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ACKNOWLEDGEMENT
I would like to sincerely thank the Corporate Law Teacher Ms Apoorvi Shrivastava for giving
me this project on the Relation between Doctrine of Constructive Notice and Indoor
Management which has widened my knowledge on the Doctrine under Corporate Law and
the relations between them. Her guidance and support has been instrumental in the
completion of this project .Thank you Maam for your consistent support.
Id also like to thank all the authors, writers and columnists whose ideas and works have been
made use of in the completion of this project.
My sincere gratitude also goes out to the staff and administration (HNLU) for the
infrastructure in the form of our library and IT lab that was a source of great help in the
completion of this project.
I would also like to thank my friends who have lended me constant support through guidance
and inputs which has led to the completion of this project.
SHASHWAT DUBEY
SEMESTER V
CONTENTS
CHAPTER 1
INTRODUCTION................................................................(4-5)
OBJECTIVE OF STUDY.....................................................(6)
RESEARCH METHADOLOGY...........................................(6)
CHAPTER 2: DOCTRINE OF CONSTRUCTIVE NOTICE AND
BACKGROUND
NOTICE................................................................................(7-8)
CONCLUSION.....................................................................(16)
BIBLIOGRAPHY AND WEB REFERENCES ............................(17)
1.1 Introduction
The doctrines of constructive notice and indoor management are essentially rules of prudence
which facilitate business transactions between a company and an outsider. The Doctrine of
Constructive Notice provides that persons dealing with a company are deemed to have
knowledge of whatever is contained in the company's constitution and other public
documents of the company, especially as it relates to the powers, functions and duties of the
companys directors. The basis of this imputation is that these are public documents and
therefore open to inspection by anybody. The doctrine operates on the assumption that people
doing business with a company will be sufficiently motivated to check the company's
constitution or other public documents to ensure that the transaction they are entering into is
not only allowed but to determine whether there are any internal formalities that must
be complied with. The end result of the doctrine of constructive notice is that an individual or
juristic entity that deals with a company is presumed to be informed of any required internal
formalities or constraints prescribed by the company's public documents, mainly the
constitution, relating to the transaction and the authority of the person representing the
company in the transaction. The individual or entity is thus prohibited from denying
knowledge of the formalities or constraints.
The doctrine of indoor management is an exception to the rule of constructive notice. It
imposes an important limitation on the doctrine of constructive notice. According to this
doctrine "persons dealing with the company are entitled to presume that internal requirements
prescribed in memorandum and articles have been properly observed". A transaction has two
aspects, namely, substantive and procedural. An outsider dealing with the company can only
find out the substantive aspect by reading the memorandum and articles. Even though he may
to its memorandum and articles. An outsider can only found out the borrowing powers of the
company. But he cannot find out whether the resolution has in fact been passed or not. The
outsiders dealing with the company are presumed to have read and understood the
memorandum and articles and to see that the proposed dealing is not inconsistent therewith,
but they are not bound to do more; they need not inquire into the regularity of the
internal proceedings as required by the memorandum and articles. They can presume that all
is being done regularly. The doctrine of indoor management is also known as the
TURQUAND rule.
1 Freeman and Lockyer v. Buckhurst Park Properties Ltd., [1964] 2 QB 480.: Per Diplock
LJ: An Actual Authority is a legal relationship between the principal and the agent
created by a consensual agreement to
which they alone are parties. Its scope is to be ascertained by applying ordinary
principals of
contractsthe usages of the trades, or the curse of business between the parties. To thi
agreement the
Contractor [Third Party] is a stranger; Nevertheless, if the agent does enter into a
contract, it does
create contractual rights and liabilities between the principal and the contractor.
depends on the representation made by the principal to the world at large. This representation
maybe through expression or direct implication of the principals conduct, or through the
principles general treatment of the agent, say by giving him a particular position, the
outcome of which would ordinarily include bestowal of such authority on the agent. Such
emphasis on representation then brings apparent authority to be further grounded in the rule
against estoppel. The former conduct of the principal is more easily linked to the rule of
estoppel but the latter, general, conduct of the principal is a link made more artificially. Often
the two categories overlap as every representation, as a matter of practice has some elements
of both generality and specificity. However, it must be kept in mind that the representation
should have credibility to be reliable. Thus, for this purpose, the principle, who makes the
representation should have actual authority to do that act, otherwise, it may not be tenable to
assume that one may create a chain of agents and sub-agents with no actual authority at the
root of such ostensible authority.
This rule was applied to company law as well in Hely-Hutchinson case wherein it was held
that de facto discharge of duties of a position result in ostensible authority.2
2 Hely Hutchinson v. Brayhead Ltd., [1968] 1 QB 549. Here, Lord Pearson held:Now
there is not usually any direct communication between the Board of Directors and the
Outside
contractor. The actual communication is made immediately and directly, whether it be
express or implied,
by the agent to the outside contactor. It is, therefore, necessary in order to make a case
of ostensible
authority to show in someway that such communication which is made directly by the
agent is made
ultimately by the responsible parties, the Board of Directors
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12
15
BIBLIOGRAPHY
WEB REFERENCES
http://www.lawnotes.in/Doctrine_of_Indoor_Management
http://www.llphelpline.com/documents/Applicability-Doctrine-Indoor-
Management.pdf
http://www.lawteacher.net/business-law/essays/doctrine-of-constructive-notice-
business-law-essay.php
http://ravneetarora.blogspot.in/2013/08/doctrine-of-constructive-notice-and.html
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