Term Paper 4

8/6/2019 Term Paper 4

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TERM PAPERTERM PAPER--44

TOPIC: DOCTRINE OF INDOORMANAGEMENT - A COMPARATIVE

STUDY OF INDIAN AND ENGLISH

LAW.

PRESENTED BY

ZUBAIR AHMED

LL.M(BUSINESS LAW)

II SEM AIALS



INDEXINDEX

INTRODUCTION

CHAPTER I: Doctrine of indoor management aconceptual analysis

CHAPTER II: Scope of the doctrine of indoor

managementCHAPTER III: Exception to the doctrine of indoor

management

CHAPTER IV: Fissiparous tendencies leading towardscorporate catastrophe

CHAPTER V:Application and legal consequences of the doctrine

CASE LAWS

SUGGESTIONS AND CONCLUSION



INTRODUCTIONINTRODUCTION

y The doctrine of indoor management seek sto protect the interest of the shareholderswho are in minority or who remains in dark about whether the working of the internal

aff airs of the company are being carried out in accordance with the memorandum and articles. It lays down that persons dealingwith a company having satisfied themselves

that the proposed transaction is not in itsnature inconsistent with the memorandumand articles, are not bound to inquire the regularity of any internal proceeding.



CHAPTER 1CHAPTER 1

yDoctrine of Indoor

Management - a conceptual

analysis´DOCTRINE OF INDOOR MANAGEMENTµ

is also known as

´ RULE IN ROYAL BRITISH BANK V.TURQUANDµ



ROYAL BRITISH BANK Vs

TURQUAND(1856)

FACTS OF THE CASE ARE:The Articles empowered the Directors to borrowmoney provided they were authorized by aResolution passed at the General Meeting of the Co.

POINT DECIDED IS:

The outsiders dealing with the Co. are entitled topresume that as f ar as the internal management of the Co. is concerned, everything has been regularlydone.

ORIGINORIGIN



CHAPTER IICHAPTER II

Scope of the Doctrine of Indoor

Management

The role of the doctrine of indoor management is opposed to that of the

rule of constructive notice. The later

seek s to protect the company against the

outsider, the former operates to protect outsider against the company.



CHAPTER IIICHAPTER III

EXCEPTIONS TO THE DOCTRINE OF INDOOREXCEPTIONS TO THE DOCTRINE OF INDOORMANAGEMENTMANAGEMENT

The rule of doctrine of indoor management is however subject to certain exceptions. In other words, relief on the ground of ¶indoor management· can't be claimed by an outsider dealing with the company in the followingcircumstances:

y KNOWLEDGE OF IRREGULARITY :

T.R. Pratt (Bombay) ltd. V. E.D. Sassoon & Co. ltd.

y NEGLIGENCE ON THE PART OF THE OUTSIDER :

Anand Bihari Lal v. Dinshaw & Co.



EXCEPTION Contd.EXCEPTION Contd.

y FORGERY :

Ruben v. Great Fingall Consolidated Co.

y NO KNOWLEDGE OF ARTICLES

y ACTS OUTSIDE APPARENT

AUTHORITY :

K reditbank Cassel v. Schenkers Ltd.



CHAPTER IVCHAPTER IV

Fissiparous tendencies leadingtowards corporate catastrophe:y Doctrine of indoor management has been

propounded for bringing feasibility, smoothnessand efficiency in day to day company operations.

y With the emerging of three dynamic concept i.e.liberalization, privatization and globalization hasmake a world into single market so diversified increase of corporate aff airs led to the demand of this doctrine of indoor management.

y Doctrine of indoor management a dynamic concept f aces dynamic challenges



CHAPTER VCHAPTER V

Applications and legal consequences of the ruleof Indoor Management

y The provision under the Indian Act which directly imbibes the Turquand rule is section 290, which reads as under:

y Section 290:- Validity of acts of directors:-Acts done by a person as

a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles:

y Provided that nothing in this section shall be deemed to give validity to acts done by a director after his appointment has been shown to the company to be invalid or to have terminated:

y Another Provision which directly follows the above stated rule issection 81 of the Indian Companies Act, 1956 which bears the heading ¶further issue of shares·. Bona fide allottees of shares are protected by the Doctrine of Indoor Management under S-81



CASE LAWSCASE LAWS

y Mahony v. East Holyford Mining Co

y Diwan Singh v Minerva Mills

y Lak shmi Ratan Cotton Mills Co. Ltd, v. J. K.

Jute Mitts Co. Ltd

y Anand Bihari Lal v. Dinshaw & co



SUGGESTIONS &SUGGESTIONS &

CONCLUSIONCONCLUSIONy The circumstances in which a company will be bound by the acts of its agents pose one of the most vexed questions in company law.

y The importance of this question needs no emphasis: as a companymust, by its nature, always act through the instrumentality of agentsany question of a company's contractual liability will invariably

involve a preliminary question as to the authority of the relevant agent to bind the company.

y But there are certain grey areas which are still not covered by the rule. As in cases where the third party deals with an officer or employee below the level of Director the problem is more problematically and until recently, the Courts have shown a marked

reluctance to recognize any reasonable authority even of a manager.Indeed every employee of a trading company must surely have the authority to bind the Company in some transactions, thought the extent of that may be very limited.



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