Ashok Gas Service v Indian Oil Corporation
Rule established
The doctrine of indoor management (Turquand's rule) applies in India; persons dealing with a company in good faith may assume regularity of internal proceedings
Facts
- A question arose regarding the validity of a transaction with Indian Oil Corporation where internal procedures may not have been fully complied with.
- The outsider claimed protection under the doctrine of indoor management.
Issue
- Whether the doctrine of indoor management (Turquand's Rule) applies in India and protects outsiders dealing bona fide with a company.
Held
- The Supreme Court affirmed that the doctrine of indoor management applies fully in India. Persons dealing with a company in good faith are entitled to assume that internal formalities (board resolutions, quorum requirements, proper authorisation) have been complied with. The burden of proving that the outsider had knowledge of the irregularity falls on the company seeking to avoid the transaction.
Ratio Decidendi
Turquand's Rule is part of Indian company law. Outsiders are protected when they deal bona fide without knowledge of internal irregularity. They need not investigate whether the company's internal rules were actually followed. The burden of proving knowledge or negligence on the outsider's part falls on the company.
How to use it in an exam
Use as SC confirmation that Turquand's Rule (1856) is fully operative in India. Important for commercial certainty: businesses can contract with companies without investigating internal compliance for every transaction.
Source
Source: (1994) 2 Comp LJ 182
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.