Meaning of a Company

There are many definitions of a Company by various legal experts. However, Section 2(20) of the Companies
Act, 2013, defines the term ‘Company’ as follows: “Company means a company incorporated under this Act
or under any previous company law.”
Hence, in order to understand the meaning of a Company, it is important to look at the distinctive features
that explain the realm of a Company.
Salient features of the Companies Act 2013

1. Class action suits for Shareholders: The companies Act 2013 has introduced new concept of class
action suits with a view of making shareholders and other stakeholders, more informed and
knowledgeable about their rights.
2. More power for Shareholders: The Companies Act 2013 provides for approvals from
shareholders on various significant transactions.
3. Women empowerment in the corporate sector: The Companies Act 2013 stipulates appointment
of at least one woman Director on the Board (for certain class of companies).
4. Corporate Social Responsibility: The Companies Act 2013 stipulates certain class of Companies
to spend a certain amount of money every year on activities/initiatives reflecting Corporate Social
Responsibility.
5. National Company Law Tribunal: The Companies Act 2013 introduced National Company Law
Tribunal and the National Company Law Appellate Tribunal to replace the Company Law Board
and Board for Industrial and Financial Reconstruction. They would relieve the Courts of their
burden while simultaneously providing specialized justice.
6. Fast Track Mergers: The Companies Act 2013 proposes a fast track and simplified procedure for
mergers and amalgamations of certain class of companies such as holding and subsidiary, and
small companies after obtaining approval of the Indian government.
7. Cross Border Mergers: The Companies Act 2013 permits cross border mergers, both ways; a
foreign company merging with an India Company and vice versa but with prior permission
of RBI.
8. Prohibition on forward dealings and insider trading: The Companies Act 2013 prohibits directors
and key managerial personnel from purchasing call and put options of shares of the company, if
such person is reasonably expected to have access to price-sensitive information.
9. Increase in number of Shareholders: The Companies Act 2013 increased the number of maximum
shareholders in a private company from 50 to 200.
10. Limit on Maximum Partners: The maximum number of persons/partners in any
association/partnership may be upto such number as may be prescribed but not exceeding one
hundred. This restriction will not apply to an association or partnership, constituted by
professionals like lawyer, chartered accountants, company secretaries, etc. who are governed by
their special laws. Under the Companies Act 1956, there was a limit of maximum 20
persons/partners and there was no exemption granted to the professionals.
11. One Person Company: The Companies Act 2013 provides new form of private company, i.e., one
person company. It may have only one director and one shareholder. The Companies Act
1956 requires minimum two shareholders and two directors in case of a private company.
12. Entrenchment in Articles of Association: The Companies Act 2013 provides for entrenchment
(apply extra legal safeguards) of articles of association have been introduced.
13. Electronic Mode: The Companies Act 2013 proposed E-Governance for various company
processes like maintenance and inspection of documents in electronic form, option of keeping of
books of accounts in electronic form, financial statements to be placed on company’s website, etc.
 14. Indian Resident as Director: Every company shall have at least one director who has stayed in
India for a total period of not less than 182 days in the previous calendar year.
15. Independent Directors: The Companies Act 2013 provides that all listed companies should have
at least one-third of the Board as independent directors. Such other class or classes of public
companies as may be prescribed by the Central Government shall also be required to appoint
independent directors. No independent director shall hold office for more than two consecutive
terms of five years.
16. Serving Notice of Board Meeting: The Companies Act 2013 requires at least seven days’ notice
to call a board meeting. The notice may be sent by electronic means to every director at his
address registered with the company.
17. Duties of Director defined: Under the Companies Act 1956, a director had fiduciary (legal or
ethical relationship of trust)duties towards a company. However, the Companies Act 2013 has
defined the duties of a director.
18. Liability on Directors and Officers: The Companies Act 2013 does not restrict an Indian company
from indemnifying (compensate for harm or loss) its directors and officers like the Companies Act
1956.
19. Rotation of Auditors: The Companies Act 2013 provides for rotation of auditors and audit firms
in case of publicly traded companies.
20. Prohibits Auditors from performing Non-Audit Services: The Companies Act 2013 prohibits
Auditors from performing non-audit services to the company where they are auditor to ensure
independence and accountability of auditor.
21. Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation process of the
companies in financial crisis has been made time bound under Companies Act 2013.
Features & Characteristics Of A Company
Incorporated association: A company comes into existence when it is registered under the Companies
Act (or other equivalent act under the law). A company has to fulfil requirements in terms of documents
(MOA, AOA), shareholders, directors, and share capital to be deemed as a legal association.
Artificial Legal Person: In the eyes of the law, A company is an artificial legal person which has the
rights to acquire or dispose of any property, to enter into contracts in its own name, and to sue and be
sued by others.
Separate Legal Entity: A company has a distinct entity and is independent of its members or people
controlling it. A separate legal entity means that only the company is responsible to repay creditors and to
get sued for its deeds. The individual members cannot be sued for actions performed by the company.
Similarly, the company is not liable to pay personal debts of the members.
Perpetual succession: Unlike other non-registered business entities, a company is a stable business
organisation. Its life doesn’t depend on the life of its shareholders, directors, or employees. Members may
come and go but the company goes on forever.
Common seal:
Limited Liability: A company may be limited by guarantee or limited by shares. In a company limited
by shares, the liability of the shareholders is limited to the unpaid value of their shares. In a company
limited by guarantee, the liability of the members is limited to the amount they had agreed upon to
contribute to the assets of the company in the event of it being wound up.

