Question

Explain Doctrine of Indoor Management with examples..in detail

Answer 1

INTRODUCTION

The doctrine of indoor management was evolved 150 years ago. It is also known as Turquand’s rule. The role of doctrine of indoor management is opposed to of the role of doctrine of constructive notice.  The doctrine of constructive notice protects company against outsiders whereas the doctrine of indoor management protects outsiders against the actions of company. This doctrine also is a possible safeguard against the possibility of abusing the doctrine of constructive notice.

ORIGIN OF THE DOCTRINE

This doctrine was laid down in the case of Royal British Bank V. Turquand,[2]

The directors of the company borrowed some money from the plaintiff. The article of company provides for the borrowing of money on bonds but there was a necessary condition that a resolution should be passed in general meeting. Now in this case shareholders claims that as there was no such resolution passed in general meeting so company is not bound to pay the money.  It was held that the company is bound to pay back the loan. As directors could borrow but subjected to the resolution, so the plaintiff had the right to infer that the necessary resolution must have been passed.

ESTABLISHMENT OF THE DOCTRINE

The rule was not accepted as being firmly well established in law until it was approved by the House of Lords in Mahoney v East Holyford Mining Co.[4] In this case, It was contained in the company’s article that a cheque should be signed by 2 of the 3 directors and also by the secretary. But in this case the director who signed the cheque was not properly appointed. The court said that that  whether director was properly appointed or not it comes under the internal management of the company and the third party who receives cheque were entitled to presume that the directors had been properly appointed, and cash cheques.