This illustrates the point made earlier about subjectivity in these decisions and the thin demarcating line. Types of Ultra Vires Acts There are three types of ultra vires acts. The company can ratify such acts and then they will be binding. Later, the contract was repudiated by the company on the ground of its being ultra vires and Riche brought an action on the ground of breach of contract. That is the case of Attorney General v.
If they had sanctioned what had been done without the formality of a resolution, that would have been perfectly sufficient. Ultra vires may either be substantive or procedural in nature. With a government entity, however, to prevent a contract from being voided as ultra vires, it is normally necessary to prove that the employee actually had authority to act. 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. But if the lender had lent the amount for discharging lawful expenses, he may recover the amount.
The City and Krueger filed a plea to the trial court stating that the government had immunity to an ultra vires claim. If the property is legally and formally transferred, it will become the asset of the corporation, even though the company was not entitled to acquire such property. After that, the company changed their mind and refused the agreement. It was held also that although these provisions in the articles were only part of the contract between the shareholders inter se, the provisions were, on the directors being employed and accepting office on the footing of them, embodied in the contract between the company and the directors; that the remuneration was not due to the directors in their character of members, but under the contract so embodying the provisions; and that, in the winding-up of the company, the directors were entitled to rank as ordinary creditors in respect of the remuneration due to them at the commencement of the winding-up. Payment was not made so the Body Corp using another clause precludes the member from voting rights on the grounds that the levy remains unpaid.
Externally with a third party contracting with a company, if the authority of the company to enter into such a contract was not included in the objects of the company then the contract was ultra vires and void. While the objects are to be specified, the powers exercisable in respect of them may be express or implied and need not be specified. Whereas, under the Hawkesbury case, the plaintiff failed to declare the debentures to the third party although it is a company object ultra vires because the plantiff are the shareholders of the Landmark Finance and it should make declaration to Landmark Finance instead of the third party. These grants of authority are analogous to a private corporation's articles of incorporation. According to s20 2 c Companies Act 1965, any petition that may conducted by the Minister to the court to wind up the company that had committed ultra vires actions. However, at the same time, it is necessary to protect the interest of the creditors and investors.
Under this approach a corporation was formed only for limited purposes and could do only what it was authorized to do in its corporate charter. This is a substantive ultra vires. Ultra Vires borrowing does not create the relationship of debtor and creditor. The objects under the object clause of this company were to supply and sell the materials required to construct railways. Therefore it can be said that the objects in the memorandum does not determine the capacity of the company but instead it can be seen to impose a duty on a director to protect the interests of internal parties within the company. If on the other hand the application becomes too strict, local authorities will enjoy a narrower power than what the Parliament intended they should have; and ultimately they would exercise no independent power at all. The object clause can be used to describe the nature of the business such as manufacturing business, merchandising business or service business.
If it is ultra vires the articles of association, the company can alter its articles in the proper way. It permitted a corporation to accept the benefits of a contract and then refuse to perform its obligations on the ground that the contract was ultra vires. In other words the company would have to find another basis to declare the contract void other than the fact that it was an ultra vires contract; however the contract may be ratified by the shareholders to make the act valid- with the exception that acts contra the Act may not be ratified. However, the courts have developed certain principles in the interest of justice to protect such lenders. The law, however, does not require that the consent of all the shareholders should be obtained at the same place and in the same meeting. This early view proved unworkable and unfair. If the company does anything which is beyond the powers specified in the Memorandum it shall be construed as an Ultra Vires act.
Anything which is ultra-vires, may or may not be illegal, but both of such acts are void-ab-initio. According to s20 2 b Companies Act 1965, officers are personally liable for any action taken by member of the company or the company itself. Case Law — Doctrine of Ultra Virus Justice Shah afterwards C. When the company was ordered to be wound up, a question was raised whether the depositors were creditors of the company and whether the contributories could be asked to contribute towards payment of deposits. Accordingly, in view of the ouster clause in the Order they rejected the appeal.
In that case, they said the error destroyed the jurisdiction of the Commission and made its decision Ultra Vires. This Doctrine can be considered as the central principle in the whole of Administrative Law. Further, in the case of Bell Houses Ltd. The term ultra vires signifies a concept distinct from illegality. The Supreme Court of India in Dr.
When the matter went to the House of Lords, it was held that the contract was ultra-vires the memorandum of the company, and, thus, null and void. The court of appeals granted the appeal in part and denied it in part. The defendant being an outsider and not a debenture holder or the minister had no right under the section. If the assets of the company are wrongfully applied, then it may result into the insolvency of the company, which in turn means that creditors of the company will not be paid. The company underwrote and had allotted to it shares in an oil company.