An outsider is presumed to know the constitution and the statutory public documents of a company,...

 Question2: An outsider is presumed to know the constitution and the statutory public documents of a company, but not what may or may not have taken place within the doors that are closed to him.” Explain with reference to the Doctrine of Indoor Management. State its exceptions.

Answer : The Doctrine of Indoor Management lays down that persons dealing with a company having satisfied themselves that the proposed transaction is not in its nature inconsistent with the memorandum and articles, are not bound to inquire the regularity of any internal proceeding. In other words, while persons contracting with a company are presumed to know the provisions of the contents of the memorandum and articles, they are entitled to assume that the provisions of the articles, they are entitled to assume that the officers of the company have observed the provisions of the articles. It is no part of duty of any outsider to see that the company carries out its own internal regulations.

It is important to note that the notice of constructive notice can be invoked by the company and it does not operate against the company. It operates against the person who has failed to inquire but does not operate in his favour. But the doctrine of “indoor management” can be invoked by the person dealing with the company and cannot be invoked by the company.

No knowledge of memorandum and articles- again, the rule cannot be invoked by a person on the ground that he doesn’t have the knowledge of memorandum and articles and thus he did rely on them.

In the case of Rama Corporation v. Proved Tin & General Investment Co.

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.

In the case of Rouben v. Great Fingal Consolidated,[7]–  Here the secretary of the company forged the signature of two of the directors and issued the certificate without the authority. The issue of the certificate requires the signatures of two directors as given in the article. Held- here the holder of the certificate cannot take the advantage of the doctrine as it was forged transaction which is void ab initio.

In the case of Kreditbank Cassel v. Schenkers Ltd

 Exceptions To The Doctrine Of Indoor Management

In the following circumstances, relief of indoor management cannot be claimed by an outsider who is dealing with the company.

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.

In the case of Howard v. Patent Ivory Co.

The doctrine of indoor management, also known as Turquand rule is a 150-year old concept, which protects the outsiders against the actions done by the company. Any person who enters into a contract with the company shall ensure that the transaction is authorised by the articles and memorandum of the company. There is no requirement to look into the internal irregularities, and even if there are any irregularities, the company shall be held liable since the person has acted on the grounds of good faith. To absorb the concept of this doctrine, it is important to understand the concept of the doctrine of constructive notice.

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. – Require a copy of any document including certificate of incorporation. In line with this provision, the Memorandum of Association and the Articles of Association are public documents once filed with the registrar. Any person may inspect the same after payment of the fees prescribed.

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