Types of companies
Primary Classification
Companies are primarily classified into private and public. Private companies or private limited
companies are those companies that are closely-held and have less than 200 shareholders. Public
companies are limited companies that have more than 200 shareholders and are listed on a stock
exchange.
The 2013 Act has brought with it a new form of a company entitled One Person Company (OPC), which
in theory is a private company. As can be deciphered from the name, a One Person Company requires
only one member to form it. The person forming an OPC must be a natural person, a citizen of India and
an Indian resident during the time of formation. A minor can never be a member or a nominee of a
member in OPC. OPC provides an opportunity for the sole proprietors to reap the benefits of limited
liability by becoming a corporate entity.
Classification on the Basis of Control
Companies, on the basis of control, are classified as follows:

 Holding company.
 Associate company.
Holding Company
The relationship of holding or subsidiary companies is established either with the control of Board of
Directors or control of share capital. A company will be a holding company of another in the following
scenarios:

 Controls the composition of the Board of Directors of the other company.

 Exercises or controls more than 50% of the total share capital either on its own or together with
one or more of its subsidiary companies.
Associate Company
If a company has significant influence over another company, the latter will be the Associated Company
of the first company. Significant influence is derived either from control of at-least 20% of the total share
capital, or of business decisions under an agreement.
Classification on the Basis of Liability
Companies, on the basis of liability, are classified into the following:
Company Limited by Shares
This is the most widespread form of a company. Companies usually have limited liability of members
unless specified otherwise in the memorandum (MOA) and articles of association (AOA). In this case, the
liability of the members is limited to the extent of face value of shares and premium payable on shares. A
limited company can either be a private or public company.
Company Limited by Guarantee
A company limited by guarantee refers to a company having the liability of its members limited by the
memorandum to an amount the members may respectively undertake to contribute to the assets of the
company in the event of it being wound up.
Unlimited Liability Company
Unlimited Company is a kind of a company which doesn’t have any limit on the liability of its members.
The liability of the member’s will not cease until the final payment. Such a company may or may not
have a share capital of its own.
Classification on the Basis of Access to Capital
Companies, on the basis of access to capital, are classified as follows.
Unlisted Company
When the securities of a private or public company aren’t listed on any of the stock exchanges, it is an
unlisted company. Such companies cannot raise funds from the public at large by issuing a prospectus.
However, an unlisted company may issue shares on Private Placement basis or to raise private equity
funding.
Listed Company
A listed company is a kind of a company whose securities are listed on at-least one of the stock
exchanges. Such a company must comply with the provisions of listing.
Classification on the Basis of Size
Companies were earlier not classified on the basis of size, but the introduction of “Small Company” back
in 2013 prompted the need for this kind of classification. Any company other than a small company is
either a mid-size or a large company.
Small Company
Companies, whose paid-up share capital does not exceed fifty lakh rupees or any prescribed amount not
exceeding 5 crore rupees, and its turnover as per its latest profit and loss account is limited to 2 crore
rupees or any prescribed amount not exceeding 20 crore rupees, will be considered as a small company. A
