Anil, Sunil and Vaishali are close friends from a renowned business family. After doing their masters from IIM, Ahmadabad they decided to start e-commerce in commodities. However, they were not sure about the legal forma

Doctrine of Ultra vires: Any activity done contrary to or in excess of the scope of activity of the Companies Act, Memorandum of Association or Articles of Association will be ultra vires. Ultra vires activities can be divided into the following three divisions: Ultra Vires the Companies Act: Any act done contrary to or in excess of the scope of activity of the Companies Act will be ultra vires the Companies Act. Such an act is void and cannot be ratified even by unanimous resolution of all the shareholders. Further, a provision contained in the memorandum, articles, agreement, or resolution shall be void if it's repugnant to any of the provisions in the Act. Ultra Vires the Memorandum of Association: In the case of a company whatever is not stated in the memorandum as the objects or powers is prohibited by the doctrine of ultra vires. As a result, an act which is ultra vires is void, and does not bind the company. Neither the company nor the contracting party can sue on it. Such an act is void and cannot be ratified even by unanimous resolution of all the shareholders. Ultra Vires the Articles of Association: If the acts of a company are ultra vires the Articles of Association but intra vires the memorandum of association (i.e., outside the scope of articles but within the powers conferred by the memorandum), it will be ultra vires the Articles of Association. These acts are also void, but the company in general meeting may alter the Articles by a special resolution and ratify the unauthorized acts. Validity of contention of the bank: In Re. South Durham Brewery Company [(1875) LR 7 HL 65c], the MOA of the company was unclear as to the classes of shares to be issued by it, but the AOA of the company gave power to issue shares of different classes as described therein. The Hon'ble Court held that Articles can be used to explain the ambiguity contained in the memorandum. "... their Lordships agree that in such cases the two documents must be read together at all events so far as may be necessary to explain any ambiguity appearing in the terms of the memorandum, or to supplement it upon any matter as to which it is silent." Hence, the act of offering the preference shares is not ultra vires the Companies Act, the MOA or AOA of the company and the contention of the bank to refuse it is not valid in light of the explanation and case law cited above.