COMPANY LAW (PAPER 1)
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Explaining the doctrine of ‘ultra vires’ with reference to
Ashbury Railway Carriage & Iron Co. Ltd v. Riche and
other cases by providing the ‘ratio decidendi’ of the case.
INTERNAL ASSESSMENT OF 9TH SEMESTER, B.A.
LL.B EXAMINATION
SUBMITTING TO THE RESPECTED PROFESSOR
DR. RAJARSHI DAS
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SUBMITTED BY :
PREKSHA PAKRASHI
9th Semester, B.A. LL.B
College Roll No.: 30
University Roll No.: L02/LLB/201190
University Registration No: L02-1211-0027-20
Session: 2024-25
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ACKNOWLEDGEMENT :
I would like to express my sincere gratitude to all of those who have supported me in the
completion of this task. First and foremost, I would like to thank my professor Dr. RAJARSHI
DAS, and our Vice Principal Dr. MOHAMMADI TARANNUM madam for providing me with
invaluable guidance and support throughout the process. Additionally, I would like to thank my
college mates for their helpful input and feedback. Finally, I would like to express my
appreciation to my family and friends for their unwavering support and encouragement. Without
all of their contributions, this task would not have been possible.
Preksha Pakrashi
BA.LLB., 5th year
9th semester Internal paper of Company Law 1
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INDEX :
SL. CONTENTS PAGE
NO.
1 Reason for choosing the topic 4
2 Introduction 5-6
3 Facts of the case. 7
4 Legal issues 8
5 Law involved in the case. 8-9
6 Analysis 9
7 Precedent of the judgement. 10
8 Conclusion. 10-11
10 Bibliography. 12
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REASON FOR CHOOSING THE TOPIC
“ Explain the doctrine of ‘ultra vires’ with reference to Ashbury
Railway Carriage & Iron Co. Ltd v. Riche and other cases by providing
the ‘ratio decidendi’ of the case. “
The doctrine of ultra vires means that a company cannot undertake activities beyond the scope of
its objectives as stated in its Memorandum of Association. I chose this topic because it is
fundamental in company law and helps ensure that companies operate within legal limits,
protecting investors and creditors. A landmark case on this doctrine is Ashbury Railway Carriage
& Iron Co. Ltd v. Riche (1875), where the company, formed to manufacture railway carriages,
entered into a contract to finance railway construction—an act outside its stated objects. The
House of Lords held the contract void as it was ultra vires, establishing that any act beyond a
company’s objects is invalid and cannot be ratified, even with unanimous shareholder consent.
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INTRODUCTION
A company, as a creation of law, does not have the inherent capacity to perform any and every
activity like a natural person. It can act only within the boundaries prescribed by the law and by
its own constitution. The memorandum of association, especially the objects clause, plays a
central role in defining the scope and limit of a company’s legal personality. Any action or
contract that deviates The development of corporate law is rooted in the idea that a company,
being a legal person, must operate within a defined framework set out in its constitutional
documents—primarily the Memorandum of Association (MOA). One of the key principles
emerging from this idea is the doctrine of ultra vires, which ensures that a company acts strictly
within the scope of the powers conferred upon it. Derived from Latin, ultra vires means "beyond
the powers." In the context of corporate governance, it refers to those acts or transactions carried
out by a company that fall outside the scope of its objects clause and are, therefore, void and
unenforceable. The doctrine of ultra vires is foundational to the governance and regulation of
corporate entities. It is designed to ensure that companies do not misuse the privileges of
incorporation by engaging in activities that are neither authorized by the state nor agreed upon by
shareholders. The purpose of this doctrine is not merely technical—it aims to protect investors,
creditors, and the public at large by limiting corporate risk and ensuring transparency in the
company’s operational objectives. It also promotes accountability among company directors by
requiring that they act within the legal capacity of the company as set out in the memorandum.
