DOCTRINE OF INDOOR MANAGEMENT BY SONAM NARAYAN @LEXCLIQ

The main purpose of the Doctrine of the Indoor Management is to protect the outsiders from the work of the company. It says that the outsider when entering into the contract shall only check that whether the transaction is in accordance with the memorandum of association and the article of association. Shareholders, for example, need not enquire whether the necessary meeting was convened and held properly or whether the necessary resolution was passed properly. They are entitled to take it for granted that the company had gone through all these proceedings.https://vakilsearch.com/advice/companies-act-doctrine-indoor-management/ It is also known as the Turquand’s rule. As per this doctrine, the outsider ensures that the company’s transaction is in the accordance with the memorandum of association and the articles of association. The doctrine is of the view that it is the duty of the company to comply and follow the internal procedures of the company the outsiders cant be bound to understand that.

In the case of the Royal British Bank V Turquand (1856) 6, E&B 327, the company borrowed the money from the plaintiff and later on denied to repay that money as they said that there was no resolution passed in the general meeting which is one of the essential condition for borrowing the money so here the company says that the company is not bound to pay back.

In the case of the Royal British Bank V Turquand (1856) 6, E&B 327 the court held that the company shall be liable since the person dealing with the company is entitled to assume that there has been necessary compliance with regards to the internal management.https://cleartax.in/s/doctrine-indoor-management 

 

In Indian Law, the doctrine of indoor management can be found in section 290 of the Indian Companies Act,1956.Validity of acts of Directors- Acts did by a person as the director shall/can be valid notwithstanding that later it may be discovered that his appointment was invalid due to any disqualification or defect or was terminated by any provision of the Act or the Articles. Provided that nothing in the section shall give validity to any of the acts done by a director after his appointment has been shown to the company to be invalid or terminated. This doctrine is solely for protecting the interests and the rights of the third party who enter into transactions with the company in good faith and to whom the company stands indebted. https://blog.ipleaders.in/doctrine-indoor-management-2/

The doctrine of indoor management and is opposite to the concept of the doctrine of the rule of constructive notice. The rule of constructive notice aims to safeguard the company from the outside. So basically the doctrine of indoor management is the exception of the doctrine of the rule of constructive notice. There are 3 exceptions to this –

  • Where the outsider had knowledge of irregularity
  • Fraud – In this case, the transaction will be null and void.
  • Negligence.- Anand Bihari Lal vs. Dinshaw and Co, this is the famous case under this head. In this case, the accountant transferred the money and that transferred money was held to be void.
  • No knowledge of articles
  • Acts outside apparent authority

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