Meaning of Doctrine of “Ultra vires”

  • Ultra Vires literally means beyond the powers.
  • This is a rule of capacity of registered companies contained in the provisions of the Companies Act.
  • This rule is to the effect that a registered company can only enter into transactions provided for by the objects clause and those that are reasonably incidental to the attainment of such objects. Other transactions are beyond the powers and therefore unenforceable.
  • The doctrin of ultra vires was first incorporated into the Companies Act in 1844, but it was not until 1875 that it was accorded a judicial interpretation in Ashbury Railway Carriage and Iron Co. V. Riche where the court was emphatic that the capacity of a registered company was restricted to transactions expressly stipulated in the objects clause. Other transactions were Ultra vires.
  • However, in Attorney General V. Great Eastern Railway Co. Ltd, it was held that in addition to the express objects, a company had capacity to engage in transaction reasonably incidental to the attainment or pursuit of such objects.
  • This decision expanded the contractual capacity of companies and weakened the doctrine of ultra vires.
  • An Ultra Vires transaction remains Ultra vires and nothing can be done to render it Intra vires. It was so held in the Rolled steel case as well as in Brady V. Brady.
  • An ultra vires transaction cannot be rendered intra vires by estoppel, lapse of time, delay acquiescence or ratification.
  • The doctrine of ultra vires in company law has been weakened so much so that companies enjoy almost unrestricted capacity.
  • One of the most common approaches to giving companies unrestricted capacity is the use of subjective clauses in the objects clause, for example “the company can engage in such other trade or business which can in the option of the board of directors be carried on advantageously for the company as was the case in Bell Houses Ltd V. City wall properties Ltd.

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