The Doctrine of Indoor Management

The doctrine of indoor management is an ancient principle which has been used for the past 150 years, and it is popularly known as Turquand rule. It controls all the actions of a company and helps outsiders from them. It involves all the documents related to the company. We need to extend the knowledge about the doctrine of indoor management, so let us discuss some of the topics involved in it.


The Doctrine of Constructive Notice

Under the companies act 2013, section 399 clearly explains the concept of the doctrine of constructive notice of company law. According to section 399, it is essential to consider and gain knowledge of all the memorandum of association, articles of association and other important public documents published by the company to the new members who are entering into a contract.

The person also needs to pay the prescribed fee to the resistor to get a certificate of incorporation. It is known as the permission of entering into the company. If the person fails to pay the fee or with a lack of knowledge about the memorandum of association, articles, special documents, etc. the person may not get any rights or powers in the organization. It is the gist of the doctrine of constructive notice. V. Crum initiated this principle in 1882 during the issue of Oakbank oil and Co. It is always advisable for the new members to avoid consequences after entering into the contract without any knowledge.


The Doctrine of Indoor Management 

As we know, the meaning of the doctrine of indoor management came into existence in 1856. The landmark issue of Royal British Bank V Turquand gives rise to the formation of the doctrine of indoor management. It specifies and concentrates on the appointment of managing directors; the secretary is all the heads of association properly. The easiest story behind this principle should be implemented strictly.

In the articles of that bank, it is clearly mentioned that one can claim a loan on bonds and it should be repaid on the specific date. But unfortunately, the receiver of the loan has refused to repay the amount. After long discussions, they have issued a check with the two signatures of two directors along with the secretary. But it comes to notice, the government does not appoint all the directors and secretaries, and the check got cancelled. So, the check receiver filed a case against the company, which led to wind out. By keeping this situation in mind, the companies act 2013 also strongly supported the doctrine of indoor management of a company is mandatory.


Exceptions to the Doctrine of Indoor Management

Certain exceptions are formed to benefit more people even in special cases also. So the exceptions to the doctrine of indoor management are as follows-

  • Knowledge of Irregularity:- the presence and active participation of all the characters is significant for the company and its growth. Still, the exceptional case is an irregularity of any of the directors. In one company which is having three boards of directors, one of them was very irregular, and he doesn't know what the activities are going on at the company. So the other two directors have charged nearly 3,500 lb as a penalty, and it took all his debentures.

  • Suspicious Activities:- the doctorate of indoor management in a company has another important exception called suspicious activity. It means, if any of the directors or other heads had identified any suspicious activities around the contract, they can immediately research and can find it out. If the person fails to find out the suspicious activity and the person behind it, the court provides all the power of the company to him to find out easily.

  • Forgery:- It is the most dangerous malpractice in any kind of organization. As we know, the valid certificate of a share or debenture or a loan or any other power should have the signatures of two directors and one secretary. But the secretary has made forgery of the signatures of two directors and issued the certificate of shares. Then after it came into focus, the court gave the judgment to punish the secretary, penalty, and remand also. But the contract laugh contract has an exception that the company is not liable for the mistake of an individual.

Hence hence these are the exceptions to the doctrine of indoor management if a company law.

FAQs (Frequently Asked Questions)

1. Discuss the Doctrine of Indoor Management.

Ans. The doctrine of indoor management plays a vital role in every company. It focuses on all the articles, memorandum of association for every transaction. So, it specifies people who enter into a contract recently to be aware of all these articles and memorandum of association. It doesn't pay more attention to the internal irregularities so that even though the company has certain inequalities, they may be liable to the new contracts which develop the name and fame of your company.

2. Distinguish Between the Doctrine of Indoor Management and the Doctrine of Constructive Notice.

Ans. 

S.No

The Doctrine of Indoor Management

The Doctrine of Constructive Notice

1.

It looks after the outsiders.

It protects the company.

2.

It is restricted to internal affairs

It is confined to external affairs.

3.

It is completely private and the registration is not necessary.

It requires all the public documents like memorandum of association, articles for which registration is mandatory.

4.

It follows the Turquand principle which concentrates on irregularity issues and a third party.

It follows its own principle which doesn't consider third parties and irregularities.

5.

It completely depends on the positive concept.

It completely depends on the negative concept.

6.

It alleviates the effect of constructive notice.

It works as estoppel. 

3. What is meant by the Doctrine of Ultra Vires?

Ans. The doctrine of ultra vires is a combination of both indoor management and constructive notice. In simple words, it concentrates on both internal and external affairs. It involves all the operational activities, powers, scope, decision making, rights, etc. The doctrine of ultra vires is of three types. They are as follows - 

  • Memorandum of ultra vires.

  • Directors of ultra vires.

  • Articles of ultra vires.

The ultra vires of memorandum work along with the company but the remaining two types are intra vires to the company. Thus the doctrine of ultra vires plays a significant role in the company.