doctrines in company law

DOCTRINE OF ULTRA VIRES: The process of doing an act which is beyond the legal power and authority of the company and these acts does not create any legal relationship and thus is absolutely void.

In the case of Eastern countries Rly. vs. Hawkes[1], it was held that the legal personality of the company exists only for the purpose as is mentioned in its object clause and not beyond that.

In another case of Ashbury Railway Carriage & Iron company vs. Riche[2], it was held that an action taken by the company must be within the realms of its object clause and not beyond and if it went beyond it, then it would be considered as ultra-vires. The company has no competence or power to go beyond what it has mentioned in its object clause of the memorandum.

DOCTRINE OF CONSTRUCTIVE NOTICE: It is presumed that the parties have requisite information of MOA and AOA as these are public documents and hence open for any person to inspect and this power is rested under Section 399 of the Act.[4]

The private financer should have known that the company cannot operate beyond what is mentioned in its object clause before giving loan of 50 lakhs to it. He should have read the MOA and AOA of the company and understood it. Similar thing was laid down in the case of Oak Bank Oil Co. vs. Crum[5], wherein it was stated that anyone dealing with the company is presumed not only to have read the Memorandum and Articles, but has even understood it properly.

In the case of In Re Jon Beareforte Ltd. [6]it was held that anyone who is dealing with the company is deemed to have knowledge of the contents of the object clause.

 DOCTRINE OF INDOOR MANAGEMENT: This doctrine is an exception to the doctrine of constructive notice. It states that as far as internal proceedings of the company is concerned, the outsider is can assume that the workings of the company are being regularly done and is in consonance with the public and it operates to protect the interest of the outsider.  But this doctrine cannot be applied in the present case as they had not mentioned the production of hookah in the object clause and the private financer was aware of this that they are asking loan for this purpose. This doctrine is an exception to the Doctrine of Constructive Notice.


[1] Eastern Countries Rly. vs. Hawkes, PC 7 Jul 1855.

[2] Ashbury Railway Carriage & Iron company vs. Riche, 1875 LR 7 HL 653.

[3] Section 13 of Companies Act, 2013.

[4] Section 399 of the Companies Act, 2013.

[5] Oak Bank Oil Co. vs. Crum, 8AC 65 1882.

[6] In Re Jon Beareforte Ltd., 1953 1 Ch 131.

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