CHAPTER OF

5 ASSOCIATION

Clauses
Alteration
Doctrineof Ultra Vires

Meaning
Memorandum ofAssociation is the main document ofa company which defines its
@ objects. It lays down the fundamental conditions upon which alone the company

the company since it governs the relationship withGüßiÜGö%d.

According to Section 2(56) of Companies Act, Memorandum means
"Memorandumof Associationas originallyframed or as altered from time to
time in pursue of any previous companieslaw or of this Act".Any provisions
contained in the Memorandum of Association will be void to the extent to which
they are repugnant to the provisions of the Companies Act.
According to Palmer, the Memorandumof Association contains the objects for
which the company is formed, and therefore identifies the possible scope of its
operationsbeyond which its actions cannot go. It defines as well as confines
the power of the company. If anything is done beyond these powers that will
be ultra vires the company and therefore void.
Purposes of Memorandum
Purposes of Memorandum of Association
A Memorandumof Association (MOA) serves the following purposes:
1. Definingthe purposes of the company: The MOAsets out the com-
pany's objectives and the activities which the company is authorised to
undertake. This ensures that the company operates within the scope Of
its objectivesand complies with the applicable laws
and regulations.

74
 MEMORANDtJM OF ASSOCIATION
75
2. protecting the interests of shareholders: The MOAoutlines
the
the activities of the cornpany, thus preventing any unauthorised scope of
activities
or decisions that could adversely affect the shareholders.
3. Facilitatingcapital raising: The MoAspecifiestheauthorisedsharecapital
of the cornpany,which helps investors understand the potential size of
the companyand the amount of capital required for its operations.This
helps in raising capital through the issuance of shares. It also ensures
that the money raised from the investors shall be utilised only for the
specified purposes.
4. Protecting the third parties: As MOAis a public document, any one
dealingwith the company,including the supplies or lenders, shall know
whether the transactions with the company are within the scope of powers
of the company or not.
5. Facilitating decision-making: The MOAhelps in decision-makingby
outlining the company's powers and limitations. It provides guidance to
the managementand directors on the activities that the company can
undertake,which helps them make informed decisions.
Thememorandumis required to be printed, divided into paragraphs, numbered
and signed by at least seven persons (two in case of a private
consecutively
company)in the presence of at least one witness, who will attest the signatures.
Theparticularsabout the signatories to the memorandum as well as the witness, z
as to their address, description, occupation etc., must also be entered.
A Public Document

Memorandum
of Association is a public document, therefore, every person who
dealswith the company is presumed to have sufficient knowledge of its contents.
It is open for public inspection.
A company, on being required by a member,is bound to supply to him with a
copyof its memorandumon payment of the prescribed fee. The copy must be
sentwithinseven days. In case the company makes default in complying with
thisrequirement,the company,and every officer of the company who is in
defaultshallbe punishable for each offence, with a fine
of 1000 per day till
thedefaultcontinuesor 1 lakh whichever is less (Sec.
17). However,the right
toobtaincopyhas not been given by law to a
person other than a member.
Clausesof Memorandum
of Association [Sec. 41
Memorandum
must have the following clauses:
(1) Name
Clause
(2) Situation
Clause
(3) Objects
Clause
(4) Liability
Clause
 76 MEMORANDUMOF ASSOCIATION

(5) Capital Clause

(6) Association Clause or Subscription Clause
CLAUSES OF MOA

Name
Association Registered
or Office
Subscription

Clauses of
MoA

Capital Objects
Liability

< Name Clause

A company being a distinct legal entity must have a name of its owninorder
to establish its separate identity. The general rule is that a companycan
registered with any name it likes subject to the following restrictions:
(a) The last words of the name must end with the words 'limited'or 'privat
limited' as the case may be. In case of a One Person Company'OPC'
istc
be mentioned below the name of the company.It is not necessary that
the word 'company' should form part of the name.
(b) As per Section 4(2) no company can be registered with a name, whic h

