NOTES ON ‘ULTRA VIRES’, DOCRINE OF “CONSTRUCTIVE NOTICE” and “INDOOR MANAGEMENT”,
and “PRE-INCORPORATION CONTRACTS”
Ultra vires means, beyond power or beyond the objects as stipulated in the “objects clause” of the
Memorandum of Association of the company. Intra vires means within power, or within objects.
Why Objects? Why Objects clause?
-The ownership of the Corporate capital vests in the company but contributed by the shareholders. It is held
by the company as though in trust for them. How the fund would be utilized should be clearly defined.
-Certain degree of protection to creditors also. The creditors have to seek their repayment only out of the
Company’s assets. The fact that the corporate capital cannot be spent on any project not directly within the
terms of the company’s objects gives a feeling of security to the creditors.
-By confining the corporate activities within a defined field, the statement of objects serves the public interest
also.
-prevents diversion of funds.
An action outside the memorandum is ultra vires the Company and the leading case on the subject is
“Ashbury railway carriage company Ltd., Vs Riche”
An ultra vires contract being void ab initio, cannot become intra vires by reason of estoppels, lapse of time,
ratification, acquiescence or delay.
‘Constructive notice’ of Memorandum of Association (M/A)and Articles of Association(A/A) seeks to
protect the company against the outsiders.
The ‘Doctrine of Indoor management’ seeks to protect the outsiders against the company. This doctrine
connotes that if a contract is consistent with the public documents, the persons contracting will not be
prejudiced by the irregularities that may beset the indoor work of the company. This rule had its genesis
in the case “Royal British Bank Vs. Turquand.
‘Objects’ must be distinguished from ‘Powers’. The power, for eg., to borrow or make a charity is not an
Object. Objects have to be stated in...