Key Takeaways
- As per the Companies Act,2013, a person dealing with the company is presumed to have read the Memorandum of Association(MOA) and Articles of Association(AOA) and understood them in their true perspective.
- The Articles of Association have clearly stated that all documents executed by the company require signatures of the Managing Director, Secretary and one Working Director for its validity.
- This is based on the Doctrine of Constructive Notice. It implies that the outsiders and everyone dealing with the company should have read these documents and made sure that the contracts are in conformity with their provisions.
- It is also based on the principle that 'ignorantia juris non-excusat,' or 'ignorance of the law is no excuse’.
Date of Judgement
16 January, 1934
Bench:
Justice Curgenven
Parties
Plaintiff-Kotla Venkataswamy
Defendant-Chinta Ramamurthy
Subject
This judgement dealt with the Doctrine of Constructive Notice. As per this doctrine, every person dealing with the company is deemed to have read the MOA and AOA and understood them in their true perspective. This judgement affirms the fact that the plaintiff cannot seek exemption on the ground that he had not read the Articles and was thus not aware of the provisions of the MOA and AOA.
Legal Provisions
As per Section 399 of the Companies Act,2013, the persons who are not members can inspect the records and documents of the company available with the registrar of the company. The MOA and AOA are public documents and outsiders should enter into contracts only after careful examination of documents.
Overview
- The plaintiff held a mortgage bond executed by company and it was signed by the Working Director and Secretary of the company. The plaintiff asserted that debt and interest were regularly paid by the company to the plaintiff.
- The company went into voluntary liquidation and the mortgaged property was sold.
- The plaintiff filed a suit in the lower court to enforce her right in the property, but the contention of the plaintiff was rejected by the court, and her subsequent appeal was filed before the Madras High Court.
Issues
- Does the plaintiff have any remedy for enforcing her mortgage deed?
- Whether the mortgage deed was duly executed and would the company be liable to the plaintiff?
Judgement Analysis
- The plaintiff contended that since the Managing Director was under prosecution for criminal charges, his signatures could not be obtained. The court rejected the contention of the plaintiff and stated that the mere fact that Managing Director was not available would not make the execution by Secretary and Working Director valid.
- The court citing the case of Royal British Bank v.Turquand, observed that if the bond was not duly executed, but the plaintiff had every reason to believe that the documents were duly executed based on the fact that any irregularity is not visible on the face of the document / bond, then in such a casethe company will be liable.
- The court further added that based on the facts of the case it is clear that the plaintiff had not read the MOA and AOA and thus he had no constructive notice that the documents required the signatures of Director, Secretary and Managing Director, which indicates the document was not duly executed and hence the plaintiff has no remedy.
- The court, while rejecting the contention of the plaintiff, stated that had the plaintiff read the MOA and AOA, she would have known that the mortgage bond required signatures of Managing Director, Secretary and Working Director.
Conclusion
The effect of constructive notice is that it protects the company from outsiders. An outsider who deals with companies is deemed to have constructive notice of the contents of the documents of the company.Accordingly,if a person deals with a company and the transactions turns to be beyond the powers of the company or its officers as contained in these documents, he cannot enforce it against the company and he shall be held personally liable to bear the consequences of such dealings.
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