Doctrine of Indoor Management

Q1. A supplier enters a contract with a company's managing director, who assures the supplier that the required board resolution approving the contract has been passed. No such resolution was in fact passed. The supplier had no reason to suspect this. Is the company bound?

1. No, because the board resolution was never passed and the MD had no authority
2. Yes, because the doctrine of indoor management protects the supplier who entered in good faith without notice of the internal irregularity
3. Yes, but only if the company subsequently ratifies the contract at a board meeting
4. No, because MDs do not have inherent authority to bind companies without board approval

Q2. A company's articles require a special resolution to sell any asset worth more than Rs. 5 crore. A director, without passing any resolution, sells a company asset worth Rs. 8 crore to his brother's firm. The brother's firm claims protection under the indoor management doctrine. Will this succeed?

1. Yes, because the brother's firm was dealing with a director who appeared to have authority
2. No, because the brother's firm is an insider who ought to have known of the internal irregularity, given the close family relationship with the director
3. Yes, because the doctrine of indoor management always protects contracting parties regardless of their relationship to the company
4. No, because the transaction is void as it violates the Companies Act

Q3. A person enters a contract with a company for an activity that the company's memorandum of association does not permit (ultra vires). The person claims the doctrine of indoor management protects them. Does it apply?

1. Yes, because the person had no reason to know the contract was ultra vires
2. No, because the doctrine does not apply where the transaction is void ab initio or ultra vires the company's powers
3. Yes, because the memorandum is publicly available and the person should have checked it
4. No, because ultra vires transactions require court approval to be ratified

Q4. The indoor management doctrine is sometimes described as the counterpart to the doctrine of constructive notice. Which of the following best describes the difference?

1. Constructive notice protects companies from outsiders who did not read public documents; indoor management protects outsiders from internal irregularities they could not reasonably have known about
2. Constructive notice benefits shareholders; indoor management benefits creditors
3. Constructive notice applies to criminal liability; indoor management applies to civil liability only
4. Constructive notice is a common law doctrine; indoor management is a statutory doctrine under the Companies Act

Q5. Which of the following Latin maxims is most closely associated with the principle underlying the doctrine of indoor management?

1. Caveat emptor — let the buyer beware
2. Omnia praesumuntur rite esse acta — all acts are presumed to have been done rightly
3. Nemo dat quod non habet — no one gives what they do not have
4. In pari delicto potior est conditio defendentis — in equal fault, the position of the defendant is stronger