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Doctrine of Indoor Management

The doctrine of indoor management protects outsiders dealing with a company from the internal irregularities of which they have no notice. It allows outsiders to assume that internal company proceedings have been conducted regularly. The doctrine is based on the fact that internal company matters are not public knowledge and without this protection, companies could escape obligations by denying authority. However, the protection does not apply if the outsider had knowledge of irregularities, failed to conduct proper inquiries despite suspicious circumstances, or if the document involved forgery or acts beyond apparent authority.

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257 views8 pages

Doctrine of Indoor Management

The doctrine of indoor management protects outsiders dealing with a company from the internal irregularities of which they have no notice. It allows outsiders to assume that internal company proceedings have been conducted regularly. The doctrine is based on the fact that internal company matters are not public knowledge and without this protection, companies could escape obligations by denying authority. However, the protection does not apply if the outsider had knowledge of irregularities, failed to conduct proper inquiries despite suspicious circumstances, or if the document involved forgery or acts beyond apparent authority.

Uploaded by

faaizha zafira
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Doctrine of

Indoor
Management
Introduction

– Rule in Royal British Bank v. Turquand or Turquand rule


– Limitation to the doctrine of constructive notice
– The outsiders dealing with the company are entitled to assume that as far as
the internal proceedings of the company are concerned, everything has been
regularly done.
– It seeks to protect outsiders against the company (whereas doctrine of
constructive notice protects company against outsiders)
Basis

1) What happens internal to a company is not a matter of public knowledge.


2) Without this doctrine, the company can escape creditors by denying the
authority of officials to act on its behalf
Royal British Bank v. Turquand

– The directors of the company had issued a bond to T. They had the power under
the Articles to issue such bond provided they were authorised by a resolution
passed by the shareholders at a GM of the company. But no such required
resolution was passed by the company. Held, T could recover the amount of the
bond from the company on the ground that he was entitled to assume that the
resolution had been passed.
– Persons dealing with companies are not bound to look into the regularity of the
internal proceedings and will not be affected by irregularities of which they had
no notice.
Exceptions

1) Knowledge of irregularity - The rule will not apply if the person dealing with
the company had slight knowledge of the internal irregularities
Case – Howard v. Patent Ivory Co. (1888) – Directors can borrow 1000 pounds
without approval – beyond this they must obtain shareholders’ approval in GM.
Directors borrowed 3500 pounds from another director who took debentures –
Since plaintiff is a director who had knowledge about the internal irregularity the
debentures are worth only 1000 pounds.
Exceptions

2) Negligence – Person dealing with the company could have discovered the
irregularity if he had made proper inquiries
- The circumstances surrounding the contract are so suspicious as to invite
inquiry and the person does not make a proper inquiry
Case – Anand Bihari Lal v. Dinshaw & Co. (1942) – plaintiff accepted transfer of
company’s property from its accountant. Held, transfer was void as accountant did
not have the power. Plaintiff should have checked the power of attorney executed
in favour of the accountant by the company.
Exceptions

3) Forgery – The rule does not apply if the document is forged since nothing can
validate forgery
- A company can never be held accountable for forgeries committed by its
officers
Case – Ruben v. Great Fingall Consolidated Co. (1906) – Secretary of a company
issued a share certificate under the company’s seal with his own signature and the
signature of a director forged by him. Held, the share certificate was not binding on
the company.
Exceptions

4) Acts outside the scope of apparent authority – If an officer of a company enters


into a contract with a third party and if the act of the officer is beyond the scope of
his authority, the company is not bound.
Case – Kreditbank Cassel v. Schenkers Ltd. (1927) – A branch manager of a
company drew and endorsed bills of exchange on behalf of the company – for
personal indebtment – had no such authority – Held, company was not bound.

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