The latin phrase ultra vires is a combination of latin words which refers to beyond the powers. Development of the doctrine doctrine of ultra vires has been developed to protect the investors and creditors of the company. Except as provided in subsection b, corporate action may not be challenged on the ground that the corporation lacks or lacked power to act. At the inception, the application of the doctrine was designed exclusively to ensure that administrative authorities do not exceed or abuse their legal powers. This doctrine can be considered as the central principle in the whole of administrative law. An action of the authority is intra vires when it falls within the limits of the power conferred on it but ultra vires if it goes outside this limit. The doctrine of ultra vires was particularly introduced to protect the interests of creditors and shareholders, the object clause is considered the preamble of the company, and therefore anything was done which is not inconsistent. The ultra vires doctrine in a constitutional setting. In contrast, a number of commentators argue that administrative law is a body of judgemade common law which is unrelated to the will of parliament. Pdf why kenya should reconsider its ultra vires doctrine in. Any act which requires legal authority, and if done with such an authority, it is characterized in law as intra vires literally meaning within the powers, and if done without such authority, it is ultra vires. Neither the company nor the third party could enforce such a transaction. Because the statute has specific criteria for bringing ultra vires claims that petitioner failed to observe, the court held that petitioners defense of an offset was precluded. In this case the directors of company were authorized to make payment towards any charitable or benevolent object or any general or useful object.
Christopher forsyth, of fig leaves and fairy tales. The doctrine of ultra vires refers to those acts or decisions that a company may undertake which are beyond the scope of powers granted by the companys objects clause in its memorandum of association. The doctrine envisages that an authority can exercise only so much power as is conferred on it by law. How the ultra vires doctrine would function and its. Committing activities which exceed ones powers can be illegal, and may be subject to various legal remedies depending on the nature of the situation. Money paid by defendants to successful plaintiffs in civil cases to compensate the plaintiffs for their injuries department. Ultra vires revisited thomas adams associate professor of law and fellow of st. The doctrine of ultra vires normally occurs in a variety of ways.
At common law, any ultra viresact or transaction of a company was held to be void. Doctrine of ultra vireseffects and exceptions essay. S lodha and reaffirmed by the sc in a laxamana swami mudalliar vs lic. Doctrine of ultra vires in common law and its relevance there is an agency relationship between the investors who are the real owners and the directors of the company and thereby it is imperative that the there should be limitations with regards to the decision making powers of the directors so as not to indulge in activities that the company. If officers have performed a tort which is intra vires, the company will be held liable. Any activity of the company which is outside the scope of its objects clause is said to be ultra vires. The paper explains that initial and old concept of the doctrine of ultra vires was a concept of only lack of legal power to do an act. A company called the ashbury railway carriage and iron company, was incorporated under the companies act, 1862. Ultra vires is a latin term which means beyond the powers, and when used in law, it refers to an activity which exceeds the powers granted to the person engaging in that activity. Universiteit van johannesburg companies act 71 of 2008. A company, therefore, can do anything within the scope of the powers specified in the memorandum.
The doctrine of ultra vires applies to the memorandum of a company. An ultra vires act is one beyond the purposes or powers of a corporation. Ultra vires acts of a company are void and cannot be. What is meant by the doctrine of ultra vires in company. The doctrine of ultra vires played an important role in the development of corporate powers. Doctrine of ultra vires the memorandum, being the constitution of the company sets out the principal objectives, powers, scope and its area of operation, both internal and external. The ultra vires doctrine was originally developed in the common law. An act of the company must not be beyond the objects clause, otherwise it will be ultra vires and, therefore, void and cannot be ratified even if all the members wish to ratify it. Historically before the advent of general incorporation. The doctrine of substantive ultra vires law teacher. The literal meaning of this doctrine is acts done beyond power. In england the history and background of the doctrine of ultra vires in england can be studied in two different parts. Ultra vires tort a company cannot be liable for any tort committed by its officers in connection with the business outside its scope of objectives.
This doctrine prevents a company to employ the money of the investors for a purpose other than those stated in the objects clause of its memorandum. No sooner had the ultra vires doctrine been propounded. An act ultra vires the company cannot be ratified even by. The earliest legal view was that such acts were void. A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name damages. Apr 06, 2020 doctrine of ultra vires documents, company law b com notes edurev is made by best teachers of b com. The voluminous increase in corporate mergers and acquisitions. Exceptions of doctrine of ultra vires following are the exceptions to the doctrine of ultra vires. For example, an enterprise could merge with others to form a new company, transfer its assets to.