in the opinion of the Central Government is undesirable. If a name

identical with, or closely resembles the name of an existing compa nyit
may be deemed to be undesirable by Central Government.
(c) The name adopted by the company should not violate the provisions d
the F,mblemsand Name Act, 1950.
(d) The name should not connote Government participation or patronage
unless circumstances justify the usage of such words. It should notinclude
the word co-operative, bank, banking, insurance, investment unless
circumstances justifies.
Requirements
As per Section 12(3) every company should
 MEMORANDUM OF ASSOCIATION
77
Paint or affix its narne, outside its registered office, and outside eveyy
p ace w wre it carries on businesse in a conspicuous position, in legible
and in the language in general use in the locality;
ICaveits natne engraved in legible characters
Get its nanw, address of itsregistercd office.and corporate-identity num-
ber along with telephone number;fax number, ifany, e-mail and website
addresses, printed in all it±Vbusinessletters, letter papers, billheads and
in all its notices and other official publications; have its name printed on
hundies, promissory notes, bills of exchange.
Default
If there is any default in compliance it will lead to a fine of {-101)0-perday on
the company and every officer of the company who is in default till the default
continue but not exceeding one lakh rupees.

Situation Clause
Memorandum of' Association mus ame of the tat
regis ere o Ice of the company is to be situated. The registered office clause
is important for two reasons:
(1) Firstly,it determines the domicile of the company. This in turn establishei_•;
the e In which the registered z
O ce IS Sl uate .
(il) And secondl it is at the re istered office where the com an 's statuto
and to which notices and other communication
can be sent.
Registeredoffice of a company is the place of its residence of the purposes of
delivering or addressing any communications, service of any notice or process
of Court of Law and for determining the question of jurisdiction in any action
againstthe company.A company need not carry on its business at its registered
office.Nor there is any bar to having a registered office in one state and carrying
on business in another. But, every company must have a registered office within
30 days of its incorporation.

Objects Clause
The most important clause in the memorandum of association of a company
is the object clause. is object clause which lays down-the-objects-of the
company. company cannot do anything beyond or outside its objects and any
act done beyond vires andvoid. A company can exerciß@ÖiiIV
suchpowers as are either expressly stated therein or as may be necessary in
furtherance of its objects.
 ASSOCIATION
78 MEMORANDUM OF

of Association of a company
According to Section 4(C) the Memorandum proposed to be incorporated and
is
state the objects for which the company
furtherance thereof
any matter considered necessary in

Liability Clause embe s of the com any. In case Of

mentions the liabili of Association must have a clause

Liability clause Memorandum of
a company limie y s ares, of the membersis limited
to the extent of the
Memorandumof
to the effectthat the liabilityof the shares held b him. The
of the unpaid portion by guarantee must state the amount which each
Associationa companylimited e ot e asse o
member undertakes to c
being wound up. [Section 4(1)(d)]
its
capital [Sec. 4(1)(e)], the amount of share
having a share
In case of a company companyis to be registered and the division thereof
capitalwith whichthe and the number of shares with the subscribers
amount
into sharesof a fixed subscribe which shall not be less than one share
agree to
to the memorandum subscriber to the memorandum intends
to take
each
and the number of shares
indicated opposite his name.
Person Company, the name of the person who, in the •eventof
In case of One the member of the company [Sec.
death of the subscriber, shall become

Capital Clause
share capital (i.e
Memorandumof Associationof a limited company having
companylimited by shares or company limited by guarantee having share
capital) must also state the amount of share capital with which the companyis
to be registered which is usually called authorized or nominal capital. Further,
divisionof registeredsharecapital into shares of a fixed amount is also required
to be given in the memorandum.Each subscriber must take at least one share
and write oppositehis name the number of shares he takes.

Association Clause
Thisclausestates that the persons subscribing their signatures at the end of the
Memorandumare desirous offormingthemselVéSintoäi1 associa Ion In pursuance
of the Memorandum.Memorandumof Association must be signed by sevenor
more persons in the case of a public company and-by-two-or-nore_pgrsops in
the caké@a privatecompany.Signatures
shall be attested by witnesses. There
majb@öffe witness for all signatures witness
but
ofanofher. Full description, address, occupation, etc. Ofthe
subscråbéFS¯åfdGtnesseSmust be written. In the case of a company having
sharecapital,eachsubscriberis andto
write oppositehis namethe also required to take at least one share
number of shares he agrees to take. Subscribers
 MEMORANDUMOF ASSOCIATION 79

required to pay for these shares after the company is incorporated.They

also sign articles of association of the company.

