Doctrine of Indoor Management Under Indian Company Law

The Doctrine of indoor management is a presumption on the part of the the people dealing with the company such as the shareholders that the internal requirements with regard to the articles of association and memorandum of association have been complied with.

The doctrine of indoor management helps in protection of external members from the company and states that the people are entitled to presume that the internal proceedings are as per the documents submitted with the registrar of companies.

They are not allowed to go into the procedural aspect, such as the fact that the internal proceedings might not happen regularly, or what are the proceedings before the directors, in an extraordinary general meeting.

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 find out the procedural aspect, he cannot find out whether the procedure has been followed or not. For example, a company may have borrowing powers by passing a resolution according 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.

Exceptions to the Doctrine of Indoor Management

The doctrine of indoor management is subject to the following exceptions of limitation:-

1. The rule does not protect any person who has actual or constructive notice of the want of authority of the person acting on the behalf of the company.
2. The rule cannot be invoked in favors of a person who did not in fact consult the company memorandum andarticles and consequently did not act in reliance of those documents.
3. If an officer of the company act in a manner, which could not ordinarily be within his powers, the person dealing with him must make proper enquiries and satisfy himself as to the officer authority. If he fails to make enquiry, he cannot rely on the rule Anand Biharilal v. Din Shaw and co
4. The rule does not apply where a person relies upon a document that term out to be forged since nothing cans valid ate forgery. Ruben v Great Fingall Consolidated Ltd.
5. The rule does not apply to transactions which are illegal ar void-ab-intio.