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Doctrine of ultra
vires
Presented by :
Pradnyesh Ganu ( Roll no: 10 )
Avidh Gharat ( Roll no: 11 )
Prachi Gharat ( Roll no: 12 )
Madhavi Sawardekar ( Roll no: 42 )
Ahmed Shaikh ( Roll no: 43 )
Neeraj Sharma ( Roll no: 44 )
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Introduction
Ultra vires consists of two words: ultra and
vires.
a) Ultra Beyondb) Vires Powers
Expression ultra vires means an act beyondthe powers.
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Contd
An ultra vires act is void and cannot be ratified
even if all the directors wish to ratify it.
Directors of a company have exceeded thepowers delegated to them.
Introduced in relation to the statutory
companies.
introduction of the principle of limited liability
N1
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Slide 3
N1 Neeraj, 3/29/2011
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Is It Ultra Vires Or Illegal?
The ultra vires act or transaction is different froman illegal act or transaction, although both arevoid.
An act of a company which is beyond its objectsclause is ultra vires and, therefore, void, even if itis illegal.
Similarly an illegal act will be void even if it fallswithin the objects clause.
Unfortunately the doctrine ofultra vires has oftenbeen used in connection with illegal and
forbidden act.
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Protection Of Creditors And Investors
Developed to protect the investors and
creditors of the company.
To employ the money of the investors for apurpose other than those stated in the objects
clause of its memorandum.
The investors and the company may be
assured by this rule that their investment will
not be employed for the objects or activities.
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Ashbury Railway Carriage and Iron
Company Ltd v. Riche
To make and sell, or lend on hire railway
carriages and wagons, and all kinds of railway
plant, fittings, machinery and rolling stock.
To carry on the business of mechanical
engineers and general contractors to purchase
and sell as merchants timber, coal, metal or
other materials; and to buy and sell any
materials on commissions or as agents.
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Contd
The directors of the company entered into a
contract with Riches for financing a
construction of a railway line in Belgium.
The contract was ratified by all the members
of the company, but later on it was repudiated
by the company.
Riche sued the company for breach of
contract.
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Issue
Whether the contract was
valid and if not, whether itcould be ratified by the
members of the company?
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Contd..
The House of Lords held unanimously that:
(a) The contract was beyond the objects as
defined in the objects clause of itsmemorandum and, therefore it was void.
(b) The company had no capacity to ratify the
contract.
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Decision
The House of Lords has held that an ultra viresact or contract is void in it inception
It is void because the company had not the
capacity to make it and since the company lacksthe capacity to make such contract, how it canhave capacity to ratify it.
If the shareholders are permitted to ratify anultra vires act or contract, it will be nothing but
permitting them to do the very thing which, bythe Act of Parliament, they are prohibited fromdoing.
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Ascertainment Of The Ultra Vires
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.
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Conclusion
(a) An ultra vires act is void and cannot be ratified
even if all the directors wish to ratify it.
(b) The provisions similar to those inserted in the
European Communities Act, 1972 should also
be inserted in the Indian Companies Act, 1956 to
protect the innocent third party.
(c) The tendency of inserting independent objects
clause to exclude the main objects rule of
construction is dangerous also because it makes the
distinction between the object and power obscure.
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