2 MODULE

DR. KAPIL BANSAL

GLA UNIVERSITY, MATHURA

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 THE DOCTRINE OF CONSTRUCTIVE NOTICE (THE GENERAL RULE):-

• Memorandum and articles of associations of a

company are necessary to be registered with the
Registrar and once registered both these become
public documents and are accessible to all the persons.
• It is therefore duty of every person dealing with a
company to inspect its public documents and make
sure that his contract is in conformity with their
provisions. It is immaterial whether that person
actually read and understood the said documents or
not.

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 Case Law

• The Madras High Court discussed

the scope of the rule of
constructive liability in kotla
Venkataswamy v. Rammurthy,
AIR 1934 Mad 579
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 FACTS OF THE CASE
• The dispute in this case was whether the
mortgage bond was validly executed as per
the company’s articles of association so as to
make the company liable.

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 Contd…
• Article 15, of the Company's Articles of
Association provides that all mortgage deeds
shall be signed by the Managing director, the
Secretary and the working Director on behalf
of the Company, and shall be considered valid.
• In the instant case, the Party accepted a deed
of mortgage executed by the secretary and a
working director only..

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 Case Contd..
• The court held that the plaintiff could not claim
under this deed as this deed is invalid and not
signed as per the AOA
• The Court further observed that if Kotla
venkataswamy had consulted the articles, she
would have discovered that a deed such as she
took required execution by three specified officers
of the company and she would have refrained
from accepting a deed inadequately signed.

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 DOCTRINE OF INDOOR MANAGEMENT:-

• An exception to the constructive notice

doctrine is the “doctrine of indoor
management”, as the former protects the
company form outside stakeholders the later
protects the outside stakeholders against the
company.

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 Turquand’s case
• This doctrine is commonly known as the
TURQUAND RULE, for it traces its origin in
case Royal British Bank V Turquand (1856)119
ER 886

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 Facts of the case
• “The company’s articles provided that the directors might
borrow on bond such sum of money but after being
authorized by the shareholders in a general meeting of the
company.
• The directors did borrow a sum of money from the Royal
British bank
• The shareholders claimed that there had been no such
resolution authorizing the loan and therefore it was taken
without their authority.
• However, it was held that the company was bound by the
loan and the bank was considered as a secured creditor
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 Contd…
• So, the person dealing with the company is
bound to know what he can know as a public
person but, not what is not in his reach and
which is done behind the doors of the
company where he cannot access to.

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 Exceptions to The Doctrine Of Indoor
Management or Turquand’s Rule
In the following cases the Doctrine of Indoor
management does not apply and the benefit is
given to the company:
• Knowledge of Irregularity
• Suspicion of Irregularity or negligence
• Forgery

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