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CA Foundation · Business Laws · The Companies Act, 2013

Ravi Textiles Ltd has an article that says its directors may borrow up to Rs 50 lakh. Anil, an outsider, lends Rs 80 lakh to the company without reading the articles, believing the directors have authority to borrow. Which doctrine would the company rely on to deny Anil's claim for the excess amount?

The company can rely on the doctrine of constructive notice. The memorandum and articles are public documents, so Anil is presumed to know the Rs 50 lakh borrowing limit. He cannot claim the excess, as indoor management does not protect those who ignore limits stated in the articles.

  1. ADoctrine of indoor management
  2. BDoctrine of constructive noticeCorrect
  3. CDoctrine of lifting the corporate veil
  4. DDoctrine of ultra vires only

Explanation

The memorandum and articles are public documents, so every person dealing with the company is deemed to have read and understood them. Anil is taken to know the Rs 50 lakh borrowing limit. Indoor management protects outsiders only regarding internal irregularities, not matters visible in the public documents.

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