Y, the M.D. of UVW Ltd. deposited a cheque of ₹5 crore drawn in favour of the company, in his personal account. The bank credited the said amount in Y's personal account. The company filed a suit against the bank for rec

According to the doctrine of indoor management as laid down in Royal British Bank Vs. Turquand (1856) 119 E.R. 886 persons dealing with a company having satisfied themselves that the proposed transaction is not in its nature inconsistent with the memorandum and articles are not bound to inquire about the regularity of an internal proceedings. In other words, while persons contracting with a company are presumed to know the contents of the Memorandum and Articles, they are entitled to assume that the provisions of the articles have been observed by the officers of the company. It is no part of the duty of an outsider to see that the company carried out its own internal regulations. However, the doctrine of indoor management, in no way, rewards those who behave negligently. Thus where an officers 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 officers authority. In the instant case, the bank manager should have realised that the managing director has no right to collect the amount of a cheque drawn payable to the company. Before crediting the amount of the cheque into the personal account of the managing director he should have made inquiries as to the power of the managing director. In the light of the above, the bank will be liable to the company for the amount of the cheque wrongly credited into the account of the managing director and the company will succeed.