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CA Foundation · Business Laws · The Companies Act, 2013

Vihaan Ltd, a public company, entered a contract with Anil that was outside the objects stated in its Memorandum. Anil knew the contents of the memorandum. Applying the doctrine of ultra vires, what is the position of the contract?

The contract is void ab initio because it falls outside the objects in the Memorandum. It cannot be ratified by the directors or even by unanimous consent of members, and the outsider's good faith does not validate it. Ultra vires acts carry no legal effect.

  1. AIt is void and cannot be ratified even by all the membersCorrect
  2. BIt is valid because Anil acted in good faith
  3. CIt is voidable at the option of the company
  4. DIt becomes valid if the directors ratify it

Explanation

An act beyond the objects clause is ultra vires and void ab initio. Neither the directors nor even all the members can ratify it, and the other party's knowledge or good faith does not rescue it. Voidable treatment applies to irregularities, not to ultra vires acts.

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