My work on the topic of Doctrine of Indoor Management is a type of research as a student and not as an experts / author.

1. By Ameer Ahamad 2015
ameergujjar@yahoo.com
DOCTRINE OF INDOOR MANAGEMENT
For understanding the doctrine of indoor / internal management, the understading of the
concept of doctrine of constructive notice is sine qua non. So a brief introduction of this
concept is given here.
THE DOCTRINE OF CONSTRUCTIVE NOTICE (THE GENERAL RULE):-
Memorandum and articles of associations of a company are necessary to be registered
with the Registrar and once registered both these become public documents and are
accessible to all the persons. It is therefore duty of every person dealing with a company to
inspect its public documents and make sure that his contract is in comformity with their
provisions. It is immaterial whether that person actually read and understood the said
documents or not. This duty of reading and understanding the said oprovisions of the
Memorandam and Articles of the company is presumed and construed to have been
performed. This presumption or construction is considered to be Constructive Notice.
Case Law
Oakbank Oil Co. V. Crum (1882) 8 AC 65,71
“the person dealing with the company is taken not only to have read those
documents but to have understood them according to their proper meaning.”
Ridley V. Plymouth Grinding and baking Co. (1848) 2 Exch 711
“The person is presumed to have understood not merely the company’s
powers but also those of tit’s officers.”
PURPOSE OF THE CONSTRUCTIVE NOTICE DOCTINE:-
This doctrine is the outcome of the need to secure the company form the outsiders when they
look to deceive the company by alleging their unawareness with the contents of the
memorandum and articles and trying to evade their contractual liabilities or accusing the
company of fraud, as the case may be.
DOCTRINE OF INDOOR MANAGEMENT:-
An exception to the constructive notice doctrine is the “doctrine of
indoor management”, as the former protects the company form outside
stakeholders the later protects the outside stakeholders against the company.

2. By Ameer Ahamad 2015
ameergujjar@yahoo.com
Though once registered the memorandum and articles become public
documents and the person dealing with the company must have a notice of these
documents, however, this rule of constructive notice is confined to the external
positioning of the company and it is easily understandable that,” the person will
have no notice as to how the company’s internal machinery is handled by its
officers.Thus, the person dealing with the company will not be prejudiced even
when the transaction is inconsistent with the public documents if the
irregularities which render the transaction invalid, relate to the indoor working
of the company.
This doctrine is commonly known as the TURQUAND RULE, for it traces its
origin in case Royal British Bank V Turquand (1856)119 ER 886 where:-
“The company’s articles provided that the directors might borrow on bond such sums
as may from time to time be authorized by a resolution passed at a general meeting of
the company. The directors did borrow a sum of money from the plaintiff. The
shareholders claimed that there had been no such resolution authorizing the loan and
therefore it was taken without their authority. However, it was held that the company
was bound by the loan. The court said that person dealing with a company is entitled
to assume, in the absence of facts putting him on inquiry, that there has been due
compliance with all matters of internal management and procedure required by the
articles.”
So, the person dealing with the company is bound to know what he can know as a
public person but, not what is not in his reach and which is done behind the doors of the
company where he cannot access to.
PURPOSE OF THIS DOCTRINE:-
The business is a field which requires the protection of all the contracting parties and
good business can only make sure the good development of the economy and commerce.
Though, apparently this doctrine is for the protection of the persons dealing with the
company but it’s more important purpose it to promote the investments in business in order to
keep the business and the economy going well.
As Justic Bray said in Dey v. Pullinger Engg Co. (1921) 1 KB 77:-
“The wheels of commerce would not go around smoothly if persons dealing
with companies were compelled to investigate thoroughly the internal
machinery of a company to see if something is not wrong.”
Also Lord Simonds said in Morris v. Kanssen (1946) 1 ALL ER 586,592:-

