Doctrine of Indoor management is a 150-year-old principle that is also known as Turquand rule. This Doctrine is aimed to protect outsiders who enter into contracts with the Company and suffer as a result of irregularities on the part of the Company as a result of internal mismanagement in the Company.
In order to understand Doctrine of Indoor Management clearly we must first understand the Doctrine of Constructive Notice.
Doctrine of Constructive is that principle which protects the Company from the claims of outsiders. Section 399 of the Companies Act, 2013 states that any person may, after payment of the prescribed fees inspect by electronic means any documents kept with the Registrar of Companies. Any person can also obtain a copy of any document including the certificate of incorporation from the Registrar.
In line with this provision, the Memorandum of Association and the Articles of Association are public documents once they are filed with the Registrar. Any person may inspect the same after payment of the fees prescribed.
The special resolutions are also required to be registered with the Registrar under the Companies Act, 2013.
The doctrine presumes that every person has knowledge of the contents of the Memorandum of Association, Articles of Association and every other document such as special resolutions as it is filed with the Registrar and available for public view.
And Doctrine of Indoor Management is opposite of Doctrine of Constructive Notice. It affords protection to outsiders against the Company. The doctrine helps protect external members from the company and states that the people are entitled to presume that internal proceedings are as per documents submitted with the Registrar of Companies.
The person entering into a transaction with the company only needed to satisfy that his proposed transaction is not inconsistent with the articles and memorandum of the company. He is not bound to see the internal irregularities of the company and if there are any internal irregularities than company will be liable as the person has acted in the good faith and he did not know about the internal arrangement of the company.
Exceptions to the Doctrine of Indoor Notice:
- Where the outsider had knowledge of irregularity – The rule will not apply if the person dealing with the company has a slight knowledge about the lack of authority of the person who is acting on behalf of the company in this situation the doctrine will not apply.
- Forgery- The rule does not apply to the transaction involving forgery or illegal or transactions which are void ab initio. In the case of the forged transaction, there is a lack of consent. Here the question of consent cannot arise as the person whose signature is forged he is not even aware of the transaction.
- Negligence- the doctrine of indoor management, in no way, rewards those who behave negligently. Thus, where an officer of a company does something which shall not ordinarily be within his authority, the person dealing with him must make proper inquiries and satisfy him as to the officer’s authority. If he fails to make an inquiry, he is estopped from relying on the rule.