The Rule in Turquand's Case
The doctrine of Indoor management, popularly known as the Turquand's rule initially arose some 150 years ago in the context of the doctrine of constructive notice. The doctrine of constructive notice of a company's public documents was, of course, abolished prospectively. The rule was partly dictated by practical necessity - persons contracting with a company were not expected to spend their time checking that any required resolutions had properly been passed, at meetings that had been correctly convened, by directors whose appointments had been duly made.
The rule in Turquand's Case can operate in relation to any contractual obligation but has over the years frequently been raised in respect of a document to which the company's seal has been affixed. Professor Gower, summarizing the common law position in 1969, stated:
"[Where] the third party receives a document sealed in the presence of the appropriate individuals as stated in the articles of association, he is entitled to rely on its formal validity. Even if the board have never resolved that the document be sealed, he will be protected for he is not entitled to see the minutes of the board meeting which relate to a matter of 'indoor management' and has no means of checking whether the internal regulations have been complied with" [1] .
In India, under the Indian Companies Act 1956, the rule has been recognized under s-290 and impliedly under s-81. The principle of indoor management is one of justice, equity and good conscience and has emerged out of the concept of Agency. The Indian Courts have been applying the Doctrine quite frequently and modifying according to the case in hand.
The Paper seeks to answer how far the Turquand Rule has been instrumental in protecting the interests of outsiders transacting bona fide with a company. An endeavor has also been made to find out the application of the rule and its ramifications in the modern context.
Indoor management: An antithesis to Constructive Notice
The rule in Turquand's Case can operate in relation to any contractual obligation but has over the years frequently been raised in respect of a document to which the company's seal has been affixed. Professor Gower, summarizing the common law position in 1969, stated:
"[Where] the third party receives a document sealed in the presence of the appropriate individuals as stated in the articles of association, he is entitled to rely on its formal validity. Even if the board have never resolved that the document be sealed, he will be protected for he is not entitled to see the minutes of the board meeting which relate to a matter of 'indoor management' and has no means of checking whether the internal regulations have been complied with" [1] .
In India, under the Indian Companies Act 1956, the rule has been recognized under s-290 and impliedly under s-81. The principle of indoor management is one of justice, equity and good conscience and has emerged out of the concept of Agency. The Indian Courts have been applying the Doctrine quite frequently and modifying according to the case in hand.
The Paper seeks to answer how far the Turquand Rule has been instrumental in protecting the interests of outsiders transacting bona fide with a company. An endeavor has also been made to find out the application of the rule and its ramifications in the modern context.
Indoor management: An antithesis to Constructive Notice