COMPANY LAW PROJECT

On

DOCTRINES
(Doctrine of Ultra-Vires, Doctrine of
Constructive Notice, Doctrine of Indoor
Management)

Submitted by
Vanshika - 386
Devansh Tulsiyan -392
Anushka Anandani - 411
Daksh Arora -414
Aanya Aggarwal -418

B.com(H) Semester- II Section G

(January- May 2024) session
Shaheed Bhagat Singh College
University of Delhi
 INDEX

S.NO. TOPIC PG NO.

1. Declaration 1
2. Acknowledgement 2
3. Objectives 3
4. Doctrine - Intro 4
5. Doctrine of Ultra Vires 5
6. Important Case Law 7
7. Exceptions 9
8. Doctrine Of Constructive Notice 11
9. Doctrine Of Indoor Management 13
10. Case Laws 15
11. Exceptions 16
12. Conclusion 20
11. References 21
 DECLARATION

We, the students of shaheed bhagat singh college do hereby declare

that the project is undertaken by me as part of Law project, Doctrine
of constructive notice , indoor management and ultra vires , it is an
original piece of work done by us.
We assert that the statements made and conclusions drawn are an
outcome of our research work. The work has not been copied from
any sources. And have followed the guidelines provided by the
teacher Mr Vikas Pangtu Sir. Wherever we have used data in the
form of tables, diagrams, pictures and text from other sources, we
have given due credit to them in the text report and even mentioned
their details in the references .

Name of the Students:

Vanshika - 386
Devansh Tulsiyan -392
Anushka Anandani - 411
Daksh Arora -414
Aanya Aggarwal -418

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 ACKNOWLEDGEMENT

We would like to extend a heartfelt thanks to our teacher Mr Vikas

Pangtu for providing us with the opportunity to work on this project
on “ Doctrines” and guiding and helping us throughout. This
enhanced our knowledge and provided a deeper insight into the topic.
We would also like to present our gratitude towards the college
library for providing us with the necessary resources that ensured the
timely completion of this project.

Vanshika Gupta (386)

Devansh Tulsiyan (392)
Anushka Anandani (411)
Daksh Arora (414)
Aanya Aggarwal (418)

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 OBJECTIVES

The following Aims and Objectives have been identified under the
project :
1.To examine and understand the Doctrine of Ultra Vires , important
Case Laws related to it and consequences of ultra vires acts of the
company
2.To understand the meaning of Doctrine of Constructive Notice
3.To analyse the concept of Doctrine of Indoor Management ,
important case laws related to the doctrine and Exceptions of Doctrine
of Indoor Management

INTRODUCTION- DOCTRINE

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A doctrine is a single important rule, a set of rules, a theory, or a
principle that is widely followed in a field of law. It is formed via the
continuous application of legal precedents.

A legal doctrine is a framework, set of rules, procedural steps, or test,

often established through precedent in the common law, through
which judgments can be determined in a given legal case.
Is a legal doctrine a law?
A legal doctrine is not part of the written body of law and statutes.
Rather, it is an important, well-established piece of judicial precedent
that is used for decision-making in cases.
An example of a legal doctrine is the doctrine of caveat emptor. This
common law doctrine assigns buyers the responsibility of examining a
product, before purchasing it, for any evident defects. If a buyer fails
to meet this responsibility, they are not able to pursue compensation
for any defects after purchase.

Indian company Act 2013, includes some importance Doctrines which

help to regulate the company or organisation as per the
guidelines of MOA (Memorandum of Association)

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 DOCTRINE OF
ULTRA-VIRES

Concept and Meaning

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The meaning of the term ultra vires is "beyond the powers of". The
company, being an artificial person, is devoid of any intelligence and
therefore cannot take a rational decision. Memorandum provides, in
advance, the objectives for which the money of the company can be
utilised and thus prevents unauthorised use of the company's capital.
The company is empowered to do only those transactions which are
authorised by the object clause of the memorandum.
Thus, anything which is outside the specified objects and powers or
not reasonably incidental to or necessary for the attainment of objects
of the company is ultra vires the company and, therefore, is void.

Important Case Law

EVANS V. BRUNNER MOND & COMPANY

Facts of the Case: A company was incorporated for carrying on the

business of manufacturing chemicals. The objects clause in the
memorandum of the company authorized the company to do “all such
business and things as may be incidental or conductive to the

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attainment of the above objects or any of them." By a resolution the
directors were authorized to distribute £ 100,000 out of surplus
reserve account to such universities in the U.K. as they might select
for the furtherance of scientific research and education. The resolution
was challenged on the ground that it was beyond the object clause of
the memorandum and therefore it was ultra vires the power of the
company. The directors proved that the company had great difficulty
in finding trained men and the purpose of the resolution was to
encourage scientific training of more men to enable the company to
recruit staff and continue its progress.

Decision: The court held that the expenditure authorized by the

resolution was necessary for the continued progress of the company
as chemical manufacturers and thus the resolution was incidental or
conductive to the attainment of the main object of the company and
consequently it not ultra vires. "Acts incidental or ancillary'' are those
acts, which have a reasonable proximate connection with the objects
stated in the objects clause of the memorandum

ASHBURY RAILWAY CARRIAGE AND IRON CO. LTD. V.

