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Question
Study the following case/situation and express your opinion:
The Articles of a company stated that while borrowing any money from outsiders. The document must have the signatures of the Managing Director (MD) and any one of the directors. The Articles of Association clearly stated the procedure to be followed while borrowing money. The Managing Director did not follow all the procedures but still borrowed money from Mr. X. Mr. X assumed that the MD has followed the required procedures:
(a) Can the MD be held punishable for his act?
(b) Under which Doctrine can Mr. X take action against the company?
(c) Explain the Doctrine.
Solution
(a) The Managing Director (MD) can be held punishable for this act.
(b) Under the doctrine of indoor management, Mr. X can take action against the company.
(c) The doctrine of indoor management specifies that persons (third parties) entering into a contract with the company are not found to inquire or know whether the company or it's MD or officers have properly followed the internal proceedings as stated in the Articles or not. As per the doctrine of indoor management, it is assumed that the company or it's MD or Officer acts as per Memorandum and Articles of Association. This doctrine protects the interest of the outsiders when they are unaware of the correctness of the internal proceedings of the company.
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