Alteration of Memorandum of Association

Asovnpany may alter the
(resolutiona a er complying with the procedure specified in the Act, (Sec. 13).

Alteration in the Name Clause [Sec. 13(2)]

a special
1. The name of a company can be changed any time by-passing
at d getting the.appr.QY.aL„
pf_theßentraLGovernment.in-wrjting.
has d
The change of name
document
ed in filing its annual returns or financial statementsor any
due for filing with the Registrarg_whüch has defaulted in
matured ordebentures
[Companies (Incorporation) Rules, 2014]
of the
2. A change of name which merely involvesthe deletion or addition
vice
word 'private' on the conversion of a public company into private of
versa doesn't require the approval of Central Government.
by a name z
3. If;through inadvertence or otherwise, a company is registered or too
which,in the opinion of the Central Government,is identical with
had been
nearly resembles the name by which a company in existence
direct the company to change its name
case may
and the company shall change its name or new name, as the after
be, within a period of 3 months from the issue of such direction,
adopting an ordinary resolution for the purpose;
shall with-
Where a company changes its name or obtains a new name, it
in a period the date of such change, give notice of the
Government,
change to the Re istrar along with the order of the Central
certificate of incorporation
w o s a carry out necessary changes in the
C) and the memorandum.
affect any rights or
J. It is to be noted that change of name will neither by or against
obligationof the company nor render any legal proceedings
the company defective in any way.

Alteration in the Situation Clause [Sec. 13]

the local limits of any city,
1. Shifting of the Registered Office outside requires passing of special
town or village where such office is situated
be given to the
resolution by the companv and notice of the change shall
e ch who shall record the same.
 ASSOCIATION
80 MEMORANDUMOF

within the same State from the juris.

2. Shifting of the registered office the jurisdiction of another
to
diction of one Registrar of Companiesassin of s ecial resolution by the
Registrar of Companies requires Regional Director on an application
com an and confirmationb the
made by the com an in this regard.
office shall not be allowed if any inquiry
The shifting of registered initiated against the company or any
been
inspection or investigation has company under the Act.
prosecution is pending against the

Office from one State or Union territory

Shifting of Registered
to another State
alteration of the memorandum relating to the place of the registered office
The
13(2)]:
from one State to another requires [Sec.
Passing of the special resolution, and
Approval of the ment

Following are the prescribed rules:

(1) An application for the purpose of seeking approval for alteration of mem.
orandumwith regard to the change of place of the registered office from
one Stateor Unionterritory to another, shall be filed with the Central
Governmentalong with the fee and shall be accompanied by the following
documents:
(a) a copy of the memorandum and articles of association;
(b) a copy of the special resolution sanctioning the alteration by the

(c) the list of creditors and debentur.e holders giving

details of their
addresses and amounts-dues;
(d) an affidavitfrom the directors of the
company that no employee
shall be retrenchedas a consequence
of shifting of the registered
office from one state to another
state;
(e) a copy of the notice
served on theRegistrarßhief Secretary of the
StateGovernmentor Union
is situatedat the time territory where the registered office
of filing the application,
case of listed and to the SEBI in
companies.
(2) The companyshall
at east 14 day
before the date of hearing—
(a) advertise the application in
a
vernacular newspaper and an English
newspapercirculatin
in that istrict;
(b) serve individual
notice(s) on each
of the company; debenture holder and creditor
and
 MEMORANDUM OF ASSOCIATION
81
(c) serve a notice together with the copy of the application to the
Registrar and to the Securities and Exchange Board of India.
(3) Before contirtning the alteration, the Central Government shall ensure
that, with respect to every creditor and debenture holder who, have ob-
jectionsto the proposed shifting either his consent to the alteration has
been obtained or his debt or claim has been discharged or has determined,
or has been secured to the satisfaction of the Central Government.
(4) The Central Government may make an order confirming the alteration
on such terms and conditions, if any, as it thinks fit, and may make such
order as to costs as it thinks proper:
provided that the shifting of registered office shall not be allowed if any
inquiry,inspection or investigationhas been initiated against the company or
anyprosecutionis pending against the company under the Act.
Acertifiedcopy of the order of the Central Government approving thealteration
shallbe filed by the company with the Registrar of each of the States within such
timeand in such manner as may be prescribed, who shall register the same, and
the Registrarof the State where the registered office is being shifted to, shall
issuea fresh certificate of incorporation indicating the alteration.

