Effects of Ultra-Vires
Whenever a company acts outside its rights, its consequences arise.
1. Unauthorized works to be useless and ineffective – When a company does unauthorized work.
So that work is considered useless and ineffective from the very beginning. These acts cannot be enforced in any court under any circumstances. Example- A company went out of its rights and operated it by buying a rice mill. The company got the price from a person and had to sell the rice to the Consignee at a very heavy loss due to the inferior quality of rice. The directors of the company gave an undertaking to compensate the consignee for the loss. The court ruled that the company
is not liable to compensate the loss as the Company’s objectives of trading in rice
2. Ratification is not possible, unauthorized works are completely useless. Therefore, unauthorized works • i.e. useless works cannot be confirmed or ratified even by the consensus of the shareholders.
3. Injunction When a company acts outside its rights, any of its
The member can get the injunction issued by praying to the court. injunction issued by the court
On doing so, the work being done outside the rights of the company has to be stopped. 4. No liability of the company – Since the works and contracts done outside the memorandum are void, hence no liability of any kind arises from those works and contracts. Is. Therefore, neither the company can sue any outside party nor the outside party. Can sue the company.
5. Personal liability of directors to the company – When the directors of the company do any such act
or contract which is outside the memorandum (unauthorised), the operators may be held liable.
could. to compensate the loss arising out of such works and contracts
Any member can present a suit against the directors in the court.
6. Rights on property acquired out of rights If a company has ever
Even if it buys some property outside its powers, the right of the company on that property remains protected.
Because that property is bought from the capital of the company itself.
9. Money borrowed cannot be recovered- If a bank or any person lent money to a company for purposes outside its ‘rights’, it cannot recover that money. But if the company wishes to make the payment, it can. if the company
Once this amount is paid, she cannot recover it again. 10. Company not liable for wrongdoing – If a company acts outside its rights
and as a result of which a tort is committed, the company cannot be held liable for that wrongdoing. The company can be held liable for the misdemeanor only if the misdemeanor is committed by an employee in the course of his service for carrying out the purposes specified in the memorandum. Exceptions for actions outside rights
Acts outside the rights are generally void, but these acts can also be enforced in the following circumstances: 1. Confirmation of acts outside the Articles of Association – If an act is outside the Articles but is within the memorandum, the company’s responsibility for that work Can be confirmed in the general meeting. Therefore, unauthorized work can also be made legal in this way.
2. Confirmation of acts outside the rights of the directors – If the directors do some acts which are outside their rights but within the rights of the company, they can be confirmed and legalized in the general meeting of the company. could.
3. Exemption from liability for acts done in good faith in the interest of the company – If the operator does any work outside his rights, then that work is generally in vain. The operators are personally responsible for such actions. But if the directors prove that they have done all those things keeping in mind the good faith and interest of the company, then they can be relieved of their personal liability.
4. Right to recover unauthorized debts Any company can recover debts from any other person outside its rights. He cannot take the guise that the loan is given out of rights.
5. No right on taking loan or making purchase on credit outside rights- If a company takes loan or buys some assets on credit outside its rights, then the lender or seller can recover that loan or property. Is. The lender or the seller can apply to the court to obtain an order to search and recover that property or the money or the property received from that money.
6. Liability of the operators on taking loans outside the rights due to misrepresentation If the directors of the company have obtained loans for the company by misrepresentation, then those operators will be liable to pay those debts.
7. Liability of directors for payment made out of rights. If the director company
If any payment is made for works outside the rights of the
Will be responsible for recharge. Provided that the Director may, if he so desires, to the persons making such payment.
You can also demand the refund of the amount paid. If they also knew that
This payment is being made to them outside the rights of the company.
8. Liability for irregular acts- Sometimes the company does not follow the procedure of legal provisions or provisions of Articles of Association in doing any work. In this case all those works are called irregular functions. The company is responsible for them when the process is duly followed.