Doctrine of Indoor Management | Provisions of Companies Act' 2013 | Company Law Notes for BCom, BBA and MBA | CBCS Pattern

Doctrine of Indoor Management

Meaning and Exceptions

Provisions of Companies Act Act' 2013

Company Law Notes for BCom, BBA and MBA

Doctrine of Indoor Management:

According to Doctrine of constructive notice, every person dealing with company is deemed to have constructive notice of the contents of memorandum and articles of association because these documents are construed as public document. The doctrine of constructive notice does in no sense mean that outsiders are deemed to have notice of the internal affairs of the company. For instance, if an act is authorised by the articles or memorandum, an outsider is entitled to assume that all the detailed formalities for doing that act have been observed. For example, the directors of the Reliance Ltd. gave a bond to SBI. The articles empowered the directors to issue such bonds under the authority of a proper resolution. In fact, no such resolution was passed. Notwithstanding that, it was held that SBI could sue on the bonds on the ground that he was entitled to assume that the resolution had been duly passed. This is the doctrine of indoor management, which is the only limitation to the doctrine of constructive notice discussed above. It guards the company from the outsiders.

Exceptions to Doctrine of Indoor Management

The aforementioned rule of Indoor Management is important to persons dealing with a company through its directors or other persons. They are entitled to assume that the acts of the directors or other officers of the company are validly performed, if they are within the scope of their apparent authority. So long as an act is valid under the articles, if done in a particular manner, an outsider dealing with the company is entitled to assume that it has been done in the manner required. The above mentioned doctrine of Indoor Management has limitations of its own. That is to say, it is inapplicable to the following cases, namely:

(a) The rule does not protect any person when the person dealing with the company has notice, whether actual or constructive, of the irregularity. Thus director of a company cannot normally claim the benefit of this rule.

(b) The doctrine in no way rewards those who behave negligently. Where the person dealing with the company is put upon an inquiry.

(c) When an instrument purporting to be executed on behalf of the company is a forgery. The doctrine of indoor management applies only to irregularities which might otherwise affect a transaction but it cannot apply to forgery which must be regarded as nullity and void ab initio.

(d) The aforementioned rule of Indoor Management is important to persons dealing with a company through its directors or other persons. They are entitled to assume that the acts of the directors or other officers of the company are validly performed, if they are within the scope of their apparent authority. But, if the acts are not within the scope of their apparent authority, this doctrine does not provide any protection.

(e) In case of void or illegal transactions, the directors or other officers of the company cannot normally claim the benefit of this rule.