Alteration in the Objects Clause [Section 13(8)]

Acompany,which has raised money from public through prospectus and still has @
any unutilised
prospectus unless
by the company through postal ballot and
the notice in respect of the resolution for altering the objects shall contain
the f6GiGg particulars:
The total money received
- the total money utilized for the objects stated in the prospectus;
- the unutilizedamount out of the money so raised through prospectus;
- the particulars of the proposed alteration or change in the objects;
- the justificationfor the alteration or change in the objects;
- the amount proposed to be utilised for the new objects;
- the estimated financial impact of the proposed alteration on the earnings
and cash flow of the company;
- the other relevant information which is necessary for the members to
take an informed decision on the proposed resolution;
- the place from where any interested person may obtain a copy of the
notice of resolution to be passed.
82 MEMORANDUM OF ASSOCIATION

of such resolution
the details, as may be prescribed, in respect
in English and one
shaffäl€ö be published in the news a ers (one
in vernacular language)w lich is in circulation at the place where
and shall also be
the registered office of the company is situated
placed on the website of the company, if any, indicating there in
the justificatiomfor such change;
the dissenting shareholders shall be given an opportunity to exit
by the promoters and shareholders having control in accordance
with regulations to be specified by the Securities and Exchange
Board of India.
In case of companies which have not raised money through prospectus, objects
can be changed any time by passing of special resolution.
The Registrar shall register any alteration of the memorandum with respect to
the objects of the company and certify the registration within a period of 30
days from the date of filing of the special resolution.

Alteration in the Liability Clause

Ordinarilyit cannot be altered so as to make the liability of the members
unlimited. However,with the authority of the Articles of Association, a company
may altering liability clause of the Memorandum of
Associationso as to make the liabili of directors or of any one director or
manager unlimited. ut, in such a case any person holding office as director or
manager before such alteration shall not be liable until the expiry of his present
term or•unless he has accorded his consent to his liability becoming unlimited.
Alterations,which are likelyto impose additional liability on a member or which
are likelyto compel a member to buy additional shares of the company after
the date on which he became a member, not be made except with the consent
of the member concerned in writing. However, in case a company happens to be
a club or any other association and the alteration requires the member to pay
recurring or periodical subscriptions or charges at a higher rate, the
member
will be bound by the alteration although he does not
agree in writing to be
bound by the alteration.

Alteration of the Capital Clause

Alterations in the capital clause of the Memorandum of
Association may be Of
the following type:
Alteration of the share capital
Reduction of share capital
Variation of the rights of shareholders
 MEMORANDUM OF ASSOCIATION
83
the share capital —
Alterationof
in share capital may be made by a limited company
Followingkinds of alteration
by
havinga share capital, if authorised its articles by passing of ordinary
meeting (Section 61):
tvsolutionat the general
share ca ital•
I. increaseits authorized
2. consolidateor sub-divide its share-capitatinto_sharesotl.rger or smaller
denominations;
and re-convert that stock into
3. conver

or agreed to be taken&y.ny
4•
!
person,and diminish the amount of its share capital by the amount of
thösGGso cancelled.
Reductionof the Share Capital [Sec. 66]
Toprovideprotection to interests nf the investors especially creditors of
companies,reductionof share capital is permissible with strict stipulation of
thelaw.A companylimited by shares or a company limited by guarantee and
havinga share capital, may, reduce its share capital by adopting any of the >
followingmethods of reduction:
(a) extinguis many—outs shares in respect of share
a it
(b) eitherwith or without extinguishing or reducing liability on any of its
shares,cancelany paid-up shåre capital which is lost, or is unrepresented
by available assets; or
(c) eitherwith or without extinguishing or reducing liability on any of its
shares,pay off any paid-up share capital which is in excess of the wants
of the company;
Procedure of Reduction
(O Thearticlesof association of
the company must authorize the company
toreduceits share capita.
n case t e articles oes no aut orlze the
companyto do so, artic es of the
thecompany company has to be altered to authorize
for the same).
(il) Thecompany
must ass a special resolution referred
for reducing
share
to as "a resolution
(iil) The capl
company has to
firmingthe apply, by petition CQthe
reduction: Tribunal for an order con-
Providedthat
therepayment no such
reduction
of any deposits shall be
accepted by it or the interest payable thereon.
 ASSOCIATION
MEMORANDUM OF

