doctrine of indoor management
The doctrine, also called the rule in Royal British Bank v. Turquand, protects outsiders. A person dealing with a company is taken to know its memorandum and articles (the doctrine of constructive notice), but is not bound to inquire whether internal formalities, such as a shareholders' resolution or a board quorum, were complied with. If the articles allow an act subject to an internal condition, the outsider may assume the condition was met.
The protection fails where the outsider knew of the irregularity, was put on inquiry by suspicious circumstances, relied on a forged document, or where the act was beyond the company's powers. Indian courts apply the doctrine under the Companies Act, 2013. It is the outsider's counterpart to constructive notice.
Example
The bank could rely on the doctrine of indoor management, as it had no reason to suspect that the borrowing resolution had not been passed.
In Indian law
- Royal British Bank v. Turquand (Exchequer Chamber, England, 1856)