Doctrine of Indoor Management
This concept is laid down by the case of Royal British Bank v. Turquand, and because of this the doctrine is known as the Turquand rule. This rule basically protects the rights of third parties. In this case the article of the company states that it can borrow money on bonds. The company has to pass the resolution in the general meeting. The directors did not pass the resolution and obtained the loan. The payment got defaulted in this case the court held that the company is liable as the bank must think that all internal procedures must have been followed by the directors of the company.
The doctrine of indoor management states that if someone is dealing with a company and all procedures and precautions are followed and in good faith deals with the company then he would not be liable for the company’s internal affairs.
The doctrine of Indoor Management allows the third party like the customers, buyers, and suppliers to not verify the internal affaires of the company and to rely on its external appearance. If the external documents and other things appear as proper then the internal affairs do not have to be seen by the consumers.
Importance of the doctrine
It is very important to have protection for the third party in the modern world. It does not make liable to the third party who thinks that the company is all valid and is not violative of the law. They promote the commercial interactions helps in boosting the economy, and is necessary for the effective trade and business.
Example: A company xyz has not appointed its director according to the AOA and it issued a cheque for D. The director who ahs not been appointed properly signed it and the cheque. Here D is entitled to relief as the cheque and appointment of director was the internal matter of the company.
