DOCTRINE OF INDOOR MANAGEMENT:

The Doctrine of Indoor Management follows from the doctrine of ‘Constructive

Notice’ laid down in various judicial decisions. The hardship caused to outsiders
Dealing with the company is softened under the principle of ‘indoor management’
It affords certain protection to the outsiders against the company.
According to this doctrine, after satisfying themselves that the proposed
Transaction is intra vires the memorandum and articles, personas dealing with
The company are not bound to enquire the internal proceedings were correctly
Followed. They are entitled to assume that the internal proceedings relating to
The contract are regular as per the memorandum and articles.
Exceptions to the Doctrine of Indoor Management:
No benefit under the doctrine of indoor management can be claimed by a person
Under the following circumstances:
 Where the person dealing with the company has actual or constructive notice
of any irregularity in the internal proceeding of the company.
 Where the person did not in fact consult the Memorandum of Association & the
articles of the company & consequently did not act on knowledge of these
documents.
 Where a person dealing with the company was negligent and had he not been
negligent could have discovered the irregularity by proper queries.
 Where a person dealing with the company relies on forged documents
 where a person enters into contract with officer / agent beyond his authority.
COMPANY MANAGEMENT:
A Company, though a legal entity in the eyes of the law, is an artificial person
existing only in contemplation of law. It has no physical existence. It has neither
Soul or body of its own. As such it cannot act in its own person. It can do so
only through some human agency. The persons who are in charge of the
Management of the affairs of the company are termed as “Directors”. They are
Collectively referred as Board of Directors.
DIRECTORS:
The Company act defines ‘director’ as “any person occupying the position of a
Director whatever name called”[Sec 2(13)]
So a director defined as a person who directs, conducts, manages &
supervises the affairs of a company.
Appointment of Directors:
First Directors – The first directors are usually named in the articles of
Association of the company. If not, they shall be determined in writing by the
Subscribers of the memorandum. If this also not done, all the subscribers of
The memorandum shall be deemed to be the first directors of the company.
Appointment of Directors by the Company – According to Sec 255, directors
Are appointed by a company in a general meeting. While 1/3rd of the directors
Can be appointed permanently, the remaining 2/3rd are liable to retire by
rotation. Of these only 1/3rd are liable to retire at any AGMs. Retiring directors
Are eligible for re-appointment.
Appointment of Directors by the Board of Directors –
a) Additional Directors – [Section 260] The Board of Directors may appoint
additional directors within the maximum strength fixed by the articles.
Such additional directors hold office only up to the date of next AGM.
b) In Casual Vacancy – [Section 262] Casual vacancy can be filled by the
board if the articles permit. A casual vacancy may arise due to reasons
such as death, resignation, disqualification or failure of an elected director
to accept the office or due to any other reason. The director appointed in a
casual vacancy shall hold office only up to the date on which the director
whose place has been filled up was to retire.
c) As an Alternate Director – The Board of Directors if authorized by the
articles or by the company resolution at the general meeting may appoint
alternate director. Such an alternate director is to act for the original director
during his absence for a period of more than 3 months from the state in
which the meeting of the company may be held. The alternate director
can continue as director only for the period for which the original director
was eligible. Further on the return of the original director, the alternate
director must vacate the office of directorship.
d) Appointment of Directors by Third Parties – [Section 255]
Sometime the articles may give right to financial institutions, debenture
holders & banking companies who have lent money to ensure the funds
are utilized and applied properly. They should not exceed 1/3rd and last 3yrs.
Appointment of Directors by the Central Government –
The Central Government may appoint such number of directors of the board
Of the company as the Company Law Board may by order in writing specify
As being necessary to effectively safeguard the interest of the company, its
Shareholders or the public interest.
They are appointed to prevent oppression of the minority shareholders or to
Prevent mismanagement of the company or in the public interest. They are
Appointed for a maximum period of 3 years. They are not required to hold
Qualification shares and are not liable to retire by rotation but they can be
Removed by the Central Government at any time and other persons may be
Appointed by it in their place.
POWERS AND DUTIES OF DIRECTORS:
The power of Directors can be broadly divided in to two:
Statutory Powers:
These powers are laid down in the Companies Act 1956. They confer upon the
Board of Directors right to exercise all such powers and do such acts as the
Company itself has the authority to exercise and do. Thus the powers of the
Directors are provided in the Companies Act.
Powers to be exercised only at the Board Meeting – Sec 292 of the
Companies Act that the Board of Directors shall exercise the following powers
By means of resolution passed at a meeting of the board:
• the power to make calls on the shares
• the power to issue debentures of the company
• the power to borrow money otherwise than on debentures
• the power to invest the funds of the company; and
• the power to make loans.
Powers to be exercised by the Board with the consent of the
Shareholders in the General Meeting:
• sell, lease or dispose the whole or part of the company’s undertaking
• remit or allow for repayment of the debts due by a director
• invest any amount received on acquisition of any property or under excess
of the maximum laid down in the Act.
• appoint sole selling agents for more than 5 years
• issue bonus shares
• reorganize the share capital of the company.
Other Powers to be exercised at the Board Meetings:
• The power to appoint Additional Directors
• The power to fill casual vacancy in the office of Directors
• The power to accord sanction to a Director to enter into a specified contract
• The power to appoint MD
• The power to invest in any share of any body corporate
• The power to make declaration of solvency in the case of members winding
up voluntarily.
MANAGERIAL PO WERS:
 Power to make contracts on behalf of the company
 Powers to decide on the terms of issue of additional shares & debentures
 Powers to issue, allot, forfeit and transfer of shares of the company
 Powers to appoint Directors, to fill up casual vacancies, Additional / Alternate
 Power to set organizational objectives and formulate major policies
 Power to determine organizational structure of the company.

DUTIES OF DIRECTORS:
General Duties:
 To establish general objectives and to determine the business of the company
 To issue directions for the implementation of these policies and to revive and
to check on the performance
 To delegate powers to any committee or the Chief executive or others, if
permitted by the articles; and
 To appoint officers and other employees, including managerial personnel of
the company.
Statutory Duties:
 To disclose interest in contracts or arrangements proposed to be entered into
by the company [Sec 299]
 To disclose particulars of shares held in other companies [Sec 308]
 To disclose names, addresses, Occupation etc. for entry in the Register of
Directors
 To determine minimum subscription and issue in prospectus
 To hold statutory, AGMs, EGMs and lay before the meetings the reports,
accounts, returns etc, as required by the Act.
 To convey EGM if requisitioned by the members.
 To circulate & file with the ROC the resolutions, reports accounts etc
required by the act
 To issue, allot, forfeit & transfer shares
 To recommend declaration and payment of dividends as per the act
 To maintain books & registers required under the Act & the Articles.
 To do all other acts under the Act and the Articles.

FIDUCIARY DUTIES:
As agents of the company the directors hold a position of trust in relation to the
Company. They are duty bound (a) to exercise their powers honestly and
Bonafide for the benefit of the company and must not use for their personal
Interest. (b) Utmost good faith, (c) Duty of Care & Skill, (d) Duty not to delegate
(e) Duty to disclose the interest.