Commany law
This query is : Resolved
23 August 2013
What is the doctrine indoor management ?
23 August 2013
Hi
The doctrine of indoor management is an exception to the rule of constructive notice. It imposes an important limitation on the doctrine of constructive notice. According to this doctrine "persons dealing with the company are entitled to presume that internal requirements prescribed in memorandum and articles have been properly observed". A transaction has two aspects, namely, substantive and procedural. An outsider dealing with the company can only find out the substantive aspect by reading the memorandum and articles. Even though he may find out the procedural aspect, he cannot find out whether the procedure has been followed or not. For example, a company may have borrowing powers by passing a resolution according to its memorandum and articles. An outsider can only found out the borrowing powers of the company. But he cannot find out whether the resolution has in fact been passed or not. The outsiders dealing with the company are presumed to have read and understood the memorandum and articles and to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity of the internal proceedings as required by the memorandum and articles. They can presume that all is being done regularly.
The doctrine of indoor management is also known as the TURQUAND rule after Royal British Bank v. Turquand. In this case, the directors of a company had issued a bond to Turquand. They had the power under the articles to issue such bond provided they were authorized by a resolution passed by the shareholders at a general meeting of the company. But no such resolution was passed by the company. It was held that Turquand could recover the amount of the bond from the company on the ground that he was entitled to assume that the resolution was passed.
In one of the case the rule was stated thus: "If the directors have the power and authority to bind the company but certain preliminaries are required to be gone through on the part of the company before that power can be duly exercised, and then the person contracting with the directors is not bound to see that all these preliminaries have been observed. He is entitled to presume that the directors are acting lawfully in what they do."
In another case where the plaintiff sued the defendant company on a loan of Rs.1,50,000, it was held that where the act done by a person, acting on behalf of the company, is within the scope of his apparent or ostensible authority, it binds the company no matter whether the plaintiff has read the document or not. In this case among other things the defendant company raised the plea that the transaction was not binding as no resolution sanctioning the loan was passed by the Board of directors. The court after referring to turquand's case and other Indian cases, held that the passing of such a resolution is a mere matter of indoor or internal management and its absence under such circumstances, cannot be used to defeat the just claim of a bona fide creditor.
For more go to the following link:
http://www.articlesbase.com/regulatory-compliance-articles/doctrine-of-indoor-management-under-indian-company-law-536965.html
The doctrine of indoor management is an exception to the rule of constructive notice. It imposes an important limitation on the doctrine of constructive notice. According to this doctrine "persons dealing with the company are entitled to presume that internal requirements prescribed in memorandum and articles have been properly observed". A transaction has two aspects, namely, substantive and procedural. An outsider dealing with the company can only find out the substantive aspect by reading the memorandum and articles. Even though he may find out the procedural aspect, he cannot find out whether the procedure has been followed or not. For example, a company may have borrowing powers by passing a resolution according to its memorandum and articles. An outsider can only found out the borrowing powers of the company. But he cannot find out whether the resolution has in fact been passed or not. The outsiders dealing with the company are presumed to have read and understood the memorandum and articles and to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity of the internal proceedings as required by the memorandum and articles. They can presume that all is being done regularly.
The doctrine of indoor management is also known as the TURQUAND rule after Royal British Bank v. Turquand. In this case, the directors of a company had issued a bond to Turquand. They had the power under the articles to issue such bond provided they were authorized by a resolution passed by the shareholders at a general meeting of the company. But no such resolution was passed by the company. It was held that Turquand could recover the amount of the bond from the company on the ground that he was entitled to assume that the resolution was passed.
In one of the case the rule was stated thus: "If the directors have the power and authority to bind the company but certain preliminaries are required to be gone through on the part of the company before that power can be duly exercised, and then the person contracting with the directors is not bound to see that all these preliminaries have been observed. He is entitled to presume that the directors are acting lawfully in what they do."
In another case where the plaintiff sued the defendant company on a loan of Rs.1,50,000, it was held that where the act done by a person, acting on behalf of the company, is within the scope of his apparent or ostensible authority, it binds the company no matter whether the plaintiff has read the document or not. In this case among other things the defendant company raised the plea that the transaction was not binding as no resolution sanctioning the loan was passed by the Board of directors. The court after referring to turquand's case and other Indian cases, held that the passing of such a resolution is a mere matter of indoor or internal management and its absence under such circumstances, cannot be used to defeat the just claim of a bona fide creditor.
For more go to the following link:
http://www.articlesbase.com/regulatory-compliance-articles/doctrine-of-indoor-management-under-indian-company-law-536965.html
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Change details filed in original return
- Query on applicability of Small Company, CARO & IFC
- Negative liability in GSTR-3B
- Cg on ancestral property sale distribution
- Regarding total income exceeds 1 cr
- Hsn for gst 9 purchases
- Schedule VDA
- GSTR - 9 Input Tax Credit
- ANNUAL RETUTN
- REGARDING RETURN FILING OF CLIENT WHEN THE TDS HAS BEEN DEDUCTED UNDER SECTION 194J(b)
Trending Online Classes
CAclubindia