RICHE.

The doctrine of 'ultra vires' was first enunciated by the House of

Lords in a classic case, Ashbury Railway Carriage and Iron Co. Ltd.
v. Riche. The company entered into a contract with M/S. Riche, a
firm of railway contractors to finance the construction of a railway
line in Belgium. On subsequent repudiation of this contract by the
company on the ground of its being 'ultra vires', Riche brought a case
for damages on the ground of breach of contract, as according to him
the words "general contractors" in the objects clause gave power to
the company to enter into such a contract and therefore, it was within

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the powers of the company. More so, because the contract was ratified
by majority of shareholders.
The House of Lords held that the contract was 'ultra vires' to the
company and, therefore, null and void. The term “general contractor"
was interpreted to indicate as the making generally of such contracts
as are connected with the business of mechanical engineers. Further,
the Court held that the company cannot make an "ultra vires" act to be
valid, even if every shareholder of the company assents to it.

Consequences/Impact of Ultra-Vires acts of the

Company

The impact of the doctrine of ultra vires is that a company can neither
be sued on an ultra vires transaction, nor can it sue on it. Since the
memorandum is a "public document", it is open to public inspection.
Therefore, when one deals with a company one is deemed to know
about the powers of the company. 1f in spite of this, if a person enters
into a transaction which is ultra vires the company, he cannot enforce
it against the company.

Following are the exceptions to the doctrine of ultra vires:

1. If an act is ultra vires the directors but intra vires (within the
powers of) the company, the company is liable and it can ratify the
act.

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 2. If an act is ultra vires the articles but intra vires the
memorandum of the company, the company can alter its articles in
the proper way to ratify the act.
3. If an act is within the powers of the company, but is irregularly
done, then the consent of all the shareholders can validate it.
4. Where there is ultra vires borrowing by the company or it
obtains delivery of property under an ultra vires contract, the third
party has no claim against the company on the basis of the loan,
but he has right to follow his money or property, if it exists in
specie and obtains an injunction restraining the company from
parting with it; provided he intervenes before the money is spent or
identity of the property is lost.
5. If a company takes an 'ultra vires' loan and uses it to discharge
intra vires' debts, then the lender on the ultra vires contract is
substituted in the position of first creditor and can recover the
money. He is entitled to rank as creditor to the extent to which the
money has been so applied.
6. The lender of money to a company under an ultra vires contract
has a right to make the directors personally liable on the ground of
implied warranty of authority, if their act amounts to an implied
misrepresentation of fact.
7. If a director of a company makes payment ultra vires the
company, he can be compelled to refund it to the company,
although he has a right to be indemnified by the persons receiving
the money, knowing it to be ultra vires.

In other words, it can be said that generally neither the Company nor
the Outsider is bound to each other in respect of ultra-vires
transactions, however, in certain exceptional cases, they are bound to
each other even in respect of ultra-vires transactions.

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 DOCTRINE OF
CONSTRUCTIVE
NOTICE

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Meaning and Concept
When memorandum and articles of association of a company are
registered, they become public documents and are open to inspection
by anyone on payment of nominal fee. Hence, every person dealing
with the company is under an obligation to know the contents of these
documents.
Inspection of documents kept by Registrar [Section 3991
Any person may inspect by electronic means any documents kept by
the Registrar, being documents filed or registered by him in pursuance
of Companies Act, 2013.
By constructive notice, it is meant:
• Whether a person reads the documents or not, he is presumed to
have knowledge of the contents of the documents, He is not only
presumed to have read the documents but also understood them in
their true perspective; and
• Every person dealing with the company not only has the
constructive notice of the memorandum and articles, but also of all
the other related documents, such as Special Resolutions etc., which
are required to be registered with the Registrar
.

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 DOCTRINE OF
INDOOR
MANAGEMENT

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Meaning and Concept

While persons dealing with a company are presumed to have read the
public documents and understood their contents and ascertain that the
transaction is not inconsistent therewith, they are entitled to assume
that the provisions of the articles have been observed by the officers
of the company. It is no part of the duty of an outsider to see how the
company carries out its own internal proceedings or indoor
management. He can assume that all is being done regularly.
The doctrine of indoor management, thus, imposes an important
restriction on the scope of doctrine of constructive notice. While the
doctrine of "constructive notice" seeks to protect the company against
the outsiders, the principle of indoor management operates to protect
the outsiders against the company.
Thus, 'Doctrine of Indoor Management' is the improvised version of
'Doctrine of Constructive Notice. This Doctrine states that, a person,
though is presumed to have knowledge of the articles and
memorandum, has no possibility to know whether or not the internal
formalities have been properly completed. Therefore, he can assume
that whatever is done, has been done properly. Therefore, he is not
affected by the internal irregularities of the company.

Important Case Law

In Royal British Bank v. Turquand, the directors of a banking

company were authorized by the articles to borrow on bonds such
sums of money as should from time to time, by resolution of the
company in general meeting, be authorized to borrow. The directors
gave a bond to Turquand without the authority of any such resolution.

