Royal British Bank VS Turquand

Name – Rithika Bonda

Reg. No. – 17BLB1021
FACTS-
Cameron's Coalbrook Steam, Coal and Swansea and Loughor Railway Company had
borrowed money from Royal British Bank on a bond for 2000 pounds. The bond had the
company’s seal, it was signed by two directors and secretary of the company.
The Articles of Association (deed of settlement) of the company stated that the it may borrow
money from time to time, when authorized through general resolution. It was found the there
was no such resolution passed by the company, but the wealth was already inquired by the
company.
Later the company went into liquidation and Mr Turquand was appointed the liquidator for
the company. The bank filed suit against the company for not paying back the amount
borrowed. The company on being sued claims that there was no valid resolution which
authorized the issue of bonds to the bank, so it is not liable to pay back the money.

ISSUE-
Is the company liable to give back the money borrowed by it from the bank?

COURT AND OBSERVATIONS-

The trial court passes the judgement in favour of the bank. The liquidator goes for an appeal
on behalf of the bank.
The appellate court observes –
The deed of settlement was registered under the Joint Stock companies Act 1844. It allowed
the directors of the company to borrow money on bonds from time to time through a
resolution passed in the general meetings of the company. The court found that no such valid
resolution was passed which authorized the lending of money from the bank to the company.
Though the public should have known the contents of the documents that are published, they
were not obligated to do more and any party reading the deed in instant matter would find
that there was no prohibition from borrowing stated in the deed. Thus, any such party was
entitled to assume that all internal procedural conditions not mentioned in the deed has been
followed. The court held that the bond was valid and the bank could enforce the terms using
the doctrine of indoor management.
But there are certain exceptions to the doctrine-
 If an outsider knows about the irregularity of the company and still seeks to enter into
transaction with the company, then he can’t claim protection under Indoor
Management.
 The outsider should know about the MOA and AOA of the company before
transacting with it and can’t be ignorant about it. The person cant be negligent about it