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Royal British Bank vs Turquand

Turquand

0Royal British Bank vs. Turquand



Royal British Bank vs. Turquand

The doctrine of indoor management emerges from this case. Unlike the Doctrine of constructive notice, the doctrine of Indoor Management protects the outsiders against the company.

An outsider dealing with the company is not expected that he will know every detail of what is happening in the company. Neither companies internal affairs are of public matter and aren’t open for all people unlike Article of Association and memorandum of association.

Thus it can be said that the Doctrine of indoor management is the opposite of the doctrine of constructive notice.

Recommended Books for the Topic

Royal British Bank vs. Turquand (1856) 6E & B. 327 (Read in detail)

A person who deals with the company needs to look only into the memorandum of association and article of association to know the extent of authority and need not inquire into the regularity of internal proceedings

The company’s deed of the settlement said that company might borrow money from time to time as the general resolution of the company authorized. There was no resolution passed by the company, but wealth was acquired from the bank. The board borrowed money, and the bond was bearing the company’s seal.

The company refused to give the money back and countered that the board never authorized that the company can borrow money and hence the company is not liable

The court rejected the plea and said that a person is bound just to read the statute and deed of settlement and do no more. It appeared on the face of it that the company hence company had followed all the procedures is liable.

Lord Hatherly observed, “Outsiders are bound to know the external position of the company, but are not bound to know it’s indoor management.”



Background: The Doctrine of Constructive notice says that as the memorandum of association and article of association are public documents, they are available to the public and the registrar of the company. All the people dealing with the company are bound to know what they are dealing with and what the company’s power is.

Facts: The director of the defendant company borrowed a sum of money from the plaintiff bank on a bond bearing a company seal. The company’s deed of the settlement said that company might borrow money from time to time as the general resolution of the company authorized. There was no resolution passed by the company, but wealth was acquired from the bank. The board borrowed money, and the bond was bearing the company’s seal.

In action by the plaintiff against the defendant company on non-payment of money, the defendant company put forward the plea that there has been no such resolution authorizing the making of the bond, and that the same was given and made without authority.

Issue: Whether the company is liable for the loan

Held:  Lord Hatherly observed, “Outsiders are bound to know the external position of the company, but are not bound to know it’s indoor management.”

The dealings with companies are not like dealings with other partnerships. The person dealing with them is just bound to read AOA and MOA, but they are not liable to do more. The court rejected the plea of the defendant and said that a person is bound just to read the statute and deed of settlement and do no more. It appeared on the face of it that the company hence company had followed all the procedures is liable.

The bank was held not to bound to ensure that the necessary resolution in term of the deed of settlement of the company had been passed, and the company was held liable for the loan taken by its discretion on bond bearing company seal.




Books Referred

Company Law by Avtar Singh

Companies Act With Rules (9th Edition 2018) Taxman

Company Law, Singhal Law publication

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