction Co. (1996) 4 SCC 622

5️⃣ Effects of Ultra Vires Acts

✅ Void from the Beginning – Cannot be ratified even if all shareholders agree.
✅ No Legal Enforceability – Third parties cannot enforce an Ultra Vires contract.
✅ Personal Liability on Directors – If directors engage in Ultra Vires acts, they may be personally liable.
✅ Injunction Possible – Shareholders can stop Ultra Vires acts through a court order.

6️⃣ Illustration for Easy Understanding

Imagine "XYZ Ltd" is registered to manufacture electronic goods. If:
🚨 The directors decide to start a restaurant, this is Ultra Vires.
🚨 Any contracts signed for the restaurant are void.
🚨 Shareholders cannot approve this decision.

Thus, Ultra Vires acts are invalid, protecting investors and creditors from unauthorized risks.

✅ Conclusion

The Doctrine of Ultra Vires protects shareholders and creditors by ensuring companies operate within their stated objectives. Any act beyond the MoA is illegal and unenforceable, ensuring that a company stays true to its purpose.