doctrine of constructive notice seeks to protect the outside against the company. State true or false ? with reason .
Answers
Explanation:
This doctrine reduces the complicity in the rules and regulations of the business. This Doctrine functions as a safety to the company while dealing with the outsider party. There is no strict definition to constitute the Doctrine of Constructive Notice, but it can be summed as follows. A company is public body and the documents such as Memorandum of Association and the Article of Association of the company are open to public for inspection. Therefore, it is assumed that the outsider person, who is involving with the company for business, has gone through these documents. It is a duty of outsider person to be aware of the rules and regulations of the company because they it is available in public record. This assumption is called the Doctrine of Constructive Notice.
At the time of the formation of the company MOA and the AOA of the company are submitted with the Registrar of Companies. These documents are the charter of the company and the company is governed by laws mentioned there. This doctrine puts the obligation on the outsider person to inspect and well verse with these two documents. In the event of a dispute, the outsider person cannot take the defence that he doesn’t have the knowledge of the rules given in the MOA or AOA. This rule is vital while the adjudicating the disputes arising out of the violations of MOA and AOA. So, the doctrine of constructive notice can be termed as the bylaws of the company must to be known to the outsider person as that information is available in the public domain. It is not the company’s duty to convey this information to the outsider person as that information is available in the public domain.
Section 399 of the Companies Act, 2013 gives the legal foundation for this doctrine. As per this section, the Companies Act allows the outsider person to inspect and go through the records of the Company which are available with registrar of the Company. This section also provides the right of inspection of the documents of the company. The MOA and AOA of the company are the public document and the outsider person shall get into the contract only after the inspection of these documents. By this provision, the doctrine of constructive notice is established by which the person is presumed to have the knowledge of the information in the documents available publically. Before getting into the contract with any company, the outsider person must have knowledge of the company and he shall ensure that his purpose shall be fulfilled. Making available the documents of the public is the assumed and implied notice to the outsider person.
This doctrine is applicable to the documents which are available in the public record at the Registrar of Company. In the case of Oakbank Oil Co. vs. Crum it was held that, anyone who is involving in the contract with the company shall be assumed to have the knowledge and the understanding of the company’s MOA and AOA. Therefore, the person is presumed to have the notice of it. This principle is called doctrine of the constructive notice.