3. By Ameer Ahamad 2015
ameergujjar@yahoo.com
“The people in business would be shy in dealing with the companies if they
have to check completely the internal working of the companies.”
The investors until and unless they are secured in all respects never show any
tendency to invest money and without investments the business and simultaneously the
economy is always affected badly. The protection given to the investors under this doctrine is
a step to promote the business and the growth of commerce.
EXCEPTIONS TO THE DOCTRINE OF INDOOR MANAGEMENT:-
The doctrine of indoor management is not unexceptionable in all the
circumstance, rather, there are certain circumstances where this doctrine cannot and should
not be applied. Like the establishment of the doctrine, these exceptions are also judicially
established, which are as follows:-
1-Knowledge of Irregularity
The doctrine of indoor management can be no defense where the person
dealing had the knowledge of the irregularity. This is the first and foremost restriction
on the application of this doctrine. Meaning thereby that the presumption of
irregularity can not be relied upon by the “insiders” ie the persons who by virtue of
there position in the company are in position to know whether or not internal
regulation has been observed.
The application of the doctrine of indoor management was refused on the ground that
the person dealing with the company had the knowledge of the irregularity in
Howard V.Patent Ivory Manufacturing Company, (1888) 38 Ch. D. 1561 and the
directors were not allowed to defend the issue of debentures to themsemlves because
they should have known that the extent to which they were lending money to the
company required the assent of the general meeting they had not acquired.
Similarly in Morris V. Kanssen (1946) 38 A.C 459 a director could not defend an
allotment of shares to him as he participated the meeting which made allotment. His
appointment was also fell through because none of the directors appointing him was
validly in office.
2-SUSPICION OF IRREGULARITY
As the words “in the absence of circumstances putting him on inquiry “were
used in the Turquand case, so the advantages of this doctrine are not available to the
person who had suspicion of irregularity as in this case he is obligated to satisfy
himself of the legality of the transaction and all matters relating to it.

4. By Ameer Ahamad 2015
ameergujjar@yahoo.com
As in Anand Bihari Lal V. Dinshaw & Co, Air 1942 Oudh 417 the plaintiff
accepted the transfer of company’s property from its accountant. The transfer was
held to be void. The plaintiff could not have supposed, in the absence of power of
attorney, that the accountant held power to transfer company’s property.
3-FORGERY:-
Turquand’s rule does not to apply to forgery. It was clearly said in Ruben v.
Great Fingall Consolidated (1906) AC 439 that it is quite true that persons dealing
with limited liability companies are not bound to inquire into their indoor
management and will not be affected by irregularities of which they have no notice,
but it cannot apply to a forgery. In this case the plaintiff was the transfree of a share
certificate issued the defendant company. But this was issued by companay secretary
who affixed the seal of company and froged the signature of two of the directors.
4-REPRESENTATAION THROUGH ARTICLES
The Articles of association generally contain what is called the “power of
delegation” In order to claim protection under this rule and under this kind of
exception knowledge of Memorandam and Articles of Association is essential. A
person who did not consult or act according to its provisions cannot be protected.
This concept is applied in different cases differently by the courts;-
In Lakshmi Rattan lal Cotton Mills v. J K Jute Mills Co, AIR 1957 All 311
“the company was held liable to a loan taken by the managing agent because
the articles provided for the delegation of borrowing powers to the managing
agent and it was said that the “delegation clause” was there in the articles and
the person dealing with the company could assume that powers have been
delegated.”
But what if the person had not consulted the articles of the company and had
no knowledge of the contents of the articles? This question was answered in
Houghton & Co v. Nothard Lowe and Wills Ltd, (1927) 1 KB 246. In this
case as well there was a delegation clause in the articles and contract was
entered into by a person (a director) who could claim the delegation of the
powers to him, but the plaintiff company had not read the articles of
association and had no knowledge of the delegation clause and hence it was
held that the plaintiff company cannot claim the advantage of the clause of
articles which he had no knowledge of at the date of entering into the contract.
While in Ford Motor Credit Co Ltd V. Harnack (1972) the presumption of
the ostensible authority was held to be a valid ground for binding the
company.”

5. By Ameer Ahamad 2015
ameergujjar@yahoo.com
5-ACT APPERENTLY OUT OF THE POWER OF THE OFFICER OF
COMPANY:-
This exception of the “Turquand rule “is the one which can very easily be
invoked. It is very clear that if the act of the officer of the company is such as is
apparently out of his power it should not be relied upon and if relied upon the
company cannot be held to be bound by the act.
A very clear description of this rule was given in Anand Behari Lal v.
Dinshaw and Co. AIR 1942 Oudh 417 where “the plaintiff accepted the
transfer of company’s property by an accountant of the company which was
apparently beyond the powers of an accountant and company was held not to
be bound.
CONCLUSION
Companies enter into several kinds of contracts and transactions with different
persons. The laws regulating the companies have never been able to cover each and every
aspect of the companies workings and the judiciary has always helped through precedents,
examples of this help by the courts of law are the creation of the “Doctrine of Constructive
Notice” and the “Doctrine of Indoor management.”
The former one is for the protection of the companies from outside stakeholders and
has always been very helpful for the companies while as the interests of the investors are also
necessary to be protected the “doctrine of indoor management “ was introduced. These two
doctrines act to balance the protection of company as well as outside stakeholders.

6. By Ameer Ahamad 2015
ameergujjar@yahoo.com
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