Sooraj Pharma Ltd., a public company, its Articles of Association empowers the managing agents to borrow both short and long term loans on behalf of…

CA Foundation · Business Laws · MTP · April 2025
Sooraj Pharma Ltd., a public company, its Articles of Association empowers the managing agents to borrow both short and long term loans on behalf of the company, Mr. Smith, the director of the company, approached Easy Finance Ltd., a non banking finance company for a loan of 25,00,000 in name of the company. The Lender agreed and provided the above said loan. Later on, Sooraj Pharma Ltd. refused to repay the money borrowed on the pretext that no resolution authorizing such loan have been actually passed by the company and the lender should have enquired about the same prior providing such loan hence company not liable to pay such loan. Analyse the above situation in terms of the provisions of Doctrine of Indoor Management under the Companies Act, 2013 and examine whether the contention of Sooraj Pharma Ltd. is correct or not?

Suggested Answer and Working Notes:

(i) Doctrine of Indoor Management According to this doctrine, persons dealing with the company need not inquire whether internal proceedings relating to the contract are followed correctly, once they are satisfied that the transaction is in accordance with the Memorandum and Articles of Association. Stakeholders need not enquire whether the necessary meeting was convened and held properly or whether necessary resolution was passed properly. They are entitled to take it for granted that the company had gone through all these proceedings in a regular manner. The doctrine helps protect external members from the company and states that the people are entitled to presume that internal proceedings are as per documents submitted with the Registrar of Companies.

Topics: The Companies Act, 2013

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