public company can never be a small company. Likewise, a holding or subsidiary company will not be a
small company.
Know more about Small Company under Companies Act, 2013.
Classification on the Basis of Objects
This classification is based on the objective of a firm, which could be profit-oriented or otherwise.
Not for Profit Company
A company whose sole objective is to promote commerce, art, science, sports education, research, social
welfare, religion, charity, protection of environment or any other useful purpose and not having any profit
motive will be termed as a not-for-profit company. Such a company must apply its profits or other
incomes in promoting its objects. It mustn’t make any payment of dividend to its members. Section 8
Company is the only type of company that is a not-for-profit company.
Nidhi Companies
Nidhi companies have been in existence right from the days of yore. Their primary objective is to support
the habit of thrift. It was promoted by public spirited men drawn from affluent local persons, lawyers and
professionals etc. Please visit this link for details on registering a Nidhi company
Classification on the basis of Holding of Shares
Companies, on the basis of holding of shares, are classified into the following.
Government Company
A Government company is a kind of a company in which not less than 51% of the paid-up share capital is
held by the Central or State Government, or partly by the Central and State Governments, and includes
any company which is a subsidiary of a Government company.
Foreign Company
A foreign company is any company or body corporate incorporated outside India which has a place of
business in India, and conducts any business activity in India.

Case Law: The Leading case of Salomon v. Salomon & Co. Ltd. (Separate

Legal Entity)

 Facts: Mr Salomon had incorporated his old family business of shoe manufacture into a
limited company. He was holding 99.97% of the shares and the other 6 members of his
 family held one share each, making their share 0.029% of the total. The company went
into loss after some time. The debentures in the company were held mainly by two
individuals and Mr Salomon was one of the Debenture holders. When the company was
liquidated, both the Debenture holders recovered the money, i.e. Mr Solomon also
recovered the money. Therefore the minor, unsecured creditors got nothing from the
liquidation.
 Issue: Should the amount that was paid to Mr Salomon, the major debenture holder, be
distributed amongst the minor unsecured creditors?
 Held: The High Court and the Court of Appeal believed that the Highest shareholder
must suffer and the unsecured creditors must be paid. But it was held by the House of
Lords that, the Company is a different legal entity in itself, also observing that a majority
shareholder does not own the Company. The Company will not lose its identity to the
majority shareholder under any circumstances. 

Corporate Veil

The separate legal entity of a company is one of its most unique features. The Corporate Veil Theory
is a legal concept which separates the identity of the company from its members. Hence, the
members are shielded from the liabilities arising out of the company’s actions.
Therefore, if the company incurs debts or contravenes any laws, then the members are not liable for
those errors and enjoy corporate insulation. In simpler words, the shareholders are protected from
the acts of the company.
This brings us to some important questions:
1. If lifting or piercing the corporate veil possible?
2. If yes, then what are the scenarios and the rules that govern piercing the corporate veil?
Piercing the Corporate Veil means looking beyond the company as a legal person. Or, disregarding
the corporate identity and paying regard to humans instead.
In certain cases, the Courts ignore the company and concern themselves directly with the members
or managers of the company. This is called piercing the corporate veil. Usually, Courts choose this
option when the case involves a question of control rather than ownership.