Historically, the doctrine arose in the 19th century during a time when the corporate structure
began gaining popularity as a vehicle for economic development. Legislatures were granting
charters and incorporation status to facilitate trade and business, but concerns arose about
companies overreaching their mandates or engaging in speculative ventures without sufficient
oversight. It was within this backdrop that courts began enforcing strict compliance with the
stated objects of a company from this defined set of objectives is considered ultra vires and is
treated as void, even if all the members of the company approve it. The leading authority on the
subject is the landmark English case of Ashbury Railway Carriage & Iron Co. Ltd v. Riche1. This
case firmly established the doctrine of ultra vires in corporate law by holding that any act beyond
1
Ashbury Railway Carriage & Iron Co. Ltd v. Riche (1875) LR 7 HL 653
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the stated objects of the company in its memorandum is null and void from the outset and cannot
be ratified, even by unanimous consent of all shareholders. This case served as a warning to both
company promoters and directors to ensure that all actions and contracts are strictly within the
ambit of the objects clause. In Ashbury, the company had entered into a contract to finance the
construction of a railway line in Belgium—an activity clearly not included in its memorandum.
Despite shareholder approval, the court ruled that the contract was ultra vires and, therefore,
void. This decision not only emphasized the inviolability of the memorandum but also had
far-reaching implications on how companies were to be run and how third parties were to engage
with them. The ruling underlined the need for caution, due diligence, and strict compliance with
the corporate charter. The rationale behind this strict interpretation was to prevent the misuse of
corporate funds and to protect the interests of stakeholders who rely on the company's stated
purposes. For shareholders, the object clause represents the purpose for which they have
invested; for creditors, it serves as a measure of financial risk. By adhering to the doctrine of
ultra vires, courts aimed to ensure that these expectations were not violated by unauthorized or
speculative corporate activities. However, over time, as commercial practices evolved, critics
began to argue that the doctrine of ultra vires, though protective, was too rigid and inflexible.
Companies often found themselves restricted in their ability to adapt to new business
opportunities simply because their objects clause had not been amended to reflect current needs.
In response, both judicial interpretations and legislative reforms attempted to soften the rigid
application of the doctrine. In later cases such as Attorney General v. Great Eastern Railway Co.2
courts started adopting a more liberal view, holding that acts that are reasonably incidental to the
objects could be deemed intra vires. Similarly, under modern company laws, including the
Companies Act, 2013 in India, the relevance of the doctrine has been significantly reduced.
Section 4(1)(c) allows companies to draft broad object clauses, and under Section 2453
stakeholders can now seek remedies even in cases of mismanagement or deviation from stated
purposes.
2
Attorney General v. Great Eastern Railway Co. (1880) 5 App Cas 473
3
Companies Act 2013 (Sec 245) (Sec 4(1)(c).
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FACTS OF THE CASE :
Ashbury Railway Carriage & Iron Co. Ltd v. Riche (1875)
Incorporation and Objects:
○ Ashbury Railway Carriage & Iron Co. Ltd was incorporated under the Companies
Act, 1862.4
○ The objects clause in its Memorandum of Association stated the company was
formed: To make and sell railway carriages and wagons and to carry on
mechanical engineering and general contracting business.
The Contract:
○ Despite these objects, the company entered into a contract with Mr. Riche to
finance and build a railway line in Belgium.
○ This activity was not mentioned in the company’s memorandum.
Repudiation:
○ After the contract was made, the board of directors and shareholders cancelled
(repudiated) it.
○ They claimed that the company had no power to enter into such a contract—it
was ultra vires (beyond its powers) and void.
Riche’s Claim:
○ Mr. Riche filed a suit, arguing that the contract was valid because it had been
ratified by the shareholders.
○ He claimed the company should be held liable for breach of control.
4
Ashbury Railway Carriage & Iron Co. Ltd v. Riche (1875) LR 7 HL 653
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LEGAL ISSUES:
1. Whether the company had the power (capacity) to enter into the contract to build a
railway line in Belgium?
