1. Ashbury Railway Carriage & Iron Co.

Ltd v Riche (1875) LR 7 HL 653

2. Attorney General v Great Eastern Railway Co. (1880) 5 App Cas 473 (HL).
3. Cotman v Brougham, (1918) AC 514;
4. Lakshmanaswami Mudaliar (A) v LIC of India, AIR 1963 SC 1185
5. Evans v Brunner Mond & Co. Ltd. (1921) 1 Ch 359
6. Simmonds v Heffer (1983) BCLC 298 (Ch D).
7. Trevor v Whitworth (1887) 12 App Cas 409 (HL)
8. In Re David Payne & Co., Ltd, [1904] 2 Ch. 608
9. In Re, Introductions, [1970] Ch 199 CA
10.Re German Date Coffee Co., [1882] 20 Ch 169;
11.Bell Houses Ltd v City Wall Properties Ltd, [1966] 2 All ER 674
12.Rolled Steel Products (Holdings) Ltd. v British Steel Corporation, (1985) 3 All
ER 52 4
13.Matrubhumi Ltd v Vardhaman Publishers Ltd., 1992 73 CompCas 80 Ker
14.K G Khosla v R C Kirloskar, 2001 103 CompCas 984 Delhi; 2
15.Royal British Bank V Turquand (1856) 6 E1 & B1 327;
16.Morris -v- Kanssen; (1946) 1 All ER 586;
17.Freeman and Lockyer v Buckhurst
18.Park Properties (Mangal) Ltd.,
19.[1964] 2 QB 480
20.Hely Hutchinson v Brayhead Ltd, (1968) 1 QB 549;
21.Houghton & Co v Nothard Lowe & Wills Ltd, [1927] 1 KB 246 (CA) 81
22.
Anand Bihari Lal v Dinshaw & Co., (1946) 48 BOM LR 293;
23.
Dehra Dun Mussoorie Electric Tramway Co. Ltd. v Jagmandar Das,
[1931] 1 Comp Cas 227;
24.
T. R. Pratt (Bombay) Ltd. v. E. D. Sassoon and Co. Ltd. [1936] 6 Comp
Cas 90;
25.
Lakshmi Rattan Cotton Mills v J K Jute Co., AIR 1957 All 311
26.
British Thomson Houston Co. Ltd v Federated European Bank Ltd.,
(1932) 2 KB 176
27.
Kreditbank Cassel GmbH v Schenkers Ltd, (1927) 1 KB 826
28.
Rama corporation Ltd v Proved Tin and General Investments Ltd,
(1952) 1 All ER 554 5
29.
Borlands Trustee v Steel Brothers & Co., [1901] 1 Ch 279;
30.
Wood v Odessa Waterworks Co., [1880] 42 Ch. 636;
31.
Eley v Positive Govt. Security Life Assurance Co., [1876] 1 Ex D 88.
32.
Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915]
1 Ch 881 Rayfields v Hands, [1960] Ch 1
33.
Claude-Lila Parulekar v Sakal Papers Pvt. Ltd. and Ors., (2005) 11 SCC
73
34.
L. Chandramurthy v Pearl Metal Products Pvt. Ltd. and Ors., [2009] 149
Comp. Cases 291(CLB)
35.
AIDQUA Holdings (Mauritius) Inc. v Tamil Nadu Water Investment Co.
Ltd., (2014) 4 MLJ 429
2
36.
Erlanger v New Sombrero Phosphate Co, (1878) 3 App Cas 1218;
37.
Gluckstein v Barnes, (1900) AC 240,;
38.
Kelner v Baxter (1866) LR 2 CP 174
1
39.
Vodafone International Holdings B.V. v. Union of India & Anr., (2012) 6
SCC 613
2