Lifting/ Piercing the Corporate Veil

Scenarios under which the Courts consider piercing or lifting the corporate veil are as below,
1] To Determine the Character of the Company
There are cases where the Courts need to understand if the company is an enemy or friend. In such
cases, the Courts adopt the test of control. The Courts usually avoid piercing the corporate veil,
unless the public interest is in jeopardy. However, to ascertain if a company is an enemy company,
the Court might choose to do so.
So, how can a company be an enemy? It does not have a mind or consciousness and cannot be a
friend or foe, right? However, if the affairs of a company are under the control of people from an
enemy country, then the company might be an enemy too. In such cases, the Court may examine the
character of the humans who are at the helm of affairs of the company.
2] To Protect Revenue or Tax
In matters concerning evasion or circumvention of taxes, duties, etc., the Court might disregard the
corporate entity.
Imagine a company that is used to evade tax. In such cases, piercing the corporate veil allows the
Court to understand the real owner of the income of the company and make the said person liable
for legitimate taxes.
3] If trying to avoid a Legal Obligation
Sometimes the members of a company can create another company/subsidiary company to avoid
certain legal obligations. In such cases, piercing the corporate veil allows the Courts to understand
the real transactions.
Imagine a company liable to share 20 percent of its profits with its employees as a bonus. This is a
legal obligation. To avoid this, the company opens a wholly owned subsidiary company and
transfers its investment holdings to it.
The new company formed has no assets of its own and no business income either. It is completely
dependent on the principal company.
By doing so, the principal company reduced the amount of bonus liable to be paid to its employees.
The Courts, by piercing the corporate veil, can understand the real intention of the principal
company and ensure that it fulfils its legal obligations.
4] Forming Subsidiaries to act as Agents
Sometimes, the basis of the formation of a company is to act as an agent or trustee of its members or
of another company. In such cases, the company loses its individuality in favour of its principal.
Also, the principal is liable for the acts of such a company.
5] A company formed for fraud or improper conduct or to defeat the law
In cases where a company is formed for some illegal or improper purposes like defeating the law,
the Courts might decide to lift or pierce the corporate veil.

Definition- Memorandum:
As per Section 2(56) of the Companies Act,2013 “memorandum” means the memorandum of association
of a company as originally framed or as altered from time to time in pursuance of any previous company
law or of this Act.
Memorandum Of Association:
Section 4 of the Companies Act,2013 deals with MOA. The Memorandum of a company shall contain the
following;
1. Name Clause:
The name of the company with the last word “Limited” in the case of a public limited company, or the
last words “Private Limited” in the case of a private limited company.
2. Registered office Clause:
The State in which the registered office of the company is to be situated.
3.Object Clause:
The objects for which the company is proposed to be incorporated and any matter considered necessary in
furtherance thereof.
4.Liability Clause:
The liability of members of the company, whether limited or unlimited, and also state,—
 (i) in the case of a company limited by shares– liability of its members is limited to the amount unpaid, if
any, on the shares held by them; and
(ii) in the case of a company limited by guarantee-the amount up to which each member undertakes to
contribute—
(A) to the assets of the company in the event of its being wound-up while he is a member or within one
year after he ceases to be a member, for payment of the debts and liabilities of the company or of such
debts and liabilities as may have been contracted before he ceases to be a member,as the case may be; and
(B) to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories
among themselves;
5.Capital Clause:
(i) the amount of share capital with which the company is to be registered and the division thereof into
shares of a fixed amount and the number of shares which the subscribers to the memorandum agree to
subscribe which shall not be less than one share; and
(ii) the number of shares each subscriber to the memorandum intends to take, indicated opposite his
name;
In the case of One Person Company, the name of the person who, in the event of death of the subscriber,
shall become the member of the company.
Identical/undesirable names;
The name stated in the memorandum shall not—
(a) be identical with or resemble too nearly to the name of an existing company registered under this Act
or any previous company law; or
(b) be such that its use by the company—
(i) will constitute an offence under any law for the time being in force; or
(ii) is undesirable in the opinion of the Central Government
A company shall not be registered with a name which contains—
(a) any word or expression which is likely to give the impression that the company is in any way
connected with, or having the patronage of, the Central Government, any State Government, or any local
authority, corporation or body constituted by the Central Government or any State Government under any
law for the time being in force; or
(b) such word or expression, as prescribed in the Companies (Incorporation) Rules, 2014.
unless the previous approval of the Central Government has been obtained for the use of any such word
or expression.
Reservation of name:
A person may make an application in Form No. INC.1 along with the fee as provided in the Companies
(Registration offices and fees) Rules, 2014 to the registrar for the reservation of a name set out in the
application as-
(a) the name of the proposed company; or
(b) the name to which the company proposes to change its name
The Registrar may, on the basis of information and documents furnished along with the application,
reserve the name for a period of sixty days from the date of the application.
Penalty:
If the company has not been incorporated, the reserved name shall be cancelled and the person making
application shall be liable to a penalty which may extend to Rs.1,00,000/-
Action:
If the company has been incorporated, the Registrar may, after giving the company an opportunity of
being heard—
 either direct the company to change its name within a period of three months, after passing an
ordinary resolution;
 take action for striking off the name of the company from the register of companies; or
 make a petition for winding up of the company.
 Articles of Association

