Doctrine of Constructive Notice

The doctrine of constructive notice is the most important doctrine in the company law. According to this doctrine, the outsiders to the company are presumed to be well-known with regard to the Articles of Association of the company. The reason for the same is that the articles of association is a public document and any person dealing with the company is required to read the public document before dealing with the company.

Hence it is presumed that any person who is dealing with the company is fully aware of the rules and regulations of the company as these rules and regulations are written in the Articles of Association and the Articles is a public document. Any outsider before dealing with the company can have access to the Articles and after having the knowledge of the dealings of the company, the outsider will make a deal with the company.

The doctrine functions as the safety to the company while dealing with the outsiders. It is the duty of the outsiders to be fully aware of the rules and regulations of the company and the functioning of the company as well. In the case of any dispute, the outsiders cannot claim that they had no knowledge of the rules of the company as the doctrine states that before dealing with the company the outsider must have knowledge of the rules of the company as given in the Articles.

Effects of Doctrine of Constructive Notice

The effect of doctrine of constructive notice is harsh on the other party who is transacting with the company. The doctrine puts a liability on the person who is dealing with the company to inspect all the documents before entering into any contract with the company. One necessary inference of this doctrine is that a person transacting with the company is considered to have read and understood all the documents of the company. Such person is also supposed to understand the powers of the company’s officers to which they are authorized.

In case of any act of the company being ultra vires of the Articles or the Memorandum, a person cannot claim for any relief on the ground that they were unaware of the said provisions of the Articles or the Memorandum because of the Doctrine of Constructive Notice.

Exceptions to Doctrine of Constructive Notice

There are few exceptions to the Doctrine of Constructive Notice which are as follows:-

• In case any company commits any forgery or any fraud in the Articles of Association or the Memorandum of Association, then the outsider will not be liable as per the Doctrine of Constructive Notice.
• Another exception to the Doctrine of Constructive Notice is that when the outsider has prior knowledge of any irregularity committed by the company then they cannot claim any relief in case of default by the company. The Doctrine is applicable only if the outsider has no knowledge of the irregularity by the company.
• Another exception of the Doctrine of Constructive Notice is if the outsider commits any negligence then also the Doctrine will not be applicable.
• One of the important exceptions of the Doctrine of Constructive Notice is Doctrine of Indoor Management. According to the Doctrine of Indoor Management, the outsiders to the company are not required to know of the workings of the company. Simply speaking, the Doctrine of Indoor Management means that the outsiders have no knowledge of the company’s internal affairs and as a result in case of internal irregularity the outsider is saved by this Doctrine of Indoor Management.

The Doctrine of Indoor Management saves the outsiders from the company’s irregularity which occurs internally. For example, if an outsider deals with the company on any matter which is required to be passed by special resolution, then the outsider will assume that the special resolution had been passed and they cannot know if there is any irregularity in passing of the resolution. That is, if no special resolution had been passed then the outsider would not have knowledge of the same and hence they are saved as per the Doctrine of Indoor Management.

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