40.UNIT 3
41.FINANCIAL STRUCTURE AND MEMBERSHIP
a. 4
b. 3
42.
Shri Gopal Jalan & Co v Calcutta Stock Exchange Assn, AIR 1964 SC
250
43.
Raymond Synthetics Ltd. and Ors. v Union of India and Ors., (1992) 2
SCC 255
44.
Rishyashringa Jewellers Ltd v Stock Exchange, Bombay, (1995) SCC 6
714
45.
Government Stocks and Other Securities Investment Co Ltd v Manila
Rly Co, [1897] AC 81
46.
National Westminster bank plc v Spectrum Plus Ltd and others, [2005]
UKHL 41
47.
Illingworth v Houldsworth, [1904] AC 355
48.
In Re, Yorkshire Woolcombers Association, [1903] 2 Ch 284
49.
In Re, Panama, New Zealand and Australian [ Royal Mail Co, (1870) 5
Ch A pp 318
50.
Calcutta Tramways Co. Ltd. v CWT, (1973) 3 SCC 35
51.
Rai Bahadur Seth Jessa Ram Fatehchand v Om Narain Tankha and
Another AIR 1967 SC 1162
52.
Narendra Kishan Maheshwari v Union of India and Others AIR 1989 SC
2138
53.
Aluminium Industries Vaasem BV v Romalpa Aluminium Ltd [1976] 2 All
ER 552
54.
Nelson & Co. v Faber & Co., [1903] 2 KB 367;
55.
Evans v Rival Granite Quarries Ltd., [1910] 2 KB 979;
56.
N W Robbie & Co v Witney Warehouse Co., [1963] 3 All ER 613 4
57.UNIT 4
58.PROSPECTUS
59.
Maxwell Dyes And Chemicals (P) Ltd v Kothari Industrial Corporation
Ltd., 1996 85 CompCas 111 Mad
60.
New Brunswick and Canada Rly and Land Co v Muggeridge, (1860) 1
Dr. & Sm. 363;
61.
Henderson v Lacon, 1867 LR 5 Eq. 249;
62.
Standard Chartered Bank v Pakistan National Shipping Corporation,
[2002] UKHL 43
63.
Derry v Peek, (1889) LR 14 App Cas 337
64.
Peek v Gurney, (1873) LR 6 HL 377
65.
Edington v Fitzmaurice, (1885) 29 Ch D 459;
66.
Parr v Diamond; Possfund Custodian Trustee Ltd v Diamond, (1996) 1
WLR 1351
67.
R v Kylsant (Lord), [1932] 1KB 442
68.
Mckeown v Boudard Peveril Gear Co Ltd., (1896) 65 LJ Ch 735, CA)
69.
Ritesh Agarwal and Anr. v SEBI and Ors, (2008) 8 SCC 205 (Minors
liability for misrepresentation)
70.
T.G. Venkatesh vs ROC, (2007) 78 SCL 1 AP
71.
DLF Case, SEBI, Order dt. 10th Oct, 2014

72.
Sahara India Real Estate Corporation Limited & Ors v SEBI & Anr,
(2013) 1 SCC 1
6
a. 2
b. 2
73.UNIT 5
74.MANAGEMENT AND CONTROL OF COMPANIES

75.
OL, Supreme Bank Ltd. v P. A. Tendolkar, AIR 1973 SC 1104
76.
Karnataka Bank Ltd v A B Datar, 1994 79 Comp. Cas 417 Kar;
77.
Prakash Roadlines v Vijay Kumar and Narang, 1995 84 Comp. Cas 782
Kar;
78.
Peso Silver Mines Ltd v Cropper, [1966] S.C.R. 673;
79.
Industrial Development Consultants Ltd v Cooley, [1972] 1 WLR 443;
80.
Hunter Kane Ltd v Watkins,
81.[2003] EWHC 186 (Ch)
82.
Canadian Aero Service Ltd v O Malley, (1973) 40 DLR (3d) 371;
83.
Regal Hastings Ltd v Gulliver, [1942] 1 All ER 378
84.
Dweck v Nasser, C.A. No. 1353-VCL (Del. Ch. Jan. 18, 2012)
85.
Dorchesster Finance Co Ltd v Stebbings, [1989] BCLC 498
86.
Kishor Kundan Sippy v. Samrat Shipping, [2004] 118 Comp Cas 472
(CLB) on Appeal See [2004] 120 Comp Cas 681 (Bom) & (2006) 6 Comp LJ 74
(Bom),;
4
87.
Case Study of Satyam Computers Ltd. 2
a. 2
b. 1
c. 3
d. 3
88.
Foss & Edward Starkie Turton v Harbottle (1843) 2 Hare 461
89.
Mac Daugall v Gardiner (1875) 1 Ch D 13, 25
90.
Burland v Earle, [1902] AC 83
91.
Cook v Deeks, [1916] 1 AC 554 Menier v Hoopers Telegraph works
Ltd., (1874) 9 Ch App 350;
92.
Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao
and Others, AIR (1956) SC 213
93.
Elder v. Elder and Watson, (1952) S.C. 49
94.
Scottish Co-operative Wholesale Society Ltd. v. Meyer
95.(1958) 3 All E.R. 66
96.
Bajaj Auto Ltd vs N. K. Firodia & Anr. Etc, AIR 1971 SC 321
97.
LIC v Escorts;
98.
Naresh Chandra Sanyal v Calcutta Stock Exchange Assn Ltd., AIR 1971
SC 422;
99.
Nanalal Zaveri v Bombay Life Assurance Co., AIR 1950 SC 172
100.