→ This raised the question of whether the act was within the scope of the company’s
objects clause in the Memorandum of Association.
2. Whether the ultra vires act could be ratified by unanimous approval of all
shareholders?
→ Could an act that was beyond the legal capacity of the company be made valid by
the consent of shareholders?
3. Whether the contract was binding on the company, despite being outside its stated
objectives?
→ This addressed whether the company could still be held liable for breach of contract.
LAW INVOLVED IN THE CASE :
The doctrine of ultra vires forms a foundational principle in corporate and administrative law.
Derived from Latin, "ultra vires" means "beyond the powers." It is used to describe actions taken
by a corporation or a governing body that are beyond the scope of powers granted to them by law
or through their constituting documents, such as a company’s memorandum of association. In the
corporate context, the doctrine is designed to protect shareholders and creditors by ensuring that
the funds and efforts of the company are utilized only for purposes explicitly outlined in its
charter. If an act is ultra vires, it is void and cannot be ratified even by unanimous consent of all
shareholders. In the context of the landmark case Ashbury Railway Carriage and Iron Co. Ltd v.
Riche (1875)5, the central legal question revolved around whether the company could enter into a
5
Ashbury Railway Carriage & Iron Co. Ltd v. Riche (1875) LR 7 HL 653
8
contract outside the scope of its memorandum of association. The House of Lords ruled that
actions outside the scope of the company's stated objectives were ultra vires and therefore void.
This established the strict application of the doctrine in the 19th century and became a bedrock
case in company law jurisprudence.
ANALYSIS :
The case of Ashbury Railway Carriage & Iron Co. Ltd v. Riche (1875) is a landmark in the
development of corporate law, particularly in defining the contours of the ultra vires doctrine.
The company in question had a memorandum of association stating its objects as “to make and
sell, or lend on hire, railway carriages and wagons, and all kinds of railway plant, fittings,
machinery and rolling stock; to carry on the business of mechanical engineers and general
contractors.” Despite this, the directors entered into a contract to finance and construct a railway
line in Belgium. This venture was not explicitly authorized by the company’s objects clause,
prompting legal scrutiny.
When the contract failed, the promoters sued for breach of agreement, and the company raised
the defense that the contract was ultra vires—beyond the company’s capacity—and hence void.
The House of Lords accepted this argument and ruled that a company cannot go beyond the
objectives outlined in its memorandum of association. No act or subsequent ratification, not even
unanimous shareholder approval, could validate such a contract. The ratio decidendi was clear:
any act not within the defined objects of the company is void ab initio.
The case highlights the legal limitations imposed on corporate actions and the dangers of
operating beyond express authority. It served to protect creditors and shareholders by ensuring
transparency and predictable scope of operations. However, the rigidity of the doctrine
sometimes hindered genuine business expansion and innovation. Critics have argued that the
judgment forced companies to draft overly broad object clauses or restructure repeatedly to
accommodate evolving ventures. This led to later reforms, such as the UK's Companies Act 2006
and India's Companies Act 2013, which now allow companies to engage in any lawful activity
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unless specifically restricted. Nonetheless, Ashbury remains a fundamental authority on the ultra
vires doctrine, especially from a historical and doctrinal perspective.
PRECEDENT OF THE JUDGEMENT :
The doctrine of ultra vires had embryonic recognition even before Ashbury, but this case
provided definitive judicial articulation. One of the key precedents that guided this decision was
Eastern Counties Railway Co. v. Hawkes (1859)6, which laid the groundwork for interpreting
corporate powers as confined to the objects in the memorandum. In that case, the court stated
that a company could not exceed the powers granted by statute or charter.