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The shareholders claimed that there had been no such resolution
authorising the loan and therefore it was taken without their authority.
Once it was found that the directors could borrow subject to a
resolution, Turquand had the right to conclude that the necessary
resolution must have been passed. It was held that Turquand could
sue the company on the bond as he was entitled to assume that the
necessary resolution has been.

Doctrine of Indoor Management - Exceptions/

Limitations/ Non-Applicability

The doctrine of indoor management is subject to certain exceptions or

limitations. In other words, doctrine of indoor management is not
applicable in the following three cases:

1. Actual or constructive knowledge of irregularity: The rule does

not protect any person when the person dealing with the company has
notice, whether actual or constructive, of the irregularity.

HOWARD V. PATENT IVORY MANUFACTURING CO.

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Facts of the Case: The articles of the company permitted the
directors to borrow upto a 1000 pounds only. They could exceed that
limit provided they acquire the consent of the company at the general
meeting. The directors borrowed 3500 pounds from one of the
directors who took debentures, without the required consent. The
company refused to pay the amount.
Decision: It was held that the debentures were good to the extent of
1000 pounds only. Since the director had notice or was deemed to
have the notice of the internal irregularity, he would not be granted
remedies on grounds of Doctrine of Indoor management.

MORRIS V. KANSSEN
Facts of the Case: The company allotted some shares to Morris, one
of its directors, at the board meeting. However, at that time procedural
aspects for appointment of all directors were incomplete.
Decision: Since Morris had the duty to check the validity of
appointment of directors, being one of the directors, he cannot
presume that procedure must have been followed. Therefore,
allotment of shares was cancelled.

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 2. Suspicion of Irregularity: The doctrine, in no way, rewards
those who behave negligently. It is the duty of the outsider to make
the necessary inquiry in case of an unusual transaction or not in the
ordinary course of business. The protection of the "Turquand Rule" is
not available where the circumstances surrounding the contract are
suspicious and demands inquiry.

ANAND BIHARI LAL V. DINSHAW & CO.

Facts of the Case: The plaintiff accepted a transfer of a company's
property from its accountant.
Decision: It was observed that the power of transferring
immovable property of the company could not be considered
within the apparent authority of an accountant. Therefore, such a
transaction is void.

HAUGHTON & CO V. NOTHARD, LOWE & WILLS LTD

Facts of the Case: A person holding directorship in two
companies agreed to apply the money of one company in payment
of the debt to another.

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 Decision: It was held that it was something so unusual "that the
plaintiff should have put upon inquiry to ascertain whether the
persons making the contract had any authority in fact to make it;
failing to which he cannot be given protection under Doctrine of
Indoor management.

3. Forgery: The doctrine of indoor management applies only to

irregularities which might otherwise affect a transaction but it cannot
apply to forgery which must be regarded as nullity.

RUBEN V. GREAT FINGALL CONSOLIDATED

Facts of the Case: The plaintiff who was the transferee of a share
certificate was aggrieved when the company contended that
though the certificate was issued under the seal of the company,
the secretary had forged the seal as well as the signatures of two
directors of the company. The plaintiff contended that whether the
documents were forged or not was the internal matter of the
company.
Decision: It was held that though Doctrine of Indoor management
shields the outsiders from irregularities within the company, but it
won't apply in case of forgery.

KREDITBANK CASSEL V. SCHENKERS LIMITED (1927) :

Facts of the case: A branch manager of a company drew and

endorsed a bill of exchange in favour of a payee to whom he was
personally indebted, when he had no authority to do so.

Decision: Held the company was not bound on the bill of

exchange. The bill in this case was held to be forged because it
purported to be a different document form what it was. It

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 purported to be issued on behalf of the company in payment of its
debt, when in fact it was issued in favour of the manager's own
debt.

CONCLUSION

The following conclusions have been drawn from the research

1. The doctrine of Ultra vires states that An act, legal in itself, but
not authorized by the object clause of the Memorandum of
Association of a company or statute, is Ultra Vires the company.
Hence, it is null and void. An act ultra vires the company cannot
be ratified even by the unanimous consent of all shareholders.

2. Overall, the doctrine of constructive notice plays a crucial role

in various areas of law by imputing knowledge to parties based
on the assumption that certain information is reasonably
accessible or should have been known through reasonable
diligence. Nonetheless, this regulation was seen to cause more
harm than benefit, lowering its credibility. When the rule in
dispute is internal, the courts established the idea of indoor
management to limit the application of this provision.

3. As per the doctrine of Indoor Management the people must

know all the publically available documents of the company
before entering into any kind of association with them but if
they are doing association by these documents then the company

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 will be made liable if they are not following the directions given
in those documents.

REFERENCES

The following resources were used in the preparation of this

project:

Books
Reena Chadha and Sumant Chadha (MKM Publishers Pvt
Ltd)

Websites
https://www.wikipedia.org/

https://study.com/academy/lesson/legal-doctrine-definition-types.html

https://www.law.cornell.edu/wex/doctrine

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