Doctrine of Indoor Management

The aim of establishing any law or set of rules/regulations is to maintain order, establish standards, protect the rights, and resolve disputes. One such rule came to existence for protecting an honest outsider who engages in any deal with the company, i.e., “Doctrine of Indoor Management”.

The Doctrine of Indoor Management comes to the aid of outsiders in providing them protection against the company's actions, giving preference to such party (outsider). This article provides an insight into the Doctrine of Indoor Management.

Doctrine of Indoor Management: An overview

The Doctrine of Indoor Management came after the case “Royal British Bank Vs. Turquand”. Thus, it became famous as the “Turquand’s Rule”.

This doctrine safeguards the outsiders from the actions performed by the company as such outsiders could not have gained knowledge about such actions. In accordance with this doctrine, where an outsider acts in absolute truthfulness and gets engaged in any transaction with a company might assume that the company duly follows the internal procedures regarding such transaction. 

The Doctrine of Indoor Management case laws has also established many exceptions where cannot apply this doctrine. Such as in the case of Anand Bihari Lal v. Dinshaw & Co.; Laksmi Rattan Cotton Mills v. J.K Jute Mills Co.; etc.

Doctrine of Indoor Management and Constructive Notice:

Where the Doctrine of Indoor Management steps in to protect the outsider against the company's actions, the company can also get protection via the Doctrine of Constructive Notice.

The Doctrine of Constructive Notice is a doctrine used where anyone dealing with a company is deemed to have information about the company's Memorandum of Association (MOA) and Articles of Association (AOA). And the Doctrine of Indoor Management is an exception to this rule.

Section 399 of the Companies Act, 2013 allows any person to electronically inspect/record/get copy/extracts of any document as maintained by the Registrar after payment of nominal fee applicable in this regard. It also includes MOA, AOA, COI of the company. 

Example: If a person enters into a contract with the company which is beyond the powers of a company. Then he has no right as per such contract against the company. The MOA provides the powers of the company and as per Doctrine of Constructive Notice, it shall be deemed that the person entering into the contract had knowledge about the MOA of the company. Thus, this doctrine serves in favor of the company.

Doctrine of Indoor Management Example:

Question: The facts of the case are:

• PLR Limited issues a share certificate to Mr. Kartik having the company's seal.
• As per the company's rules, the share certificate must have the signature of the company's Secretary (CS) and two directors; and must have the company's seal.
• The CS issues the certificate after affixing the seal and forging the signature of two directors.
• Mr. Kartik files a legal suit claiming that the forging of signatures is a part of the company's internal management.
• Mr. Kartik requests the court to stop the company from denying the genuineness of the document.

Is the claim of Mr. Kartik valid?

Solution: The transaction that involves forgery is null and void. This case is covered under exceptions to the rule of doctrine of indoor management. The court holds the document null and the claim of Mr. Kartik is not valid in this case.