Another supporting case was Attorney-General v. Great Eastern Railway Co. (1880)7, decided
after Ashbury, where the court softened the harshness of the doctrine, allowing acts "reasonably
incidental" to the stated objectives. This case signified a shift towards a more liberal
interpretation, although it did not overrule Ashbury but attempted to narrow its reach. In India,
the doctrine has been applied in A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of
India (1963)8. The Supreme Court of India invalidated a donation made by LIC as it was not
aligned with its object clause, reinforcing the principle that any activity beyond the company’s
defined purpose is void. Thus, the Ashbury case remains a touchstone, cited in multiple
jurisdictions, while subsequent cases have either affirmed or refined the contours of the ultra
vires doctrine.
CONCLUSION :
The Ashbury Railway Carriage & Iron Co. Ltd v. Riche case marks a pivotal moment in
corporate law, emphasizing the inviolability of a company’s object clause. The doctrine of ultra
vires acted as both a safeguard and a constraint—shielding shareholders and creditors from
unauthorized business ventures, but simultaneously stifling corporate flexibility. In its strictest
6
Eastern Counties Railway Co. v. Hawkes (1859) 5 HLC 331
7
Attorney General v. Great Eastern Railway Co. (1880) 5 App Cas 473
8
A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India (1963) AIR 1963 SC 1185
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interpretation, it rendered void any transaction beyond the scope of the company’s charter,
irrespective of subsequent ratification.
Over the decades, however, the rigid application of this doctrine began to erode in favor of a
more pragmatic approach, allowing implied or incidental powers to be exercised for effective
business functioning. Today, in jurisdictions like India and the UK, companies enjoy broader
freedom under modern statutory frameworks that permit more liberal construction of company
objectives. Nevertheless, the doctrine retains relevance. It ensures that corporate entities respect
their founding principles and that stakeholders are not exposed to unforeseen liabilities. In
administrative law, ultra vires continues to be a potent tool for judicial review. Therefore, while
the Ashbury ruling may be seen as historically stringent, its legacy persists in the modern legal
environment as a foundational check on institutional overreach. The decision in Ashbury
Railway Carriage & Iron Co. Ltd v. Riche stands as a cornerstone in the evolution of corporate
jurisprudence, particularly in its articulation of the ultra vires doctrine. The case served to
crystallize the idea that companies, being artificial legal entities, must operate strictly within the
powers granted to them by their memorandum of association. The rationale was to ensure legal
certainty, protect shareholders from unauthorized risk, and safeguard creditors from
unpredictable liabilities. By deeming acts outside the stated object clause as void and incapable
of ratification, the ruling reinforced the idea that a company could not deviate from its
foundational purpose.
Legal systems around the world have since moved toward a more pragmatic and liberal
approach. Statutory reforms—such as Section 4(1)(c) of the Indian Companies Act,
20139—allow companies to carry out “any lawful act or activity,” unless otherwise specified.
Yet, ultra vires retains relevance in situations where express restrictions exist, particularly in
public or charitable companies, and also in administrative law where authorities act beyond
statutory powers. In conclusion, Ashbury is not just a historical precedent but a reflection of the
legal system’s attempt to balance corporate autonomy with accountability. While the strict
doctrine it established has been diluted over time, the principles of corporate transparency,
objectivity, and fiduciary responsibility that it aimed to uphold remain central to modern
company law.
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Companies Act 2013
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BIBLIOGRAPHY :
1. Ashbury Railway Carriage & Iron Co. Ltd v. Riche (1875) LR 7 HL 653
2. Eastern Counties Railway Co. v. Hawkes (1859) 5 HLC 331
3. Attorney-General v. Great Eastern Railway Co. (1880) 5 App Cas 473
4. A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, AIR 1963 SC 1185
5. Gower and Davies, Principles of Modern Company Law, 10th Edition
6. Avtar Singh, Company Law, Eastern Book Company
7. Ramaiya, Guide to the Companies Act, LexisNexis
8. Indian Companies Act, 2013 (as amended)
9. R. R. Pennington, Company Law, Butterworths
10. Online resources from SCC Online and Manupatra legal databases
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