Every company needs a set of rules and regulations to manage its internal affairs. There are two
important business documents of a company, namely, Memorandum of Association (MOA) and Articles of
Association (AOA). The AOA specifies the internal regulations of the company. In this post, we will look at
the Articles of Association (AOA) in detail.
The AOA contains the bye-laws of the company. Therefore, the director and other members must
perform their functions as regards the management of the company, its accounts, and audits in accordance
with the AOA.
According to Section 5 of the Companies Act, 2013, the AOA must have the following components:

Regulations
The AOA must contain the regulations for the management of the company.

Inclusion of matters
The Articles must specify all matters, in accordance with the rules. Furthermore, a company can include
additional matters deemed necessary for its management.

Provisions for entrenchment

Entrenchment means fortification or protection.
The AOA can contain provisions for entrenchment for specific provisions. The provisions for entrenchment
can ensure that the specified provisions are altered only if certain conditions or procedures are met or
complied with. These conditions are usually more restrictive than those applicable for a special resolution.
The inclusion of the provisions for entrenchment is possible:

 On the formation of the company

 Also, by amending the Articles with approval from all members of the company. Further, in
the case of a public limited company, with a special resolution.
Regardless of whether the provisions for entrenchment are added on the formation or after an amendment, the
company must give a notice to the Registrar of the same.

Difference between Memorandum and Articles of Association

Parameter MOA AOA

It lays down the rules and regulations for the internal

It defines and delimits the objectives of a company.
Objectives management of the company. Hence, it also contains
Further, it specifies the conditions of incorporation.
the bye-laws of the company.

It defines the relationship of the company with the It defines the relationship between the company and its
Relationship
outside world. members.
 It can be altered only under special circumstances.
Alteration Also, it usually requires the permission of the It can be altered by passing a special resolution.
Regional Director or the Tribunal.

Acts beyond the scope of the MOA are ultra vires Acts which are ultra vires the AOA can be ratified by
Ultra Vires and void. Furthermore, even unanimous consent of a special resolution of the shareholders. However,
all shareholders cannot ratify it. such acts should not be ultra vires the MOA.

The Doctrine of Constructive Notice

As we all know notice is an alert or a kind of information which is been given or informed to the
person or the group of persons there by. The notice is served either to public at large or to an
individual person.

The notice is an information which is given legally or normally hand it over to person or group
of persons to give information about any particular information or a notice which is given legally
is summon which is a legal notice by the court to a person notifying that he or she has to be
present or appear in front of the court as the summon is issued to the defendant in the suit filed
against him by the plaintiff. Notice is mainly specifies the information regarding any topic or any
kind of news which is to be spread to all the people there by. So, the main focus or main area is
the Doctrine of Constructive Notice.

This doctrine is the principle of presumption of the knowledge of that particular subject or
information in the eyes of law. It is been presumed that you have knowledge or you know all the
information regarding the Articles and Memorandum of the company to the outsider to the
company. Memorandum and Articles of every company is registered with the registrar of the
companies.