every application made to it for reduction

shall give notice of
The Registrar and to the Securities
of share capital to the case of listed companies, and the creditors of t e
and Exchange_Boapde.in representations, if any, made to
shall take into consideration the
companyand Securities and Exchange Board and the
that Registrar,the
Government,
it by from the date of receipt of the notice:
creditors within a perio
may, if it is (satisfiedthat the debt or claim of every creditor of
TheTribunal or determined or has been secured or his
the company has been discharged
obtained, make an order confirming the reduction of share capital
consent is
it deems fit.
on such terms and conditions as
of share capital by the Tribunal
The order of confirmationof the reduction
as the Tribunal may direct.
shallbe publishedby the companyin such manner
order of the Tribunal
(5) The companyshall deliver a certified copy of the
and of a minute approved by the Tribunal showing—
(a) the amount of share capital;
(b) the number of shares into which it is to be divided;
(c) the amount of each share; and
z-z (d) the amount, if any. at the date of registration deemed to be paid-up
on each share,
to the Re istrar within thi days of the receipt of the copy of the order, who
s a register the same and issue a certificate to that effect.
In the followingcases reduction of share capital does not require sanctionof
the Tribunal'
forfeiture of shares
surrender of shares
cancellationof unissued capital (also known as diminution of shar e
capital)
(Jy) buy-back of shares by the company
of preference shares, and
purchaseby the companyof shares of a member under an order Of
Tribunal for prevention of oppression and mismanagement.
If any officer of the company—
(a) knowinglyconcealsthe name of any creditor
entitled to object to t
reduction;
(b) knowinglymisrepresentsthe nature or amount the debt or claim
of
any creditor; or
(c) abets or is privy to any such concealment or misrepresentation as afi
said, he shall be liable under section 447.
 MEMORANDUM OF ASSOCIATION
Iteration of Metnorandutn of Association
Clause Nature of Change
t. Name Anychange in the name of the
company.
Change involving addition Special Resolution in General Meeting.
thereto or deletion there from, of Change of name using web form RUN.
the word 'Private' on conversion.
Rectification of name of the
company (Sec. 16):
if a name on first registration
or registrationby new name
in the opinion of the Central
Government is identical with or
too nearly resembles the name
of the previously registered
company, it may direct the
company to change its name or
new name as the case may be.
t.Situation From one place to another
Board Resolution
within the same city, town or
village.
From one city, town or village
to another city, town or village.
85
Procedure of Change
In conformity with provisions
of Sec. 4 + Special Resolution in
General Meetin
Approval of Central Government
in writing. Approval of name using
web form RUN (Reserve Unique
Name).
(1) within a period of 3 months from
the issue of such directionafter
adoptingan Ordinary Resolution.
Within 15 days of change give no-
tice to Registrar along with order
ofCentral Government.Necessary
changes in the Certificate of
Incorporation and Memorandum
shall be made.
in case of non-compliance of
direction within 3 months, new
name of company shall be the
letters ORDNC(Order of Regional
Director not complied), the year
of passing of the direction, the
serial number and the existing
CINof the company. The Registrar
shall enter such name in Register
of Companies and Company will
have to mention 'ORDNC' in
brackets below the name of com-
pany wherever printed, affixed or
engraved. This will continue until
company subsequently changes its
name in accordance with Sec. 13.
[Rule 33A inserted by Companies
(Incorporation) FifthAmendment
Rules, 2021 w.e.f. 1-9-2021]
 MEMORANDUM OF ASSOCIATION
86
Clause Nature of Change
where it involves change
in jurisdiction of ROC.
where it does not involve
change in jurisdiction of
Roc.
Change of Registered Office
from one state to another.
Procedure of Change
Special Resolution in General
Meeting
Approval of Regional Director
Special Resolution in General
Meeting.
Form No. INC-23 to be filed With
Special Resolution passedin
General Meeting

