The persons dealing with a company however though presumed to have read the memorandum and articles and satisfied themselves that the proposed transaction is not inconsistent with these documents are not bound to enquire into regularity of any internal proceeding. They are entitled to assume that the provisions of the article have been observed by the officers of the company. An outsider cannot be expected to see that the company carries out its internal regulation. This rule is known as doctrine of indoor management.
2. Doctrine of Indoor Management
The doctrine of indoors management was first laid in the Tarquand case. According to doctrine of indoor management outsiders are bound to know the internal position of the company, but are not bound to know its indoor management.
3. Purpose of Doctrine
The purpose of this rule is to provide some measure of protection for those who enter into contract with the company from the consequence of complex internal organization of companies. The essence of rule is that while those dealing with companies are affected with constructive notice of its publicly registered documents, they are not affected by what is called the indoor management of companies. They are entitled to assume that internal procedures of company have been regularly conducted in the absence of actual notice to contrary.
4. Exceptions to Doctrine of Indoor Management
The doctrine of indoor management is subject to the following exceptions
i. Notice of Irregularity
Where the party affected by an irregularity had actual notice of it, the rule does not apply.
ii. Constructive Notice
Where the party has actual notice or constructive notice of the want of the authority of the person acting on behalf of the company; the rule does not apply.
iii. Void AB Initio
Where the act done in the name of the company, is void ab inito the rule does not apply.
iv. Suspicion of Irregularity
The rule in Tarquand’s case has no application where circumstances surrounding the contracts are suspicious.
v. No consultation from memorandum and articles
Where a person does not consult from memorandum and article and thus does not rely on them, the rule in Tarquand’s case is not available to him.
vi. Forged Document
The rule in Tarquand’s case does not apply as regards to those documents which are forged.
vii. Acts beyond Authority
Where the act done by an officer is such which is beyond any authority that was given to him, the rule in Tarquand’s case does not apply.
viii. Non-Studying of company’s Books
Most of the books and documents of the company are present for general reading of the people on the payment of prescribed fee. If no one studies these books, he is exempted from this rule.
ix. Proper Inquiries
If a person dealing with the officer of the company does not make proper inquiries and satisfy himself as to his authority, the doctrine of indoor management is not available to him.
x. Scheme of amalgamation
When a scheme of amalgamation is proposed, the matter not one of the indoor management.
Persons dealing with a company are not bound to enquire into regularity of any internal proceedings. They are entitled to assume that the provisions of the articles have been observed by the officers of the company. They are not concerned to see that there was a proper quorum of director present or persons who are apparently directors had in fact validly been appointed. This is what is known doctrine of indoor management.