What do you understand by the principle of unauthorized acts? What are the consequences of unauthorized actions? [What do you understand by doctrine of ultra vires. What are thec Consequences of ultra vires acts ?]
Meaning of Ultra Vires Act
Any company can act only for the fulfillment of the purposes specified in its memorandum. The object clause of the memorandum of law lays down the limits of the functions and rights of the company. No company may infringe these limits and rights. But, when a vibration does any work in violation of its jurisdiction, then it is called ‘acts outside rights’, ‘unauthorized acts’ and ‘extra vires’ or ‘ultra vires’.
‘Acts outside the rights’ means those acts which are outside the limits prescribed by the memorandum. Such acts do not conform to the objectives of the memorandum. These actions are unnecessary for achieving the objectives. But such actions need not be illegal or against public interest or public policy. These actions are only against or beyond the objectives of the company.
The principle of ‘out of rights’ states that if a company performs any act or contract outside the limits of authority provided by its memorandum, then that work is void. The company does not have any statutory liability arising out of the acts and contracts which are performed outside the rights. Contracts cannot be made valid in any way later, nor can these acts and contracts be ratified or ratified. Not only this, even if all the members of the company together unanimously pass a resolution confirming or ratifying the acts outside the rights, even those actions cannot be made valid.
The functions outside the rights can be divided into the following parts (1) Acts unauthorized by the councilor memorandum – If the company does any work outside its councilor memorandum for which it is not authorized, then it is considered outside the rights. even if covered under the Act; For example, the purpose of the company to work outside the sentence, to issue more capital than the authorized capital, etc. In this regard Ashbury Railway Carriage and Iron Company Ltd. Vs Ricky’s case. According to the facts of this case, the purpose of the company was written in the sentence that the purpose of the company was to manufacture, sell and rent railway coaches and railway machines, to do the work of Mechanic Engineers and General Contractors.” This company named Riche. A contract was made with a railway contractor to pay money for the laying of railway tracks in Belgium. Later the company did not give the money under this contract and said that the contract was beyond its rights. Ricky sued the company for breach of contract. and requested the Court to get compensation. Rickey argued that the words ‘General Contractors’ appended to the name of the Company indicated that the Company was authorized to perform this act. It is considered only for those which are related to mechanical engineering itself. Therefore, that contract is out of rights. could.
(2) Acts unauthorized by Articles – If the company does any such act which is within the jurisdiction of the Memorandum of Association but is outside the Articles of the Company, then such acts are called unauthorized acts by the Articles; For example, paying interest more than the fixed rate, hijacking of shares if there is no provision in the articles, etc. If any work is outside the articles of law, the company can obtain such right by passing necessary resolution and if this work is within the jurisdiction of the councilor memorandum, then the company can approve such works by taking necessary action.
(3) Acts unauthorized by the Companies Act – If a company does such an act which is contrary to the provisions of the Companies Act or is outside the rights conferred, then such acts are called unauthorized acts by the Companies Act; For example, distribution of dividend from the capital, change in capital before the completion of legal proceedings, purchase of shares by the company itself, etc.