Follow my blog with Bloglovin

Exceptions to the principle of internal management

Exceptions to the principle of internal management (Exceptions of Doctrine of Indoor Management)


Those who deal or contract with the company according to the internal management principle


The person has the right to believe that the internal management of the company is running properly and that action has been taken by the company in relation to the said transaction or contract, but the following exceptions to this principle are (1) When knowledge of irregularity Yes – When the outside person or third party dealing with the company is aware of the irregularities happening in the company and still deals with the company, then that outsider cannot escape from his liability by taking recourse to this principle. Also, he cannot get any kind of compensation. According to the judgment given in Morrins v. Kenson, if the outsider dealing with the company,


If there is knowledge of irregularity, it will be provided to the member who will pay a fee of ₹ 1 along with the application.


also collects. Copy of Articles modified by the company within 7 days of the application


must be sent to the member.


(2) When the person dealing with the company is part of the internal management, if the person dealing with the company is himself part of or connected with the internal management of the company, he cannot obtain any benefit or security under this principle.


(3) Outside direct jurisdiction- If on behalf of the company any of its representative or agent enters into any contract with a third party outside the limits of his rights, it is void by reason of his being outside his direct jurisdiction and the company shall act in such manner. or not bound by contract. The case of Anand Bihari Lal Vs Dinsa and Company (1942) is important in this regard. In this suit, the accountant of the company has transferred some of the property of the company to the plaintiff, the court considered this practice to be futile because it was outside the direct authority of the accountant to do so.


(4) Forgery – In the latter judgment in Rubin Vs. Great Fingal Consolidated Company (1906), if the acts done in the name of the company are fraudulent or fraudulent, the principle of internal question will not apply. In this suit, the secretary of the company claimed to be registered in respect of the shares held on the basis of forged share certificates. Declaring the share certificate as void, the court said that the holder would have got any right under the forged share certificate.


(5) Negligence – According to the later judgment of Underwood v. Bank of Liverpool (1924), if outside parties dealing with the company show negligence in detecting irregularities, they will not be entitled to the benefit of the principle of internal management . (6) Ignorance of the Articles In this regard Laxmi Ratan Lal Cotton Mill


vs G. Of. The case of Jute Mills Company is important.


(7) Conduct of inquiry – This rule shall not apply when the amount of the transaction is so high or the circumstances are such as to make it natural to inquire into the fulfillment of the Articles of Association. For example, if a person buys bonds of ₹ 20 lakh, he should naturally ask whether the necessary resolution has been passed in the general meeting of the company. (8) Be aware of the ordinary business of the company if done with the company


If the transaction is not related to the business of the company or is unauthorized, then the above principles


Will not done.


(9) When work is useless from the beginning – No one can get protection under internal management if any work is useless from the beginning because of the rights of the company.


(10) When the act is barred by the Companies Act – If a person contracts to do an act of a company which cannot be done according to the Companies Act, then a party to the contract cannot get protection under this principle.

Leave a Comment