The ultra vires doctrine is a legal principle that holds that a corporation or other legal entity has no power or authority to act beyond the scope of its charter or articles of incorporation. This doctrine is based on the idea that corporations are creatures of the state, and as such, they are granted certain powers and privileges by the state in order to carry out their designated purpose or mission. These powers and privileges are typically outlined in the charter or articles of incorporation, which serve as the foundational document for the corporation.
The ultra vires doctrine is often used to challenge the validity of corporate actions that fall outside the scope of the corporation's powers and privileges. For example, if a corporation were to enter into a contract or take other actions that are not specifically authorized by its charter or articles of incorporation, a court may declare those actions to be ultra vires, or beyond the corporation's legal authority. This means that the corporation would not have the legal capacity to enforce the contract or hold others accountable for their obligations under the contract.
One of the main purposes of the ultra vires doctrine is to protect the interests of shareholders and other stakeholders by ensuring that the corporation acts within the limits of its legal authority. If a corporation were to exceed its legal authority, it could expose itself and its shareholders to legal and financial risk, as well as damage its reputation and standing in the business community.
The ultra vires doctrine is also important for maintaining the integrity and stability of the corporate form of business organization. By limiting the powers and privileges of corporations, the doctrine helps to prevent abuses of corporate authority and ensures that corporations are accountable to the state and to the public.
In summary, the ultra vires doctrine is a legal principle that serves to protect the interests of shareholders and stakeholders, and to maintain the integrity and stability of the corporate form of business organization. It requires that corporations act within the limits of their legal authority, as outlined in their charter or articles of incorporation, in order to ensure that their actions are valid and enforceable.
Doctrine of Ultra Vires: Meaning, Examples, Solved Questions
Hence, the contract between ABC Limited and XYX Limited for financing the construction of a railway line in Belgium is null and void. Under the Delhi police Act or the Criminal Procedure Code, no power is vested on the ACP or DCP to pass such orders. What is an example of intra vires? A company cannot sue an ultra vires transaction and it cannot be sued too. So at the time of winding-up of the company they were considered as the creditors. What is Wednesbury principle of reasonableness? Thus, according to Riche, the company had all the powers and authority to enter and perform such kind of contracts. Section 20 5 and 70 1 confers the powers of the executive magistrate upon certain senior police officers.
Conclusion It is observed that ultra vires have played a crucial role in the administrative and constitutional law of the country. The rectification is not possible even if the shareholders pass a special resolution with the majority of the votes. The improper purpose is wider than mala fide. If a manager were to access the bank accounts of the company and use those assets for personal needs this would be classified as ultra vires acts. Lastly, The doctrine of ultra vires has ceased to be any vital restraint upon corporate action.
Due to the fact that the Respondents represent and constitute the only self-styled "superpower" sitting as one of the five Permanent Members of the Security Council, the Respondents have repeatedly and abusively used and threatened to use their voting power and their so-called "veto power" to continue the international economic embargo upon Iraq in a manner that is ultra vires the "primary responsibility" for the maintenance of international peace and security that has been conferred upon the Security Council by Article 24 1 and 2 of the United Nations Charter: "2. 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. Judicial Control In administrative law, the doctrine of ultra vires forms the base. What are the Exceptions to the Doctrine of Ultra Vires? All those companies that have not been registered such as sole proprietorship or partnership will not fall under the scope of the doctrine of ultra vires. The object defined under the manifesto of any company contains some essential object for which the company is formed and shall be obeyed by every legal person.
Doctrine of Ultra Vires under Companies Act: Meaning, Development and Important Cases
Such a royal charter retains similar rights as a natural human being such as the right to sue or to be sued without any physical exhibition. The ultra vires doctrine is much more limited than the Under the Ultra Vires Doctrine Prohibited Officer and Director Actions Under the Ultra Vires Doctrine A second area in which the ultra vires doctrine comes to play is when the officers, directors, or other corporate agents take the corporate action without or exceeding their authority as agents. In Tahir Hussain v. Following are the four effects of the doctrine of ultra vires: Injunction The members of the company can issue an injunction against the company to prevent it from engaging in any ultra vires activities. The general terms and conditions of the statute decide that the considerations are relevant or irrelevant.
The orders under 144 can be issued only by Magistrate or Commissioner under few circumstances. Further, it cannot be sued too. Often shareholder or board-level decisions will be made without notice to the minority shareholder. During the Delhi riots, the use of the provision was easily found. It was held that articles of the company required the directors to buy the shares at a fair price, but the relationship between them was not as a member and director but as a member and a member. Every action or the conduct of a company shall e mentioned in the object clause of that particular memorandum of the company; Hence, if the company is exceeding their own authority which was given their self in the object clause of the Memorandum of Association, it must be censured under this doctrine.
However, in this situation, a sanction cannot be granted with a retrospective effect as the contract was ultra-vires the memorandum. What is ultra vires act of the corporations? What does locus standi mean in law? The object clause of the Memorandum of Association of the company includes an object for which the company is established. Here the contract was for construction of the railways, which was contrary to them. The doctrine also impaired the security of title to property in fully executed transactions in which a corporation participated. The laws made under Article 245 are subject to other constitutional provisions. Furthermore, the business judgment rule does not insulate ultra vires acts.
We neither endorse, nor solicit the work of any Lawyers, Law Firms, and Legal Professionals. The Doctrine of ultra vires 1 may be a fundamental rule of Company Law. The doctrine is still observed by the developing countries. In the case of a private business entity, the act of an employee who is not authorized to act on the entity's behalf may, nevertheless, bind the entity contractually if such an employee would normally be expected to have that authority. Further, while Krueger may have had some power insofar as determining which properties were benefited, he did not have the power to make that determination when it would conflict with additional provisions within the ordinance. A person appointed as an executive magistrate and a person; empowered with the powers of an executive magistrate is different.
If pursued for personal benefit, they are ultra vires. Therefore the court held that the rule was out of the scope of powers conferred by applying the doctrine ultra vires and hence void. Examples of Ultra Vires Actions Actions that breach the above directives can be classified as ultra vires. It cannot affect the rights and duties of any person, until a rule or a law is declared not valid by a court, it only presumed to be valid. Basically, it is to be understood by the concept that, when a piece of delegated legislation is declared to be ultra vires, it is void and becomes unenforceable. Riche filed a suit for recovering its damages from the company. However, ultra vires acts that do not benefit the corporation, such as those constituting waste or gift, may only be ratified by a unanimous shareholder vote.
State laws in almost every jurisdiction have also sharply reduced the importance of the ultra vires doctrine. The Doctrine of Ultra Vires's consequence states that any act done or contract made by the company which goes beyond the powers of the directors and company is completely void and inoperative and hence not binding on the company. Solved Example on Doctrine of Ultra Vires Q1. In "substantive ultra vires", delegated legislation is deemed void because it goes beyond the powers defined in the parent Act. Thus it prevents a company from such a situation and draws a clear line beyond which the directors of the company are not authorised to act. This case is considered as an exception to the doctrine of the ultra vires and its scope. That is why it has been made clear by the Apex court i.