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    Question

    What is the doctrine of ultra vires under the Companies

    Act, 1956, and what is its effect on transactions?
    A It allows companies to do anything beyond their stated objects to maximize profits Correct Answer Incorrect Answer
    B Acts beyond the company's powers as stated in the Memorandum are void and cannot bind the company Correct Answer Incorrect Answer
    C Ultra vires acts are voidable at the company's option Correct Answer Incorrect Answer
    D Ultra vires acts bind third parties but not the company Correct Answer Incorrect Answer
    E The doctrine has been abolished by recent amendments Correct Answer Incorrect Answer

    Solution

    The doctrine of ultra vires under company law provides that acts performed by a company beyond its stated powers in the Memorandum are void ab initio and cannot bind the company. The Memorandum defines the company's objects and scope; any transaction outside this scope is ultra vires and unenforceable. Even if shareholders and directors unanimously approve an ultra vires act, it remains void (Ashbury Railway Carriage Co. v. Riche principle). However, the Companies Act, 1956 (Section 43A and others) has relaxed strict ultra vires doctrine, allowing companies wider powers. Innocent third parties who contract with the company have limited remedies; they can claim against directors personally for misrepresentation but not against the company for ultra vires acts.

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