JAIIB LRAB Unit 58 - Doctrines of Ultra vires/Constructive Notice/Indoor Management

Doctrines of Ultra vires

 

When a company exercises its powers to promote and/or realise any of its objectives stated in the memorandum of association, it is intra;vires (i.e. within the powers of) the company. However, any other act of the company which is outside the scope of the objects clause of the memorandum of association is known as ultra vires (i.e. beyond the powers of) the company.

 

Constructive Notice

 

It is the duty of every person who deals with a company to inspect its public documents, i.e. its memorandum of association and articles of association and make sure that his contract is in accordance with their provisions.

 

However, whether a person has actually read them or not he shall be in the same position as if he had read them.

 

In other words, he will be presumed to have knowledge of the contents of these documents and to have understood them according to their proper meaning. This kind of presumed notice is known as constructive notice. This is known as the doctrine of constructive notice.

 

Indoor Management

 

A person who deals with the company is deemed to have read and understood the registered public documents such as the memorandum of association and articles of association, etc., to see that his contract with the company is not inconsistent with them.

 

But he is not bound to inquire into the regularity of the company's internal functioning or the internal management of the company. Hence if his contract is consistent with the public documents, the company is bound. He will not be affected by any irregularity in the internal management of the company. This is known as the doctrine of indoor management.