Doctrine of UltraVires

By Hasibullah Khairzada
 Definition
A Memorandum of Association of a company is a basic charter of the
company. It is a binding document which describes the scope of the company
among other things. If a company departs from its MOA such an act is ultra
vires.
 Meaning
• The Doctrine of Ultra Vires is a fundamental rule of Company Law. It states
that the objects of a company, as specified in its MOA can be departed from
only to the extent permitted by the Act. Hence, if the company does an act,
or enters into a contract beyond the powers of the directors and/or the
company itself, then the said act/contract is void and not legally binding on
the company.
• The term Ultra Vires means ‘Beyond Powers’. In legal terms, it is applicable
only to the acts performed in excess of the legal powers of the doer. This
works on an assumption that the powers are limited in nature.
 Conditions
Since the Doctrine of Ultra Vires limits the company to the objects specified in
the memorandum, the company can be:
• Restrained from using its funds for purposes other than those specified in
the Memorandum
• Restrained from carrying on trade different from the one authorized.
• The company cannot sue on an ultra vires transaction. Further, it cannot be
sued too. If a company supplies goods or offers service or lends money on
an ultra vires contract, then it cannot obtain payment or recover the loan.
• However, if a lender loans money to a company which has not been
extended yet, then he can stop the company from parting with it via an
injunction. The lender has this right because the company does not become
the owner of the money as it is ultra vires to the company and the lender
remains the owner.
• Further, if the company borrows money in an ultra vires transaction to repay
a legal loan, then the lender is entitled to recover his loan from the company.
 In Summery
• An act, legal in itself, but not authorized by the object clause of the Memorandum
of Association of a company or statute, is Ultra Vires the company. Hence, it is null
and void.
• An act ultra vires the company cannot be ratified even by the unanimous consent of
all shareholders.
• If an act is ultra vires the directors of a company, but intra vires the company itself,
then the members of the company can pass a resolution to ratify it.
• If an act is Ultra Vires the Articles of Association of a company, then the same can
be ratified by a special resolution at a general meeting.