Q.Explain the doctrine of ultra vires. Why is this doctrine significant for a company's members and creditors?

This doctrine is the enforcement mechanism behind the Objects Clause — without it, the clause would carry no real legal weight.

The doctrine of ultra vires ("beyond the powers") governs what happens when a company does something its Memorandum of Association did not authorise it to do. Because the Objects Clause of the memorandum fixes the field within which a company may lawfully act, any act genuinely outside that field is, by this doctrine, void from the very moment it is done — it creates no valid rights or obligations for the company or for the other party to the transaction, however good either party's intentions may have been. Crucially, an ultra vires act cannot be cured by ratification: even if every single shareholder of the company later approves it, the act remains void, because shareholders acting informally have no power to expand the boundary the memorandum sets — only a proper alteration of the memorandum itself, following the statutory procedure under Section 13, can move that boundary.

The doctrine's significance becomes clear when its purpose is traced back to why the Objects Clause exists at all. Members subscribe capital to a company on the understanding that it will be applied to the business the memorandum describes; if the company's directors could freely divert that capital into an unrelated venture simply because a majority of shareholders present at a meeting happened to agree, the very act of stating objects in the memorandum would offer members no real protection at all. The doctrine of ultra vires closes this gap by making such a diversion legally impossible without first going through the more demanding, publicly recorded process of formally altering the Objects Clause. Creditors and other outside parties benefit from the same protection in reverse: because the memorandum is a public document and every dealing party is fixed with constructive notice of its contents, a creditor lending to a company (or a supplier extending credit to it) can assess the company's stated objects and the risk of dealing with it accordingly, knowing that the company itself has no power to bind itself, or to bind that creditor, to a transaction genuinely outside those objects. …