Approval of Central Government

(Central Governmentshall give
its approval only after having
'No Objection' from Creditors,
debenture holders and the persons
concerned with the company and
ensuring that no employee shall
be retrenched).
Shiftingnot allowed during pendencyof
zz any enquiry/inspection/investigation/
prosecution against the company.
ROC of State where office is shifted shall
issue fresh Certificate of Incorporation
indicating alteration.
3. Object A company which has raised Special Resolution General Meeting+
money from publicthrough pro- details be published in two newspapers,
spectus and still has unutilized one English and one in VernacularLan-
amount shall change its objects guage plus on website of the company
for which it raised the money. indicating justification of change + the
dissenting shareholders shall be given
an opportunity to exit. ROCshall register
alteration within 30 days of filingof
Special Resolution.
In other cases Special Resolution in General Meeting.
ROCshall register alteration within 30
days of filing of Special Resolution.
4, Capital Increase of Authorised Authorisation by Articles
Clause Capital. Sec. 61(1)(a)
Conversionofshares into Ordinary Resolution
stock or vice versa. Sec.

Consolidation or splitting
up of shares. Sec. 61(1)
(b) and Sec. 61(1)(d)
 MEMORANDUM ()1•'ASSOCIATION

87
Clause
Nature of Change
Procedure of
• Din)inution or Capital Change
(Cancellation) of unsub-
scribed portion of capital.
sec. 61
Reduction of capital (Sec. 66) Special Resolution in
+ Approval of TribunalGeneral Meeting
• by extinction or reduction on 'No Objec-
of liabilityon any of its tion' from:
shares in respect of share (1) Creditors
capital not paid up or
(ii) Central Government
• either with or without (iii)
extinction or reduction Registrar
of liabilityon any of its (iv) SEBI
shares: Tribunal shall not sanction any
appli-
(1) cancel any paid up cation for reduction unless accounting
share capital which treatment for reduction proposed is
is lost or unrepre- not in conformity with provisions
sented by available regarding it.
assets, or Officers knowingly concealing or mis-
(ii) payoff any paid-up representingthe nature, amount or claim
share capital which of any creditor (or being privy to such
is in excess of the concealment or misrepresentation) shall
wants of the com- be liable under Sec.447.
pany.

Variationin the rights of the shareholders [Sec. 48]

(I) Wherea share capital of the company is divided into different classes of
shares, the rights attached to the shares of any class may be varied with
the consent in the writing of the holders of not less than three-fourths of
the issued shares of that class or by means of a special resolution passed
at a separate meeting of the holders of the issued shares of that class:
— If provision with respect to such variation is contained in the
memorandum or articles of the company; or
—-In the absence of any such provision in the memorandum or
articles, if such variation is not prohibited by the terms of issue
of the shares of that class:
Provided that if variation by one class of shareholders affects the rights
Ofany other class of shareholders, the consent of three-fourths of such
Otherclass of shareholders shall also be obtained and the provisionsof
this section shall apply to such variation.
(2) Wherethe holders of not less than 10% of the issue shares of a class did
not consent to such variation or vote in favour of the special resolution
 ASSOCIATION
MEMORANDUM OF
88
the Tribunal to have the variation
may apply to
fov the variation, they not have effect unless and until
variation shall
cancelled.In that case the
Tribunal.
it is confirmedby the Diminution of Capital
of Capital and
Differencesbetween Reduction
Diminution of Capital
Reduction of Capital
reduction of issued (sub- Amounts to reduction of the unissued
1 Amountsto share capital.
scribed or paid-up) capital.
Requires passing of ordinary resolution.
2 Requirespassing of special resolution.
creditors may be adversely Interest of creditors is not affected.
3 Interest of
affected.

Doctrine of Ultra vires

f Association of a
'Ultra' means beyond, and 'vires' means powers. Memora
contrary to or in exces
company defines the powers of a company. Any act done
as laid down of
association is ultra vires the com any, i.e.,beyond the le al owers an rity
o e company,and shall be wholl v • an not bindin on the com an . Acts
@ companycan neit er be ega Ise nor ratified even with the
unanimous consent of all the members of the company.