S. P. Jain v Kalinga Tubes Ltd, AIR 1965 SC 1535

101.

Needle Industries (India) Pvt. Ltd. v. Needle Industries New

(India) Holding Ltd., AIR 1981 SC 1298
102.

In re Five Minute Car Wash Service Ltd. (1966) 1 W.L.R. 745

103.

M.S. Madhusoodhanan & Anr. vs. Kerala Kaumudi (P) Ltd. & Ors.,
(2004) 9 SCC 204
104.

Sangramsinh P. Gaekwad vs. Shantadevi P. Gaekwad 2005 (11)

SCC 314
105.

Dale and Carrington Investment P Ltd v Prathappan, (2005) 1

SCC 212]
106.

Pearson Education Inc. v Prentice Hall India (P) Ltd. and Ors.
(134 (2006) DLT 450)
107.

V.S. Krishnan & Ors vs M/S Westfort Hi-Tech Hospital, Appeal

(civil) 1473 of 2008, Supreme Court
108.

Incable Net (Andhra) Limited and Others vs. AP Aksh Broadband

Limited and Others (2010) 6 SCC 719
109.
4
110.
UNIT 6
111.
COMPANY LAW BOARD / NATIONAL COMPANY LAW TRIBUNAL
112.

Union of India v R. Gandhi, C.A. No.3067 of 2004 and C.A.

No.3717 of 2005, dt. 11th May 2010
a. 2

113.
UNIT 7
114.
Topic:
115.

Pawan Kumar K v Kaushal Leather Board Ltd. (1996) 87 CC 130

(AP)
116.

Hariprasad v Amalgamated commercial Trans Pvt. Ltd. (1964) 1

CLJ 339 Mad. (DB)
117.

National Textile Workers Union v Ramakrishnan (1983) 54 CC

184 (SC)) Lord Krishna Bank Ltd. v Express (Malayalam) (2005) 125 CC 655
(Ker)
118.

Kudremukh Iron Ore Co. Ltd v Kooky Roadways P Ltd. (1990) 69

CC 178 (Karn) (DB)
119.

Rhein Chemie Rheinau Gmbh v. Standard Oil Additive P. Ltd.;

(2005) 128 Comp Cas 13
120.

Mediqup Systems P Ltd v Proxima Medical System GmbH (2005)

124 Comp Cas 473
121.

Tata Iron & Steel Co. Ltd v Micro Forge (India) Ltd.
122.
(2001) 104 CC 533 Guj.
123.

ICICI v Vanjinad Leather Ltd. ((1998) 91 CC 625 Ker, (Recovery

Under Debt Tribunal)
4

124.

Jitendra Nath Singh v OL, CIVIL APPEAL NO.6755 OF 2012, 21

September, 2012
125.

Allahabad Bank v Canara Bank, (2000) 4 SCC 406

126.

Andhra Bank v OL, (2005) 5 SCC 75

Doctrine of constructive notice

Section 399[4] of the Companies Act, 2013 provides that the memorandum and
articles when registered with Registrar of Companies become public documents
and then they can be inspected by anyone on payment of a nominal fee.
People know a company through its officers and not through its documents.

The Madras High Court, for the first time, held the validity and scope of the
rule of constructive liability in Kotla Venkataswamy v. Rammurthy[5].
The dispute in this case pivots around the valid execution of mortgage bond
as per Article 15[6] the companys articles of association so as to make the
company liable. The Court held that the plaintiff, notwithstanding acted in
good faith, could not claim under this deed. The Court further observed that
if the plaintiff should have discovered that a deed such as she entered into,
required execution by three specified officers of the company and she would
have refrained herself from accepting a deed inadequately signed.
Dehradun Mussoorie Electric Tramway v. Jagmandardas, the articles of
a company expressly provided that the directors could delegate all their
powers except the power to borrow. Even so an overdraft taken by the
managing agents without approval of the board was held to be binding, the
court saying that such temporary loans must be kept outside the purview of
the relevant provision.
doctrine of Indoor management
The doctrine of Indoor management, popularly known as the Turquands rule
initially arose some 150 years ago in the context of the doctrine of
constructive notice.
The Doctrine of Indoor Management lays down that 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 the regularity of any internal proceeding. In other words, while
persons contracting with a company are presumed to know the provisions of
the contents of the memorandum and articles, they are entitled to assume
that the provisions of the articles, they are entitled to assume that the
officers of the company have observed the provisions of the articles. It is no

part of duty of any outsider to see that the company carries out its own
internal regulations.

