SHRI RAMSWROOP MEMORIAL UNIVERSITY

DEVA ROAD , LUCKNOW

SESSION - 2019-20

TOPIC-DOCTRINE OF INDOOR MANAGEMENT

ROLL NO.- 201510301140014
BRANCH- B.A. LLb (hons.)
SEMESTER- 9th
SUBJECT-CORPORATE LAWS

SUBMITTED TO SUBMITTED BY
MR. KAUSHLENDRA SINGH SIR , AYUSH SATISH UPADHYAY
ASSOCIATE PROFESSOR,
ILS
 INTRODUCTION-
The doctrine of indoor management is an exception to the earlier
doctrine of constructive notice. It is important to note that the
doctrine of constructive notice does not allow outsiders to have
notice of the internal affairs of the company.
Hence, if an act is authorized by the Memorandum or Articles of
Association, then the outsider can assume that all detailed
formalities are observed in doing the act. This is the Doctrine of
Indoor Management or the Turquand Rule. This is based on the
landmark case between The Royal British Bank and Turquand. In
simple words, the doctrine of indoor management means that a
company’s indoor affairs are the company’s problem.
 Therefore, this rule of indoor management is important to
people dealing with a company through its directors or other
persons. They can assume that the members of the company
are performing their acts within the scope of their apparent
authority. Hence, if an act which is valid under the Articles, is
done in a particular manner, then the outsider dealing with the
company can assume that the director/other officers have
worked within their authority.
 Basis for Doctrine of Indoor Management-

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

knowledge. An outsider can only presume the intentions of a
company, but not know the information he/she is not privy to.

2. If not for the doctrine, the company could escape creditors by

denying the authority of officials to act on its behalf.
 Exceptions to the Doctrine of Indoor Management

The Turquand rule or the law of indoor management is not

applicable to the following cases:

The outsider has actual or constructive knowledge of an

irregularity-
In such cases, the rule of indoor management does not offer
protection to the outsider dealing with the said company.
 The outsider behaves negligently
The rule of Indoor management does not protect a person
dealing with a company if he does not initiate an inquiry despite
suspecting an irregularity. Further, this rule does not offer
protection if the circumstances surrounding the contract are
suspicious. For example, the outsider should get suspicious if an
officer purports to act in a manner outside the scope of his
authority.
Forgery
The doctrine of indoor management is applicable to irregularities
that affect a transaction except for forgery. In case of a forgery,
the transaction is deemed null and void.
 CASE-1

In the case of Rama Corporation v. Proved Tin & General

Investment Co.,the X who was director in the company entered
into a contract with Rama Corporation while purporting to act on
behalf of the company and he also took a cheque from them.
The articles of the company did provide that the director may
delegate their power but Rama Corporation did not have
knowledge of this as they did not read the articles and
memorandum of the company. Now later on it was found that
company had never delegated their power to X. Held- plaintiff
cannot take the remedy of the indoor management as they even
don’t that power could be delegated.
 CASE2-
In the case of Lakshmi Ratan Cotton Mills Co. Ltd, v. J. K. Jute Mitts Co.Ltd, [13]the company
of plaintiff sued defendant’s company for the total amount of Rs.1, 50,000. The defendant company
raised the argument that no such resolution sanctioning the loan was passed by the board of
director, thus it is not binding on the company.

The court held that-“If it is found that the transaction of loan into which the creditor is entering is not
barred by the charter of the company or its articles of association, and could be entered into on
behalf of the company by the person negotiating it, then he is entitled to presume that all the
formalities required in connection therewith have been complied with. If the transaction in question
could be authorized by the passing of a resolution, such an act is a mere formality. A bona fide
creditor, in the absence of any suspicious circumstances, is entitled to presume its existence. A
transaction entered into by the borrowing company under such circumstances cannot be defeated
merely on the ground that no such resolution was in fact passed. The passing of such a resolution
is a mere matter of indoor or internal management and its absence, under such circumstances,
cannot be used to defeat the just claim of a bona fide creditor. A creditor being an outsider or a third
party and an innocent stranger is entitled to proceed on the assumption of its existence ; and is not
expected to know what happens within the doors that are closed to him. Where the act is not ultra
vires the statute or the company such a creditor would be entitled to assume the apparent or
ostensible authority of the agent to be a real or genuine one. He could assume that such a person
had the power to represent the company, and if he in fact advanced the money on such
assumption, he would be protected by the doctrine of internal management.”
 Conclusion
Doctrine of indoor management is evolved as a reaction of the doctrine
of constructive notice. It puts a Bar on the doctrine of constructive notice
and it protects the third party who acted in the act in the good faith. This
doctrine protects outsiders dealing or contracting with a company, It was
analyzed that the doctrine does not operate in arbitrary manner, there
are some restriction imposed on it like forgery, third party having
knowledge of irregularity, negligence, where third party don’t read
memorandum and articles and the doctrine will not apply where the
question is regard of to the very existence of the company. Act done by
governmental authorities in the course of their activities comes under
the doctrine of indoor management.