Doctrine of Indoor Management

The doctrine of indoor management is a legal principle that protects third parties who deal with a company in good faith from the irregularities that may have taken place within the company. The doctrine essentially states that a third party is entitled to assume that the company has acted within its powers and that the internal management of the company has been properly conducted.

The doctrine of indoor management is based on the following rationale:

  • It is impractical for third parties to inquire into the internal management of a company.
  • It is in the interests of commerce to facilitate transactions between companies and third parties.
  • The directors of a company are responsible for the internal management of the company.

Application of the Doctrine of Indoor Management

The doctrine of indoor management applies to all types of companies, including private limited companies, public limited companies, and limited liability partnerships. The doctrine applies to both domestic and foreign companies.

The doctrine of indoor management applies to all types of transactions, including contracts, conveyances, and guarantees.

Exceptions to the Doctrine of Indoor Management

There are a few exceptions to the doctrine of indoor management. These exceptions include:

  • If the third party knows or ought to know about the irregularities within the company.
  • If the third party is a party to the irregularities within the company.
  • If the third party is a creditor of the company and the irregularities have prejudiced the interests of the creditors.

MCQs

  1. Which of the following is an exception to the doctrine of indoor management?
    • The third party knows or ought to know about the irregularities within the company.
    • The third party is a party to the irregularities within the company.
    • The third party is a creditor of the company and the irregularities have prejudiced the interests of the creditors.
    • All of the above

Answer: The correct answer is All of the above. These are all exceptions to the doctrine of indoor management.

  1. Can a third party who deals with a company in good faith be bound by a contract that is ultra vires the company?
    • Yes
    • No

Answer: The correct answer is No. A third party who deals with a company in good faith cannot be bound by a contract that is ultra vires the company. This is because the doctrine of indoor management protects third parties from the irregularities that may have taken place within the company.

  1. Can a third party who deals with a company in good faith be held liable for the debts of the company?
    • Yes
    • No

Answer: The correct answer is No. A third party who deals with a company in good faith cannot be held liable for the debts of the company. This is because the doctrine of indoor management protects third parties from the liabilities of the company.