CONSTRUCTIVE NOTICE OF MEMORANDUM AND ARTICLES

Transcription

1 FAQs Q1. Explain the Constructive Notice of Memorandum and Articles of Association. Ans. CONSTRUCTIVE NOTICE OF MEMORANDUM AND ARTICLES (a) The Memorandum and Articles of Association are public documents. (b) Every person dealing with the company is deemed to have constructive notice of its Memorandum and articles. (c) Presumed knowledge of Memorandum and articles is called constructive notice. (d) Presumed not only to have read Memorandum and articles of a company but also to have understood their proper meaning. (e) The Memorandum and articles must be read together in the event of any ambiguity Q2. Explain clearly the doctrine of Indoor Management? Ans. DOCTRINE OF INDOOR MANAGEMENT Constructive notice is to protect the company against the outsiders. The Principle of Indoor management operates to protect the outsiders against the company Doctrine of Indoor Management is an exception to constructive notice Every person dealing with the company is not presumed to have knowledge of internal proceedings of a company.

2 Every person dealing with the company is entitled to assume that the company carries out its own internal regulation and proceedings. It is known as doctrine of indoor management. Observation of Justice Bray The wheel of commerce would not go round smoothly if person dealing with companies were compelled to investigating thoroughly the internal machinery of a company to see if something is wrong Doctrine of Indoor Management is also known as TURQUAND S RULE as it is laid down in an English case of Royal British Bank V. Tvrquand (1865) Contents of Royal British Bank V. Turquand a. Directors had power to borrow on bonds if authorised by resolution in general meeting. b. The Directors issued bonds without resolution passed in the Meeting to Turquand c. Held, Turquand could sue the company with assumption that necessary resolution had been passed Q3. What exceptions are applicable to Doctrine of Indoor Management? Ans. EXCEPTIONS TO THE DOCTRINE OF INDOOR MANAGEMENT A. Knowledge of irregularities. Howard V. Patent lvory manufacturing company. As per articles of association. The director had powers to borrow up to 1000 pounds and they could exceed the limit with the consent of general meeting of a company

3 The directors borrowed 3500 ponds from director without such consent. It was held that directors were deemed to have the notice of internal irregularity. B. No Knowledge of Memorandum and articles of association Rama Corporation V. Proved Tin and General Investment. Powers can be delegated by the directors other than to borrow to any committee. One of the directors purporting to act on behalf of the company entered into a contract with another company to take a cheque from that company. In fact powers were not delegated That company had not inspected the articles of the company The benefit of doctrine of indoor management cannot be given. 3. Forgery Any person relies upon a document which is forged by the officer of a company, cannot take benefit of doctrine of indoor management Ruben V. Great tingle Ltd. A secretary of a company forged a certificate and issued in return of money advanced under the seal of a company. Signature of director was forged by the secretary. The court observed that doctrine of indoor management is not applicable in this case.

4 Note: - It a company represents that a forged document is original then it may not be allowed to deny its genuineness and may be held by the document. 4. Suspicion of irregularities A person dealing with the company has some suspicion of irregularity regarding internal management. Benefit of doctrine of indoor management cannot be given Anand Bihari Lal V. Dinshaw and com. An accountant of a company agreed to transfer the property of a company The transfer was held void and it was beyond the scope of an accountant s authority. 5. Acts Outside apparent authority. Any person enters into a contract with a company through its officer not authorised to act on behalf of the company. Benefit of doctrine of indoor management cannot be given. Credit Bank V. Schenkers Ltd. The articles of association of a company contained the provision that directors may authorise any person to draw, sign and accept the bill of exchange on behalf of the company. A branch manager without authority signed and endorsed some bills of exchange. A company was not held liable on these bills. 6. Acts Ultravires the company itself The doctrine of indoor management is not operative if any act done is ultravires the company itself

5 It was held in pacific coast coal mines case. Q4. A limited Company is formed with its Articles stating that one Mr. A shall be the solicitor for the company, and that he shall not be removed except on the ground of misconduct. Can the company remove Mr. A from the position even though he is not guilty of misconduct? Ans. Yes, as between outsiders and the company, the Articles do not give any right to outsiders against the company. Q5. State whether following statements are True or False. a. Constructive notice of memorandum and Articles of Association is an exception to Doctrine of Indoor Management. b. Doctrine of Indoor Management protects the interest of outsiders. c. Doctrine of Indoor Management is also known as TURQUAND S RULE. Ans. [a. False, b. True, c. True]

6 Q6. Fill in the blanks. a. Upon registration of memorandum and Articles of Association they become.. b. Doctrine of Indoor Management is an exception to.. c. Doctrine of Indoor Management safeguards the interest of... Ans. [a. Public Document, b. Constructive notice, c. Person dealing with the company]