Rationale of the Doctrine

The doctrine of ultra vires is primarily developed to protect the interest of the
investorsand the creditors.The doctrineprevents a company to employthe
money of the investors for a purpose other than those stated in the objects
clause of the memorandumof association.Thus the investors and creditors
may be assured by this doctrinethat their investmentwill not be directedfor
the activities which they did not contemplate while makinginvestment in the
company.
The doctrine prevents the wrongful application of the company's assets to result
in losses or insolvencyof the company.It puts a check on the directors Ofthe
company from deviating from the objects for which the company is formed•A
company only has the capacity to do those acts which fall within its objectsas
set out in its memorandum of association or are reasonably incidental to the
attainment of such objects.

Establishment of the Doctrine

c
The doctrine of ultra vires was established and applied in 1875 by the House
Lords in the case of Ashbury Railway Carriage & Iron Co. Ltd. v. Riche
 MEMORANDUM OF ASSOCIATION 88A

Law.'Ashbury Railway Carriage & Iron Co, Ltd, v. Riche.

Case
Fact of the Case:
Memorandum of Association of Ashbury defined its objects as "to make and sell,
The and wa ons and all kinds ofYailway plants etc.; to
hire railwa carriages
or lend on mechanical en ineerin and eneral contractors...".The
carryon the business of
entered into a contract with M/S. Riche, a firm of railway contractors, to
company line in Belgium. On repudiation of his contract
railway
financethe construction of a
the company on the ground of its being ultra vires, Riche brought an action for
by
for breach of contract on the ground that the words "general contractors"
damages
to the company to enter into such contract and, that, it was well within
gavepower
the powers of the company.
Decision
as ultra vires the company and, therefore,
The Houseof Lords held the contract contractors' must be taken to indicate
declareit null and void. "The term 'general connected, with the business of
the making generally of such contracts as are
is not so interpreted, it would
mechanicalengineers. If the term 'general contractors'
description, would, therefore,
authorisethe making of contracts of any and every in the
entirely beyond the objects
be altogether unmeaning. Hence the contract was
"memorandum of association."
of JahangirR.
Thedoctrineof ultra vires was recognisedin India in the case Court in
Modiv. ShamjiLadha and has been well established by the Supreme
of India. @
thecase of A. Lakshmanaswami Mudaliar v. Life Insurance Corporation
The doctrine of ultra vires should not be unreasonably understood and
applied.It does not restrain a company from doin such t in s which
are reasonablyfair and incidental to its o jects or which the company is
authorisedto do under the CompaniesAct. For example, a companywhich has
beenauthorized by its memorandum to purchase -land had implied authority
to lef it and if necessary, to sell it.' the
Objectsor to do any act which hash reasonable proximate connectio/with the
Objector which would only brin n in Irect or remote benefit to the company.
Thereis difference between objects and powers. Powers are not to be stated in
thememorandum.Even if stated, these can be used only to achieve the objects of
thecompany.In no case, these can become independent objects by themselves.
Actsof a company may also be ultra vires the Articles or ultra vires the powers
Of thedirectors.Acts ultra vires the Articles can be validated and made binding
uponthe company by altering the Articles of Association with special resolution
at a generalmeeting.Alteration of Article of Association with retrospective
effeqt,if to the benefit of the company, shall be valid. Anpct beyond the scope
ofthePowersof the directors may also be ratified by the general body of the
shareholders.
 MEMORANDUM OF ASSOCIATION