The office of the registrar is a public office and the memorandum and articles of the company
which is been clearly stated on every website of the company which every person can easily go
through it without any charges or any procedure to go through so, memorandum and articles are
called the public documents which is easily accessible and every one can access to it before
dealing with the particular company.

It is therefore the persons duty to inspect each and every document and statement of the
company. To know well about the company's preferences or he capacity of contracting which
deal they contract in or in which they not. So it is the primary duty to rescue himself by reading
and going through each and every clause and the public documents of he company.

In Law it is already been told that some information you have been gone through which is been
presumed that you have the knowledge of that particular information. In the Indian Contract Act,
1872 there was a latin maxim Ignorantia juris non excusat which means ignorance of law is
not an excuse and it is presumed that you have the knowledge of law.

What Is Constructive Notice?

Firstly, the meaning of constructive notice, constructive notice is implied or indirect notice,
which is not received in reality but in the eyes of law it is been served. Which means law is
putting obligations, it is been presumed that you have the knowledge regarding that particular
fact. Or the notice is been served to you. For e.g. AIRTEL when you log in to the site of Airtel,
on that site every information regarding the Memorandum or Articles or certificate of
incorporation is been clearly stated if anybody who is interested in the deal with the company
should read all the particulars, if any problems arises after dealing with the company you cannot
say that you have not been told earlier it is the duty of the outsider to read the memorandum or
articles of that particular company in which you are dealing.

1. Doctrine of Constructive Notice

Section 399 of the Companies Act, 2013 states that any person may, after payment of the
prescribed fees:
- Inspect by electronic means any documents kept with the registrar.
- Require a copy of any document including certificate of incorporation.
In line with this provision, the Memorandum of Association and the Articles of Association are
public documents once filed with the registrar. Any person may inspect the same after payment
of the fees prescribed.
The doctrine presumes that every person has knowledge of the contents of the Memorandum of
Association, Articles of Association and every other document such as special resolutions. The
special resolutions are required to be registered with the Registrar under the Companies Act,
2013. This principle has been upheld in the landmark case of Oakbank Oil Co. V. Crum (1882) 8
A.C.65.Thus, if any person enters into a contract, which is inconsistent with the company’s
Memorandum and Article, he shall not acquire any rights against the company and shall bear the
consequences himself.
A leading case under Doctrine of Constructive Notice is
Kotla Venkataswamy v. Chinta Ramamurthy AIR 1934 Madras 579. 
In the article of the company there was written that if the company’s property will be mortgaged
(mortgage means loan on immovable property) then in the articles there was a provision that the
company if it mortgage the company’s property then in the mortgage deed there will be
requirement of three signatures that is of the managing director, working director and the
company’s secretary.

These three people’s signature is mandatory that is what the articles provision is about of that
company. But in reality what happens there was only two signatures on the mortgage deed which
is of secretary and working director and there was no signature of the company’s managing
director. And the plaintiff (lady) accepted the deed which was only executed by the secretary and
director.

Then Court held that he mortgage deed was invalid due to only two signatures over it, but the
plaintiff cannot claim under this deed. As it was presumed that the lady was known about that
fact that in the articles this provision of three signatures is there so, court held that it is been
presumed that you have gone through the articles of the company or read the articles before
dealing with the company.

And hence she was not entitled to claim from the company. She was liable for her own wrong
that she haven’t gone through the articles of the company. Company is not made liable. So, from
this case we have correlated the Doctrine Of Constructive Notice.

So, we can say that this doctrine of constructive notice works in the favor of the company not the
outsiders as , it has been presumed that the outsiders  before dealing with the company has read
the articles and memorandum of the company. So if any mischief happens then company is not
liable for that as the in the eyes of law it is the presumption of the knowledge before dealing with
the company.

Origin of Doctrine of Indoor Management

The role of doctrine of indoor management is opposed to of the role of doctrine of constructive
notice. The doctrine of indoor management follows from the doctrine of constructive notice laid
down in various judicial decisions. The hardships caused to outsiders dealing with a company by
the rule of constructive notice have been sought to be softened under the principle of indoor
management. It affords some protection to the outsiders against the company.

