2. “Ultra” means beyond
“Vires” means powers
Companies Act mentions Ultra Vires. Its scope
wasn’t completely clear until 1875.
Ashbury Railway Carriage & Iron Co. Ltd. Vs.
Riche
What is it?
3. MOA stated that the company will only sell
and supply carriage construction material.
Contract with Riche was to construct railway
carriages.
The contract void ab initio because its ultra
vires.
Ashbury Railway Carriage &
Iron Co. Ltd vs. Riche
4. Lakshmanaswami Mudaliar vs. LIC of India
In meeting decided to donate Rs. 2,00,000 from
the share holders’ dividend fund in 1955.
In 1956, LIC Act came into force. This kind of
donation was not allowed.
Thus it became ultra vires.
Indian Ultra Vires Case
5. Injunction – If not spent, the lender can stop
the spending.
Tracing – If found in its original form, the
lender can recover the money from the
company.
Subrogation – If money used to pay lawful
debts, the lender will get right to recover the
money. Least priority given to him.
ULTRA VIRES
BORROWING
6. Ultra vires the directors but intra vires the
company can be ratified by shareholders in
AGM.
Intra vires the company but not done in
prescribed manner, this can be validated by
shareholders’ consent.
Investment acquired through ultra vires
transaction. The company still has rights.
EXCEPTIONS
7. Any act which is consequential to the object
clause but not mentioned in the MOA unless
prohibited by the Companies Act.
Some activities not specifically mentioned in
the MOA, but deemed impliedly as within
authority of the company.
Eg: Raising Capital by borrowing.
If ultra vires the articles, the Articles may be
altered to make it intra vires.
8. There is no separate legal provision in the
Indian law anywhere for ultra vires
transactions.
The ruling of the Ashbury Railway Carriage
case is still applied without modifications.
Its still can’t be ratified by the shareholders in
the AGM.
PRESENT POSITION OF
ULTRA VIRES ACTS
9. The European Communities Act, 1972 has
modified it in favour of the affected party in
case of ultra vires transactions.
Ultra vires has only been modified, not
abolished.
