Company Contracts and Doctrine of Ultra Vires, a Comparison of Uk and Pakistani Company Lawa

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  • Topic: Ultra vires, Company, Companies Act 2006
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  • Published : June 11, 2011
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PART I

AN INTRODUCTION OF THE TERM

Chapter No.1The Term Ultra Vires

1. Derivation:

Ultra vires is a Latin phrase. It is derived from two distinct words, i.e., ‘ultra’ and ‘vires’, which means ‘beyond’ and ‘power’ respectively[1].

2. Meaning:

Ultra vires means unauthorised; beyond the scope of power allowed or granted by a corporate charter or by law[2]. It means an act which is beyond the powers[3].

3. Definition:

“The term ultra vires simply means beyond powers or lack of power. An act is said to be ultra vires, when it is in excess of the power of the person or authority doing it[4].”

1.3.1 As per law dealing with companies:

The term ultra vires in connection with law regarding companies is defined in the following way;

“A company incorporated under the Companies Act had legal personality only for the purposes laid down in its object clause. From this it was deduced that an act done by the company outside its object clause (an ultra vires act) was null and void. Neither the company nor the other contracting party (if the ultra vires act was the entering into of a contract) could sue upon the contract, nor could the ultra vires act be ratified by the shareholders, even unanimously.”[5]

“Ultra vires describes acts attempted by a corporation that are beyond the scope of powers granted by the corporation's Articles of Incorporation or in a clause in its by-laws; in the laws authorizing its formation, or similar founding documents. Acts attempted by a corporation that are beyond the scope of its charter are void or voidable[6].”

“It is an act of a company through which the company goes out of the way to cross its limits as stipulated in the Memorandum of Association or the Article of Association of the Company. The company is not legally bound, nor can it find anyone else, with the provisions or the results of such acts[7]”.

“By ultra vires is meant an act or transaction of a company, which, though it may not be illegal, is beyond the company’s powers by reason of not being within the objects of memorandum of association[8]”.

“An act beyond the objects mentioned in the memorandum is ultra vires and void, and can not be ratified[9]”.

The term ultra vires has been used here in the context of an act of the company, which is alien to the powers endowed to it by virtue of the charter of the company, i.e., memorandum and articles of association. When an act of the company is away from the object clause of the company it is void and con not be authorized even with the unanimous consent of all the directors. The term ultra vires has also been used in relation to acts of directors of the company, which are beyond the powers delegated to them[10]. It is said that-

“Where a company exceeds its power as conferred on it by the objects clause of its memorandum, it is not bound by it because it lacks legal capacity to incur responsibility for the action, but when the directors of a company have exceeded the powers delegated to them [11].”

1.3.2 Ultra vires according to constitutional law:

Constitutional law defines the term ultra vires in the following style;

The Constitutions provide the organs of the State with various powers to run day to day affairs of the State. If any organ of the state goes outside the domain of these powers, such acts would be ultra vires. Even some of the actions of the legislatures may also be ultra vires but only in the case if it exceeds the powers endowed to it by the Constitution. The same view is observed by Mr. Justice Chandrachud. He says that-

"if a legislative action is ‘ultra vires’ it exceeds the power granted to the legislative body[12]”.

1.3.3 Administrative law and ultra vires:

According to administrative law, ultra vires means;

“Administrative law views ultra vires in a narrow or broad sense. Narrow ultra vires applies if an administrator did not have the substantive...
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