It is important to note that the notice of constructive notice can be invoked

by the company and it does not operate against the company. It
operates against the person who has failed to inquire but does not operate in
his favour. But the doctrine of indoor management can be invoked by the
person dealing with the company and cannot be invoked by the company.
The rule had its genesis in the case of Royal Bank v Turquand[1]. In this case
the Directors of the Company were authorized by the articles to borrow on
bonds such sums of money as should from time to time by a special
resolution of the Company in a general meeting, be authorized to be
borrowed. A bond under the seal of the company, signed by two directors
and the secretary was given by the Directors to the plaintiff to secure the
drawings on current account without the authority of any such resolution.
Then Turquand sought to bind the Company on the basis of that bond. Thus
the question arose whether the company was liable on that bond.

The Court of Exchequer Chamber overruled all objections and held that the
bond was binding on the company as Turquand was entitled to assume that
the resolution of the Company in general meeting had been passed. The
relevant portion of the judgment of Jervis C. J. reads:
Under the Indian law relating to companies, a public company is managed by
a Board of Directors which is entrusted with the responsibility of managing
the company in the most efficient and transparent manner.
Knowledge of Irregularity
Where a person dealing with a company has actual or constructive notice of
the irregularity as regards internal management, he cannot claim the benefit
under the rule of indoor management. He may in some cases, be himself a
part of the internal procedure. The rule is based on common sense and any
other rule would "encourage ignorance and condone dereliction of duty".
Some instances in this regard are as follows:
T.R. Pratt (Bombay) Ltd. v. E.D. Sassoon & Co. Ltd.

Company A lent money to Company B on a mortgage of its assets. The

procedure laid down in the Articles for such transactions was not complied
with. The directors of the two companies were the same. It was held in this
case that the lender had notice of the irregularity and hence the mortgage
was not binding.

A transfer of shares in a company was approved by two directors. One of

these directors was not validly appointed. The other was disqualified by
reason of being the transferee himself. These facts were known to the
transferor. It was held in this case that the transfer was ineffective.

EXCEPTIONS TO THE DOCTRINE OF INDOOR MANAGEMENT

The rule is now more than a century old. In view of the fact that companies
having come to occupy the central position in the social and economic life of
modern communities, it was expected that its scope would be widened. But the
course of decisions has made it subject to the following exceptions:

Knowledge of Irregularity
Where a person dealing with a company has actual or constructive notice of the
irregularity as regards internal management, he cannot claim the benefit under
the rule of indoor management. He may in some cases, be himself a part of the
internal procedure. The rule is based on common sense and any other rule would
"encourage ignorance and condone dereliction of duty". Some instances in this
regard are as follows:

T.R. Pratt (Bombay) Ltd. v. E.D. Sassoon & Co. Ltd.

Company A lent money to Company B on a mortgage of its assets. The procedure
laid down in the Articles for such transactions was not complied with. The
directors of the two companies were the same. It was held in this case that the
lender had notice of the irregularity and hence the mortgage was not binding.
A transfer of shares in a company was approved by two directors. One of these
directors was not validly appointed. The other was disqualified by reason of being
the transferee himself. These facts were known to the transferor. It was held in
this case that the transfer was ineffective.

Negligence
Where a person dealing with a company could discover the irregularity if he had
made proper inquiries, he cannot claim the benefit of the rule of indoor
management. The protection of the rule is also not available where the
circumstances surrounding the contract are so suspicious as to invite inquiry, and
the outsider dealing with the company does not make proper inquiry. If, for
example, an officer of a company purports to act outside the scope of his
apparent authority, suspicion should arise and the outsider should make proper
inquiry before entering into a contract with the company.

Anand Bihari Lal v. Dinshaw & Co.

The plaintiff, in this case, accepted a transfer of a company's property from its
accountant. It was held in this case that the transfer was void as such a
transaction was apparently beyond the scope of the accountant's authority. The
plaintiff should have seen the power of attorney executed in favour of the
accountant by the company.

