The doctrine of indoor management is subject to the following exceptions when the protection under the rule may not be given to the persons dealing with the company:
1. Knowledge of Irregularity:
The protection of the doctrine is not afforded to a person who had the actual or constructive knowledge of the irregularity besetting the transaction. In Howard v Patent Ivory Co., for example, the directors of the company had the authority to borrow up to £ 1000 without sanction of the resolution at the general meeting.
Directors lent to the company £ 3500 without any resolution being passed. It was held that the company would be bound only by £ 1000. The Turquand rule was not applied as the directors ought to know that the resolution was not passed so could not claim ignorance and protection.
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2. Suspicious Circumstances:
ADVERTISEMENTS:
When the circumstances surrounding a dealing are suspicious and therefore invite further enquiries, then it becomes the duty of the person intending to have the dealing with the company to make proper enquiries and satisfy himself/herself.
If the person does not do so, the protection under the rule may not be given to him/her. Suspicion may arise owing to unusual magnitude of transaction or unusual haste to finalise a transaction, or officer of the company acting beyond his apparent authority.
In Anand Bihari Lai v Dinshaw & Co., the plaintiff accepted a transfer of property of the Company from its accountant. The transfer was held to be void. In the absence of properly executed power of attorney, the plaintiff could not assume that the accountant has the power to sell the property of the company.
3. Forgery:
ADVERTISEMENTS:
The doctrine of indoor management is not applicable to forgeries committed by the employees of the company. This is because the doctrine regularizes the irregularities not the illegalities. A forgery is illegal and therefore voids ah initio. The case of Ruben v Great Fingall Consolidated provides clarity on the issue.
Secretary of the company forged the signatures of the two directors and after affixing the seal of the company, issued it to Ruben. The Company denied the Certificate. The plaintiff contended that he had no means to know whether the signatures are genuine or forged, and therefore it is a part of the internal management of the company. But it was held that the rule of indoor management has never been extended to a forgery.