Doctrine of Constructive Notice By Snigdha Mohapatra @LexCliq

The Articles and Memorandum of Association (AoA & MoA) of every company are registered with the Registrar of Companies under the Ministry of Corporate Affairs which is a public office. The Registrar Office is a public office & as a result, the memorandum and articles become ‘public documents’. Section 399 of The Companies Act, 2013 provides that the Memorandum and Articles when registered with
Registrar of Companies ‘become public documents’ and then they can be inspected by anyone by electronic means on payment of the prescribed fee. The law provided under Section 399 of the Companies Act, 2013 allows any person to inspect, take records or extracts from any documents or make reports of any document of any company which has been registered with the Registrar of Companies under the Ministry of Affair.

The section provides for a fee, on a payment of which, the right of this will be provided to the applicant. This right extends to the inspection of any public document of any of the company. The MOA and AOA of the company are public documents and available for scrutiny at all times. They are patulous and get-at-able to all. Therefore, the duty of every person dealing with a company has to inspect its public documents and ensure that his/her contract is in adherence to their provisions. Section 17 read along with Rule 34 of the Company (Incorporation) Rules, 2014 provides that a company shall on payment of the prescribed fee send a copy of each of the following documents to a member within seven days of the request being made by him-

  1. the memorandum;
  2. the articles, if any;
  3. every agreement and every resolution referred to in sub-section (1) of
    section 117, if and so far as they have not been embodied in the memorandum
    and articles.

Failure to supply the copy(ies), as above, will make the company as well as every officer in default liable to a fine @ Rs. 1,000 per day for each day of the default or Rs. 1,00,000, whichever is less.

But, whether a person literally reads and understood them or not, he is to be in the same plight as if he had read and understood them as per the proper understandings of those documents. He postulates to have understood not only merely the company’s powers but also those of its officers. He will surmise to know the contents of those documents. There is a constructive notice not only of the memorandum and articles but also of all the documents, such as special resolutions (under S. 117) and particulars of charges (under S. 77) which are indispensable by the act to be registered with the Registrar. Therefore, any person who contemplates entering into a contract with the company has the means of ascertaining and is thus presumed to know the powers of the company and the extent to which they have been delegated to the directors. In other words, every person dealing with the company is presumed to have read these documents and understood them in their true perspective. This is known as the “Doctrine of Constructive Notice”. Even if the party dealing with the company does not have actual notice of the contents of these documents it is presumed that he has an implied (constructive) notice of them.

The Doctrine of Constructive Notice has been established in the case Ernest v. Nicholls. In this case, the House of Lords held for the first time that any person who had dealings with the company is esteemed to be aware of the contents of all the public documents of the Company. Further, it has been held by the House of Lords in the case Mahony v. East HolyFord Mining Co, where the rules of the partnership will apply, in the case of absence of the doctrine of constructive liability. Kotla Venkataswamy v. Rammurthy, in this case, the plaintiff had accepted a mortgage deed carried out by the secretary who was only a working director of the Company. The AOA of the company specified that such a deed needs to be carried out by three specific officers of the company otherwise, it’ll not be valid. Thus, they were refused any protection by the application of this doctrine.

The legal effect of this rule is that If a person deals with a company in a manner that is incompatible with the provisions accommodated in MOA and AOA, they shall have to bear their own risk and cost and consequences themselves.

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