Mr. X had purchased some goods from M/s ABC Limited on credit. A credit period of one month
was allowed to Mr. X. Before the due date Mr. X went to the company and wanted to repay the
amount due from him. He found only Mr. Z there, who was the factory supervisor of the company.
Mr. Z told Mr. X that the accountant and the cashier were on leave, he is in-charge of receiving
money and he may pay the amount to him. Mr. Z issued a money receipt under his signature. After
two months M/s ABC Limited issued a notice to Mr. X for non-payment of the dues within the
stipulated period. Mr. X informed the company that he had already cleared the dues and he is no
more responsible for the same. He also contended that Mr. Z is an employee of the company whom
he had made the payment and being an outsider, he trusted the words of Mr. Z as duty distribution
is a job of the internal management of the company.
Analyse the situation and decide whether Mr. X is free from his liability.
Answers
Explanation:
(b) Mr. X had purchased some goods from M/s ABC Limited on credit. A credit period of one
month was allowed to Mr. X. Before the due date Mr. X went to the company and wanted to
repay the amount due from him. He found only Mr. Z there, who was the factory supervisor of
the company.
Mr. Z told Mr. X that the accountant and the cashier were on leave, he is in-charge of receiving
money and he may pay the amount to him. Mr. Z issued a money receipt under his signature.
After two months M/s ABC Limited issued a notice to Mr. X for non-payment of the dues within
the stipulated period. Mr. X informed the company that he had already cleared the dues and he
is no more responsible for the same. He also contended that Mr. Z is an employee of the
company whom he had made the payment and being an outsider, he trusted the words of Mr. Z
as duty distribution is a job of the internal management of the company.
Analyse the situation and decide whether Mr. X is free from his liability
Answer:
Doctrine of Indoor Management: The Doctrine of Indoor Management is the
exception to the doctrine of constructive notice. The doctrine of constructive notice does
not mean that outsiders are deemed to have notice of the internal affairs of the
company. For instance, if an act is authorised by the articles or memorandum, an
outsider is entitled to assume that all the detailed formalities for doing that act have
been observed.
The doctrine of Indoor Management is important to persons dealing with a company
through its directors or other persons. They are entitled to assume that the acts of the
directors or other officers of the company are validly performed, if they are within the
scope of their apparent authority. So long as an act is valid under the articles, if done
in a particular manner, an outsider dealing with the company is entitled to assume that
it has been done in the manner required.
In the given question, Mr. X has made payment to Mr. Z and he (Mr. Z) gave to receipt
of the same to Mr. X. Thus, it will be rightful on part of Mr. X to assume that Mr. Z was
also authorised to receive money on behalf of the company. Hence, Mr. X will be free
from liability for payment of goods purchased from M/s ABC Limited, as he has paid
amount due to an employee of the company.