## Doctrine of Indoor Management (Turquand's Rule)

### Landmark Case: Royal British Bank v. Turquand

Directors were authorized by the AOA to borrow money by resolution at a general meeting.
They gave a bond to Turquand without passing such a resolution.
Held: The company was bound by the bond. Turquand was entitled to assume the necessary resolution had been passed.

### The Doctrine

Outsiders dealing with the company can assume that internal procedures were properly followed. They are not required to verify whether meetings were held, resolutions passed, or internal formalities complied with.

### Basis of the Doctrine

1. Internal affairs are not public knowledge — outsiders can only assume, not investigate.

2. Prevents abuse by the company — without the rule, companies could evade creditors by claiming officials lacked internal authority.

### Counter-balance to Constructive Notice

Developed ~150 years ago as a safeguard against abuse of constructive notice — to ensure fairness to outsiders.

### Exceptions (When Doctrine Does NOT Protect the Outsider)

#	Exception	Explanation
1	Knowledge of Irregularity	If the outsider knew of the internal irregularity, they cannot claim protection — they were part of the problem.
2	Suspicion / Negligence	If the irregularity was such that a reasonable person would have discovered it, the outsider loses the benefit.
3	Forgery	The rule does NOT apply to forged documents — forgery is a nullity and cannot be ratified.
4	No Knowledge of MOA/AOA	When there is doubt about the existence of an agency / where the outsider has not consulted the documents at all in a context they should have.
5	Acts Ultra Vires the Company	When a pre-condition must be satisfied before the company can exercise certain powers, the act is ultra vires the company itself — not merely the directors.

### Comparison: Constructive Notice vs Indoor Management

Doctrine	Protects
Constructive Notice	Company (against outsiders' ignorance)
Indoor Management	Outsiders (against company's internal irregularities)

Worked example

### Example 1

Example 1 (Doctrine applies): XYZ Ltd.'s AOA requires Board approval to take loans. The MD borrows ₹50 lakh from a bank without Board approval. The bank acted in good faith. Answer: The bank is protected by the doctrine of indoor management — it can assume the resolution was passed.

### Example 2

Example 2 (Exception – knowledge): In the same scenario, if the bank's officer was a director of XYZ Ltd. and knew that no Board meeting had been held, the doctrine does NOT apply and the loan is not binding on the company.

### Example 3

Example 3 (Forgery exception): A company secretary forges directors' signatures on a share certificate. The buyer relies on it. Answer: Forgery is a nullity — the doctrine of indoor management does not validate it.

⚠️ Common exam mistakes

Applying the doctrine to forged documents — forgery is always an exception.
Forgetting that knowledge OR suspicion of irregularity defeats the doctrine.
Mixing up which doctrine protects whom (constructive notice = company; indoor management = outsiders).

Reference: Royal British Bank v. Turquand (1856) — Case Law

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Doctrine of Indoor Management and Its Exceptions

Worked example

⚠️ Common exam mistakes