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The doctrine of Indoor Management | Company Law - CLAT PG PDF Download
Royal British Bank v. Turquand Case
- The Doctrine of Indoor Management, also known as the "Turquand Rule," was established in the case of Royal British Bank v. Turquand.
- In this case, the directors of a company were permitted by the company's articles to borrow bonds through a resolution passed in a general meeting. However, the directors issued a bond without such a resolution.
- The court had to determine whether the company was still bound by the bond despite the lack of a resolution.
- The court ruled that the company was liable for the bond. Chief Justice Sir John Jervis explained that the person receiving the bond had the right to assume that the necessary resolution had been passed and had acted in good faith.
- The judgement in this case was later upheld by the House of Lords in Mahony v East Holyford Mining Co, solidifying the Doctrine of Indoor Management in law.
Indoor Management vs. Constructive Notice
- The Doctrine of Indoor Management is the opposite of constructive notice.
- Constructive notice protects the company from outsiders, while indoor management protects outsiders from the company.
- Constructive notice focuses on the company's external position, ignoring internal operations.
- With indoor management, if a contract aligns with publicly recorded documents, outsiders are not affected by internal irregularities.
Question for The doctrine of Indoor ManagementTry yourself: What does the Doctrine of Indoor Management protect outsiders from?View Solution
Adoption in Indian Law
- The Doctrine of Indoor Management has been embraced in Indian law, as seen in cases like Official Liquidator, Manabe & Co. Pvt. Ltd. v. Commissioner of Police and M. Rajendra Naidu v. Sterling Holiday Resorts (India) Ltd.
- In these cases, it was established that organizations lending to a company should be familiar with the memorandum and articles of the company. However, they are not expected to be aware of every detail of every resolution or the actions of the company's directors.
- Essentially, parties dealing with a company are not obligated to investigate every internal procedure that occurs within the company.
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FAQs on The doctrine of Indoor Management - Company Law - CLAT PG
| 1. What is the doctrine of Indoor Management in corporate law? |  |
Ans. The doctrine of Indoor Management is a legal principle that protects third parties dealing with a company from the internal irregularities of the company's management. It allows outsiders to assume that the company’s internal procedures have been followed, even if they have not. This doctrine was established to promote trust and facilitate transactions, ensuring that individuals engaging with the company are not adversely affected by any internal issues.
| 2. How does the doctrine of Indoor Management differ from the doctrine of Constructive Notice? | |
Ans. The doctrine of Constructive Notice imposes a duty on third parties to be aware of a company's public documents and internal regulations, thus holding them accountable for any irregularities. In contrast, the doctrine of Indoor Management protects third parties from the consequences of internal irregularities, allowing them to assume that all internal procedures have been duly followed without needing to investigate. This distinction emphasizes the protection offered to outsiders under the Indoor Management doctrine.
| 3. Can a company rely on the doctrine of Indoor Management to contradict its own internal regulations? | |
Ans. No, a company cannot rely on the doctrine of Indoor Management to contradict its own internal regulations. The doctrine is designed to protect third parties, not the company itself. If a company has failed to adhere to its internal procedures, it cannot use the doctrine to claim that such actions are valid in dealings with outsiders. Thus, the doctrine acts as a shield for third parties rather than a sword for companies to bypass their own rules.
| 4. Are there any exceptions to the doctrine of Indoor Management? | |
Ans. Yes, there are exceptions to the doctrine of Indoor Management. For instance, if a third party is aware of the irregularities or has reason to suspect that the internal procedures have not been followed, they cannot claim protection under this doctrine. Additionally, if the transaction is fraudulent or against public policy, the doctrine will not apply. Hence, the principle is not absolute and is subject to certain limitations.
| 5. How has the doctrine of Indoor Management been applied in landmark cases? | |
Ans. The doctrine of Indoor Management has been applied in several landmark cases, such as the case of "Kotla Venkataswamy v. Chinta Ramamurthy," where the court upheld that third parties are entitled to assume that the internal processes of the company were properly followed. Another significant case is "Mahendra & Mahendra v. Union of India," where the court reiterated the need to protect third parties from internal management issues. These cases illustrate the practical application of the doctrine in safeguarding the interests of outsiders in corporate transactions.
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