Exceptions to the Doctrine of Ultra Vires
1. An action or conduct that is within the scope of the object clause of the Memorandum of Association of the company, but, that is outside the authority of directors can be ratified by the shareholders.
2. The shareholders can rectify an intra-vires act that was not performed regularly in that specific company.
3. If the company acquires any property under the principle Doctrine of Ultra Vires, even then the company’s right over that acquired property shall be secured.
4. The consequential effect of an act shall not be taken into consideration as “ultra vires” unless it is expressly prohibited by the law.
5. If any act is deemed to be within the authority of the company as conferred by the Companies Act, then it will not be considered ultra vires even if it is not expressly stated in the Memorandum of Association (MoA) of the company.
6. Articles of Association (AoA) of the company can be altered with retrospective effect to rectify an act that is ultra vires of the Articles of Association.
Doctrine of Ultra Vires: Meaning, Applicability, Cases and Exceptions
Every company formed under the Companies Act, 2013 or any previous company law has the object clause in the Memorandum of Association of the company. This object clause includes all the purposes or objects for which the company is established. A Memorandum of Association (MoA) is a supreme document. In other words, a Memorandum of Association (MoA) is the constitution of a company and no act can go beyond the object clause as stated in the Memorandum of Association. It has been presumed by the law, that powers in nature are restricted and limited. Any act outside the scope of the Memorandum of Association is considered void and such an act will be ultra vires.
Geeky Takeaways:
- A Memorandum of Association is considered a supreme document, and any act done beyond the object clause will be treated as void.
- The term Ultra Vires is made up of two terms, ultra means beyond, and vires means power or authority. Thus, the expression refers to any act which is done by the company outside the powers as conferred by the object clause.
- Any act done outside the scope of the Memorandum of Association (MoA) shall not be legally binding on the company.
- The Doctrine of Ultra Vires has been established for the protection of the investors and creditors of the company.
- The Doctrine of Ultra Vires draws a clear line beyond which directors and officials of the company are not authorized to act or perform any contract.
Table of Content
- Doctrine of Ultra Vires
- Applicability of Companies Act, 2013 on Ultra Vires Transaction
- Landmark Cases
- Difference between an Ultra Vires and an Illegal Act
- Exceptions to the Doctrine of Ultra Vires
- Conclusion
- Frequently Asked Questions (FAQs)