# Doctrine of Ultra Vires

## What 'Ultra Vires' Means

'Ultra vires' literally means 'beyond the powers of'.
Anything outside the specified objects and powers of the objects clause of the memorandum is ultra vires the company and is therefore null and void.

## Core Consequences

1. An act ultra vires the Memorandum:

Cannot be ratified, even by the unanimous consent of all shareholders.
No rights and liabilities arise for the company out of such transactions; it remains a nullity even if every member assents.
Does not bind the company, and neither the company nor the other contracting party can sue on it.

2. An act ultra vires the powers of directors but intra vires the MOA:

Can be ratified by the members in a general meeting by appropriate resolution.

3. An act ultra vires the Articles but intra vires the MOA:

Can be ratified by altering the Articles through a special resolution in a general meeting.

## Layered Test (Mental Model)

Given an impugned act, ask in order:

1. Is it within the MOA's objects/powers?

No → ultra vires the company; void; unratifiable.
Yes → proceed to step 2.

2. Is it within the Articles?

No → ultra vires the AOA; ratifiable by altering AOA via special resolution.
Yes → proceed to step 3.

3. Is it within the directors' powers (as conferred by AOA / Board resolutions)?

No → ratifiable by members in general meeting.
Yes → fully valid.

## Rationale

Protects shareholders — they know their investment will not be used for purposes outside the stated objects.
Protects creditors — they deal with the company knowing the limits of its activities.

Worked example

### Example 1

Example 1 — Ultra Vires the Company: ABC Ltd's MOA permits only the manufacture of pharmaceuticals. The Board enters a contract to acquire a hotel chain. The contract is ultra vires the company. Even if all shareholders vote to ratify it at an EGM, the contract is void and unenforceable. Neither party can sue on it.

### Example 2

Example 2 — Ultra Vires Directors but Intra Vires MOA: A company's MOA allows borrowing up to ₹50 crore. The AOA empowers directors to borrow up to ₹20 crore without member approval. Directors borrow ₹35 crore without seeking the members' consent. This is intra vires the MOA but ultra vires the directors. Members may ratify the borrowing by passing the necessary resolution at a general meeting, validating the contract.

### Example 3

Example 3 — Ultra Vires AOA but Intra Vires MOA: The MOA permits a company to invest in shares of other companies. The AOA, however, restricts investment to listed companies only. The Board invests in an unlisted private company. The act is intra vires the MOA but ultra vires the AOA. Members may ratify it by altering the AOA via special resolution to remove the restriction.

⚠️ Common exam mistakes

Saying an ultra vires act can be ratified by a special resolution — NO, an act ultra vires the MOA is void and cannot be ratified by even unanimous shareholder consent.
Confusing 'ultra vires the directors' with 'ultra vires the company'. The former is ratifiable; the latter is not.
Believing the doctrine applies only to objects — it applies to both objects and powers stated in the MOA.
Forgetting that ultra vires acts confer no rights — the company cannot sue, and cannot be sued, on such transactions.
Stating that an act ultra vires the AOA needs an ordinary resolution to ratify — it needs a special resolution (to alter the AOA).

Reference: — Common-law doctrine recognised under the Companies Act, 2013 (relevant to Section 4 - objects clause of MOA and Section 245 - class action suits referencing ultra vires acts). Leading case: Ashbury Railway Carriage and Iron Co Ltd v Riche (1875).

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