fiects of Ultra Vires Transactions

ave the effects of ultra vires transactions:
bring injunction against the
\niunction. Any member of the company can
act
com an to restrain it from doin ultra vires
towards the Company. The directors of the com.
liability of Directors
those funds of the company which
pany ave personallv liable to make good directors
used for ultra vires purposes. It is the duty fthe
they have
company to employ funds and properties of the company for the
of the
association of the company.
purposes laid down in the memorandum of
Party. Directors are the agents
3. Liabilityof Directors towards the Third
affairs ofthe company within
of the company.It is their duty to conduct the
memorandum. Where the
the powers of the company as laid down in the
directors represent the third party that the contract entered into by them
on behalf of the companyis within the powers of the company, while in
realitythe companyhas no such powers under the memorandum, the
directorswill be personallyliable to the third party for his losses on
account of breach of warranty of authority.
Case Law: Week v. Propert (1873)
Facts of the Case
The directors of a railway company through an advertisement, invited applications to
invest in the company by way of loans and bonds. The limit of borrowing as put in the
emorandum had been exhausted. Weeklent to the it.
Decision
Held that the loan is ultra vires but Week could sue the directors for breach of warranty
of authority.
4. Contract Void. A contract which is ultra vires the company will be void
and of no effect whatsoever. "Anultra vires contract
cannot become intra vires by reason of estoppel, lapse of time, ratifica-
tion, acquiescence or delay"1 However,if the contract is only ultra vires
the powers of the directors but •notultra vires the company,it may be
ratified in the general meeting and thereby the companywill be bound
by it.
5. Ultra vires acquisition of Property. Whenmoney of company is
spent ultra vires in acquiringa property,the right of the companyove l
that property would be secure.This is becausethe property represent:
corporate capital, though acquired wrongly.
However, where the payment for an ultra viresacquiredproperty/asse
has not been made, the vendor can obtain a tracing.order to recover

1. Ashbury Railway Companyv. Riche.

 OF ASSOCIATION 88C

pn»pevtv the hands oc the cojnpany. A cojnpany cannot be allowed

to benefit transactions at the cost of the other party.
vitv.s Borrowings. A or ot her person lending to company for
6. 111071
prevents t w company from repaying
that loan agrecnwnt. But nothing
entitled to a tracing order, and if the mon-
that money. The lender is also
into any investment held by the company,
ev lent is traced in specie or
the company in that form. Further, if that
the lender can recover it from
discharging any debts or liabilities of
money is used by the company in
company, the lender will, on accounts of principle of subrogation,
the whose claims have been paid off by
step into the shoes of the creditors
against the company.
the company and acquire rights
vires Lending. If the money has been lent by the company and
7. Ultra would be void. No action can be
the lendingis ultra vires, the contract recovery of its money. This
broughton it, but the company can sue for
because the borrower who has made a promise to repay that money,
is
back on the ground that it is
cannot be allowed to refrain from paying it
without authority.
company liable for the torts (civil
8. Ultra vires Torts. In order to make the
wrongs)of its employees,it is to be proved that:
which falls
(l) the tort was committed in the course of an activity
within the purview of the company's memorandum, and
(iO the tort was committed by the employee in the course of his em-
ployment.
A company,havingthe statutory powers to run tramways, starts operating
omnibuses-aventure entirely outside its memorandum. The driver of one such bus
negligentlyinjures X.The company cannot be held liable for injury to X because the
companydoes not have any existence outside its corporate sphere, Therefore, X 's
remedyis only against the driver and not against the company.
A'

Ewing v. Buttercup Margarine Company Ltd. Name of company

Societyof Manufacturers and Traders Ltd. Name of company
v. MotorManufacturers and Traders Mutual
Insurance Company Ltd.
ExecutiveBoard of the Methodist Church in Name of company
India v. Union of India
Orient Paper Mills Ltd. v. The State Shiftingof Registered Office
 ASSOCIATION
MEMORANDUM OF

Registrar of Shiftingof
v.
Rank Film Distributors
Companies Shifting of Registered
MillsLtd. v. State of Maharashtra
Minerva
& Iron Co. Ltd. v. Doctrine of Ultra vires
Ashbury Railway Carriage
Riche
Doctrine of Ultra vires
• Weeksv. Propert

REVIEW QUESTIONS
serve?
1. What purpose does the memorandum of association
2. Can a companychangeits name? What is the procedure?
3. Discussthe case law with respect to change of registered officefrom
one State to another. Can a State object shifting on the ground of lossof
revenues?
4. A companywants to shift its officefrom Kolkata to Mumbai, can it do

S. What is doctrine of ultra vires?What are its consequences?

6. Can a company undertake a business which is legal and profitable without
specifically being mentioned in the memorandum of the company? Stat
the consequences.
7. Discuss the statutory provisionsregarding•reduction of share capital"
8. Explain the law relating to alteration of object clause.
9. "An ultra vires act of majority is void".Comment.