Anand Bihari Lal v Dinshaw & Co
Rule established
The Turquand rule does not protect a person who has knowledge of the irregularity or where circumstances are suspicious enough to put a reasonable person on inquiry
Facts
- An accountant of the company transferred property belonging to the company to a third party
- The circumstances of the transaction were such as to arouse suspicion regarding the accountant's authority
- The third party claimed protection under the Turquand rule
Issue
- Whether the doctrine of indoor management protects a person dealing with a company when the circumstances are suspicious enough to put a reasonable person on inquiry.
Held
- The court held that the Turquand rule does not apply where the circumstances are so suspicious that a reasonable person would have investigated further. The third party was not entitled to the protection of the doctrine of indoor management.
Ratio Decidendi
The doctrine of indoor management is subject to an exception: where circumstances are suspicious or unusual, the outsider is put on inquiry and cannot blindly rely on the apparent authority of the company's agent. If a reasonable and prudent person would have made further inquiries given the surrounding circumstances, failure to do so deprives the outsider of the Turquand rule's protection.
How to use it in an exam
- Use this as an exception to the Turquand rule. It is essential for balanced answers that discuss both the doctrine and its limitations. Pair with Royal British Bank v Turquand for the rule and this case for the exception.
- Key quotable line: "Where suspicious circumstances exist, a person dealing with the company is put upon inquiry and cannot take shelter under the indoor management rule."
Source
Source: All India Reporter
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.
Cited in study notes
Articles of Association and Doctrine of Indoor ManagementException: suspicious circumstances