Explain the concept of "Indoor Management" with exception of forgery and negligence as per the provisions of the Companies Act, 2013.

CS Executive · Company Law and Practice · PYQS · June 2024
Explain the concept of "Indoor Management" with exception of forgery and negligence as per the provisions of the Companies Act, 2013.

Answer & Explanation:

While the doctrine of, "constructive notice" seeks to protect the company against the outsiders, the principal of "indoor management" operates to protect the outsiders against the company. This doctrine emphasizes on the concept that an outsider whose actions are in good faith and has entered into a transaction with a company can have a presumption that there are no irregularities internally and all the procedural requirements have been complied with by the company. The doctrine of indoor management, also known as the Turquand rule is about one fifty years old, which protects outsiders against the actions done by the company. Section 176 of the Companies Act, 2013 provides for the validity of acts of Directors - No act done by a person as a director shall be deemed to be invalid, notwithstanding that it was subsequently noticed 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 of the company; Provided that nothing in this section shall be deemed to give validity to any act done by the director after his appointment has been noticed by the company to be invalid or have been terminated. The object of the section is to protect persons dealing with the company outsiders as well as members by providing that the acts of a person acting as director will be treated as valid although it may afterwards be discovered that his appointment was invalid or that it had terminated under any provision of this Act or the Articles of the company [Ram Raghubir Lal v. United Refineries (Burma) Ltd., (1932) 2 Com Cases 359; AIR 1931 Rang 139. Exceptions: Forgery - The rule of indoor management does not extend to transactions involving forgery or to transactions which are otherwise void or illegal ab initio. Negligence - The 'doctrine of indoor management', in no way, rewards those who behave negligently. Thus, where an officer of a company does something which shall not ordinarily be within his powers, the person dealing with him must make proper enquiries and satisfy himself as to the officer's authority. If he fails to make an enquiry, he is estopped from relying on the Rule.

Topics: Management and Administration

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