The doctrine of constructive notice protects company against outsiders whereas the doctrine of
indoor management protects outsiders against the actions of company. This doctrine also is a
possible safeguard against the possibility of abusing the doctrine of constructive notice.

According to this doctrine, persons dealing with the company need not inquire whether internal
proceedings relating to the contract are followed correctly, once they are satisfied that the
transaction is in accordance with the memorandum and articles of association.

Shareholders, for example, need not enquire whether the necessary meeting was convened and
held properly or whether necessary resolution was passed properly. They are entitled to take it
for granted that the company had gone through all these proceedings in a regular manner.

The doctrine helps protect external members from the company and states that the people are
entitled to presume that internal proceedings are as per documents submitted with the Registrar
of Companies.

Whereas the doctrine of constructive notice protects a company against outsiders, the doctrine of
indoor management protects outsiders against the actions of a company. This doctrine also is a
possible safeguard against the possibility of abusing the doctrine of constructive notice.

The doctrine originated from the landmark case Royal British Bank V Turquand (1856) 6 E&B
327. The Articles of the company provided for the borrowing of money on bonds, which
required a resolution to be passed in the General Meeting. The directors did acquire the loan but
failed to pass the resolution. The repayment on loan defaulted, and the company was held liable.
The shareholders refused to accept the claim in the absence of the resolution.
Held, the company shall be liable since the person dealing with the company is entitled to
assume that there has been necessary compliance with regards to the internal management.
The rule was further endorsed by the House of Lords in Mahony V East Holyford Mining Co.
[1875] LR 7 HL 869. 6. In this case, the Articles of the company provided that the cheque shall
be signed by two directors and countersigned by the secretary. It later came to light that neither
the directors nor the secretary who signed the cheque was appointed properly. Held, the person
receiving such cheque shall be entitled to the amount since the appointment of directors is a part
of the internal management of the company and a person dealing with the company is not
required to enquire about it. This view is supported by Section 176 of the Companies Act, 2013,
which states that the defects in the appointment of the director shall not invalidate the acts done.

3. Exceptions to the Doctrine of Indoor Management

Listed below are the exceptions to the doctrine that have been judicially established, which
provide circumstances under which the benefit of indoor management cannot be claimed by a
person dealing with the company.

1. Knowledge of Irregularity: This rule does not apply to circumstances where the person
affected has actual or constructive notice of the irregularity. In Howard V Patent Ivory
Manufacturing Company (1888) 38 Ch D 156, the Articles of the company empowered
 the directors to borrow up to 1,000 pounds. The limit could be raised provided consent
was given in the General Meeting. Without the resolution being passed, the directors took
3,500 pounds from one of the directors who took debentures. Held, the company was
liable only to the extent of 1,000 pounds. Since the directors knew the resolution was not
passed, they could not claim protection under the Turquand’s rule.
2. Suspicion of Irregularity: In case any person dealing with the company is suspicious
about the circumstances revolving around a contract, then he shall enquire into it. If he
fails to enquire, he cannot rely on this rule. In the case of Anand Bihari Lal V Dinshaw &
Co, (1946) 48 BOMLR 293, the plaintiff accepted a transfer of property from the
accountant. The Court held that the plaintiff should have acquired a copy of the Power of
Attorney to confirm the authority of the accountant. Thus, the transfer was considered
void.
3. Forgery: Transactions involving forgery are void ab initio since it is not the case of
absence of free consent; it is a situation of no consent at all. This has been established in
the Ruben V Great Fingall Consolidated case [1906] 1 AC 439. A person was issued a
share certificate with a common seal of the company. The signature of two directors and
the secretary was required for a valid certificate. The secretary signed the certificate in
his name and also forged the signatures of the two directors. The holder contented that he
was not aware of the forgery, and he is not required to look into it. The Court held that
the company is not liable for forgery done by its officers.