DOCTRINE OF ULTRA-VIRES
Ultra vires is a Latin phrase which means "beyond the powers". It describes an act which requires legal authority but is done without it. Anything which is beyond the authority or power is called ultra-vires.
The Doctrine of Ultra Vires is a fundamental rule of Company Law. Acts done by the company or its directors which is beyond their legal authority or which was outside the scope of the object of the company is ultra-vires.
Doctrine of ultra vires was developed to protect the investors and creditors of the company. It serves to assure the creditors and the shareholders of the company that the funds of the company will be utilized only for the purpose specified in the memorandum of the company. In this manner, investors of the company can get assured that their money will not be utilized for a purpose which is not specified at the time of investment. This doctrine protects the creditors of the company by ensuring them that the funds of the company to which they must look for payment are not dissipated in unauthorized activities.
The wrongful application of the company’s assets may result in the insolvency of the company, a situation when the creditors of the company cannot be paid.
Memorandum of association is considered to be the constitution of the company. It sets out the internal and external scope and area of company’s operation along with its objectives, powers, scope. A company is authorized to do only that much which is within the scope of the powers provided to it by the memorandum. A company can also do anything which is incidental to the main objects provided by the memorandum. An ultra vires act is void ab initio. The doctrine of ultra vires is provided for in Section 44 of the Companies and Allied Matters Act, 2020.
See Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1878) L.R. 7 H.L. 653, CONTINENTAL CHEMIST LTD V. DR. IFEKANDU (1966) ALL. MLR 11
FROM THE DIRECTORATE OF RESEARCH
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