. by the doctrine of 'Ultra N ices''' What are the legal effects of 'ultra Viresi Transnction? (C S F:
Ans. Doctrine of Ultrn Vires. This doctrine is important in d-fining the limits of the powers conferred on the company by its Men Mndum of Association According to this doctrine, the vires (power) of a companv to enter into a contract or transaction is limited by the anibit of the Ohjecfs Clause of the Memoranduni and the provisions of the CoZnpanies A t Whatever is not permitted by the Objects Clause and the Aci, is prohitiied bv the doctrine of ultra vires if a company engages in any activity or enters into any contract which is ultra vires (outside the power conferred bv) the Memorandum or Act, it will be null and void so far as the co;npany is concerned and it cannot be subsequently ratihed or validated even if all he shareholders give their consent Tlnis under this doctrine a companN has powers to engage in only such activities or enter into such transactions (a) which are essential to the attaininerZt of the objects (b) which are reasonably and fairly incidental to thc main objects: and (c) which are permitted by the provisions of the Compames Act
Enunciation. The doctrine of ultra vires was f rst enunciated in H celebrated English case Ashubury Rly Carriage and Iron Co. Ltd N S. Riche. supra in that case it was held that, not even the assent of H Ze whole body of shareholders can ratify a contract w was ultra vires the objects clause of the inemorandum The doctrine was confirmed by the House of Lords in .4ffonneyCeneral VS GE Fly Co. ,(1880)5App Cas 473,butthejndgnent was qualified by Lord Selbone adding that the doctrine ought to kc reasonably understood and applied This interpretation of the doctrine ef ultra vires has been recognised in India by the Companies Act, 1956 (as amended in 1965) and also upheld by the Supreme Court in several cases
Eff ects of ultra vires transactions. If a company enters into cor or transactions which are ultra vires the objects clause; it ll have laze following legal effects
INCORPORATION OF A COMPANY 95
of articles?
1. Injunction. A companies bound strictly by tile terms of its . the metnorandum If a company goes beyond the scope of the objects clause. an: of its members can get an injunction from the Court to restrain me cornpan-.- trom undervmg the ultra vnres act
2 Persosal liabiLin of directory The directors of a company are dutv bound m em -e that He funds of the .ornpan are used oniN- for objects stated inTherr.en.orndum if thetndsaremisapplied ie.nsedforpnrposeswhich are aua m. S the As 'ause tl.e directors Mini be help personally liable.
3.1 Iron firms contracts are N old. Contracts entered into bv a connpany v hi h a e Ull-.rrs the company. are void ah initio and tU enforceable. It cannot be n ad Slid b performance on either side or by reason of estoppel or by rati:cn
4. Prospers acquired ultra vices. If a company acquires some property under jr. I.: trarsacnon. it has the right to hold the property and pro - t ag; sect damage by other persons
ARTICLES OF ASSOCiATION
Q. 1-Nat do you understand Iry Articles of Association ? What are its contents ? Erplain the procedure and restrictions on the alteration (Dellti Zlniv, 1991199tj) Or
Write a note on .tlteration of Articles of Association.
(Delhl i 111. 1994) Or
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