1.
Introduction
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.
Conclusion
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.
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