Forgery
The rule in Turquand's case does not apply where a person relies upon a
document that turns out to be forged since nothing can validate forgery. A
company can never be held bound for forgeries committed by its officers. The
leading
case
on
this
point
is:
The plaintiff was the transferee of a share certificate issued under the seal of the
defendant company. The certificate was issued by the company's secretary, who
had affixed the seal of the company and forged the signatures of two directors.
The plaintiff contended that whether the signatures were genuine or forged was a
part of the internal management and, therefore, the company should be estopped
from
denying
genuineness
of
the
document.
But it was held that the rule has never been extended to cover such a complete
forgery. Lord Loreburn said "It is quite true that persons dealing with limited
liability companies are not bound to inquire into their indoor management and
will not be affected by irregularities of which they have no notice. But this

doctrine, which is well established, applies to irregularities which otherwise

might affect a genuine transaction. It cannot apply to a forgery".
This statement has been regarded as a dictum, as the case was decided on the
principle that the secretary did not have actual or implied authority to represent
that a forged document was genuine and, therefore, there was no estoppel against
the company. Hence, a general statement that the Turquand Rule does not apply
to forgeries is not exactly warranted by the present authorities.

Representation through Articles

This exception deals with the most controversial and highly confusing aspect of
the Turquand Rule. Articles of association generally contain what is called the
"power of delegation".

Lakshmi Ratan Cotton Mills v. J.K. Jute Mills Co.

This

case

explains

the

meaning

and

effect

of

delegation

clause.

One G was a director of a company. The company had managing agents of which
also G was a director. Articles authorized directors to borrow money and also
empowered them to delegate this power to any one or more of them. G borrowed
a sum of money from the plaintiffs. The company refused to be bound by the loan
on the ground that there was no resolution of the board delegating the power to
borrow to G. Yet the company was held bound by the loan.
Thus the effect of a delegation clause is that a person who contracts with an
individual director of a company, knowing that the board has power to delegate
its authority to such an individual, may assume that the power of delegation has
been exercised.

Acts outside the scope of apparent authority

If an officer of a company enters into a contract with a third party and if the act of
the officer is beyond the scope of his authority, the company is not bound. In
such a case, the plaintiff cannot claim the protection of the rule of indoor
management simply because under the Articles the power to do the act could

have been delegated to him. The plaintiff can sue the company only if the power
to act has in fact been delegated to the officer with whom he has entered into the
contract.

Kreditbank Cassel v. Schenkers Ltd.

A branch manager of a company drew and endorsed bills of exchange on behalf of
the company in favor of a payee to whom he was personally indebted. He had no
authority from the company to do so. It was held that the company was not
bound. But if an officer of a company acts fraudulently under his ostensible
authority on behalf of the company, the company is liable for his fraudulent act.

Sri Krishna v. Mondal Bros.& Co.

The manager of a company had the authority under the Memorandum and the
Articles of the company to borrow money. He borrowed money on a hundi but
did not place the money did not place the money in the coffers of the company. It
was held that the company was bound to honour the hundi. It could not defeat
the bona fide claim of the creditor for recovery of the money on the ground of
fraud of its own officer.
POSITION UNDER THE INDIAN COMPANIES ACT, 1956
The provision under the Indian Companies Act, 1956 which directly imbibes the
Turquands Rule is Section 290, which reads as follows:

Validity of acts of directors:

Acts done by a person as a director shall be valid, notwithstanding that it may
afterwards be discovered 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:
Provided that nothing in this Section shall be deemed to give validity to acts done
by a director after his appointment has been shown to the company to be invalid
or to have terminated.

CONCLUSION
The case of Royal British Bank v. Turquand refined the common law of agency to
articulate the Doctrine of Indoor Management. The rule was enunciated by the
Court to mitigate the rigors of the Doctrine of Constructive Notice. The rule
protects the interest of the third party who transacts with the company in good
faith and to whom the company is indebted. The gist of the rule is that persons

dealing with a public company are not bound to enquire into their indoor
management and will not be affected by irregularities of which they had no
notice.
The Turquand Rule has been applied in many cases subsequently and generally
in order to protect the interests of the party transacting with the directors of the
company. With the due course of time several exceptions have also emerged out
of the rule like forgery, negligence, acts done outside the scope of apparent
authority and third party having knowledge of irregularity etc. If we analyze the
cases it is revealed that the Turquand Rule did not operate in a completely
unrestricted
manner.
Firstly, it is inherent in the rule that if the transaction in question could not in the
circumstances have been validly entered into by the company, then the third
party could not enforce it. Secondly, the rule only protects 'outsiders', that is
persons dealing with the company externally; directors, obviously were the very
people who would be expected to know if the internal procedures had been duly
followed.
Thirdly, actual notice of the failure to comply fully with the internal procedures
precluded reliance upon the rule. Lastly, an outsider could not rely upon the
Turquand's Rule where the nature of the transaction was suspicious, for example,
where the company's borrowing powers were exercised for purposes which were
wholly unconnected with the company's business and of no benefit to the
company.
Read 21319 times
Published in Legal Articles

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 find out the
procedural aspect, he cannot find out whether the procedure has been
followed or not