It has been observed that company has an independent legal existence and is a separate body corporate distinct from its. 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. The gradual erosion of the ultra vires doctrine in english. An act of the company must not be beyond the object clause otherwise it will be ultra vires and therefore, void and cannot be ratified even if all the member wish to ratify. Rise and fall of the ultra vires doctrine in united.
Findings it shows how the abolition of the objects clause has signaled the end of ultra vires. Pdf applications of the doctrine of ultra vires in. The doctrine of ultra vires as used in administrative law. This shows the supremacy of the constitution in countries having written constitution. Whether the act is an individual act or a group act, censuring is a necessity. This principle is known as the doctrine of ultra vires. The doctrine of ultra vires is the basic doctrine in administrative law. Critical corporate governance and the demise of the ultra vires. Broadly stated, the ultra vires doctrine which section 124. Designmethodologyapproach this paper discusses the doctrine of ultra vires and its development over time, which is claimed to be one of gradual erosion. Whether section 124 of the delaware general corporation law dgcl prevented a claim for breach of fiduciary duty against the directors in connection with a merger.
If they did so, the courts declared such acts ultra vires and therefore, invalid. Ultra vires doctrine zimbabwe legal information institute. Tlhe ultra vires doctrine has been held to apply, first where the company purports to act beyond its purposes as set out in its constitution, secondly, where the. Doctrine of ultra vires effects and exceptions concept the object clause of the memorandum of the company contains the object for which the company is formed. Judicial reappraisal of the parameters of the common law doctrine of ultra vires. Basic concept of the doctrine of ultra vires ultra vires comes from the latin word meaning beyond the powers of. Doctrine of ultra vires documents, company law b com. But the law at times validates the act of a company notwithstanding that it was done for the furtherance of the companys authorized business or that if otherwise exceed the companys powers. The discussion within this article is limited to the ultra vires doctrine as it. A fortiori, a transaction which was fully performed by both parties could not be attacked. The object clause of the memorandum of the company contains the object for which the company is formed. After years of the ultra vires doctrine frustrating commercial dealings and prejudicing outsiders, parliament saw fit to effectively abolish it by enacting s 36 of the companies act 61 of 1973 the 1973 act. If a corporation transcends its powers it constitutes a violation of its charter, and the state may, by statute, say when a corporation may and when it may not plead. Critical analysis of the doctrine of ultra vires 1 simran chandok introduction in todays day and age, practically every human act needs to be censured.
An ultra vires act is void and can not be ratified by the directors even if they want to ratify it. The memorandum of association contains the permitted range of activities in its objects clause and a company cannot practice any other activity which is not defined under the scop. Though largely obsolete in modern private corporation law, the doctrine remains in full force for government entities. The purpose of this article is to defend the orthodox doctrine of ultra vires from these criticisms and to show that it remains vital to the. Sulkowski and others published ultra vires statutes. Ultra vires is the term used for the acts of a company beyond the powers prescribed by the object clause of the memorandum. The doctrine of ultra vires is produced by the constitutional principles of the rule of law, the sovereignty of parliament and the independence of the judiciary. For many years, the concept of ultra vires has been used by company. This document is highly rated by b com students and has been viewed 1112 times. In india, the doctrine of ultra vires was applied by bombay high court in jahangir modi vs. Southeastern pennsylvania transportation authority v. Doctrine of ultra vires the concept of doctrine of ultra. Estoppel can also not work, as the same doctrine precludes a misrepresentation by the company of something that the third party is.
An act ultra vires the company cannot be ratified even by the unanimous consent of all shareholders. The doctrine of estoppel usually precluded reliance on the defense of ultra vires where the transaction was fully performed by one party. The application of the ultra vires rule and the legitimate expectation doctrine. Memorandum of association and doctrine of ultra vires.
In simple terms all what it says is that a public authority cannot. Abolishment of ultra vires doctrine with exceptions. Ashbury carriage company v riche 1875 the acc was an incorporated company under the companies act of 1862. The disappearance of the ultra vires doctrine in greater china. This reply identifies the strained logic of the socalled modified doctrine and refutes the forced reconciliation it attempts.
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