Page 244 - DMGT407Corporate and Business Laws

Unit 10: Articles of Association

Held: They could not, because they did not know the existence of the power to delegate. Notes
[Rama Corporation vs. Proved Tin and General Investment Co. (1952) 1 All ER 554].
3. Void or illegal transactions: The rule does not apply to transactions which are void or
illegal ab initio, e.g., forgery.

Example: The secretary of a company forged the signatures of two of the directors
required under the articles on a share certificate and issued the certificate without authority. The
applicants claimed to be entitled to be registered as members of the company.
Held: The certificate was a nullity and the holder of the share certificate could not take
advantage of the doctrine of indoor management [Ruben vs. Great Fingal Consolidated
(1906) AC 439].
4. Negligence: If an officer of a company does something, which would not ordinarily be
within his powers, the person dealing with him must make proper enquiries and satisfy
himself as to the officer’s authority. If he fails to make inquiry, he cannot rely on the rule.

Example: A person who was sole director and principal shareholder of a company, paid
into his own account, cheques drawn in favour of the company. The bank should have made
enquiries as to the power of the director. The bank was put upon inquiry and was accordingly
not entitled to rely upon the ostensible authority of director [A. L. Underwood vs. Bank of
Liverpool (1924) 1 K. B. 775].

Self Assessment

Fill in the blanks:
13. The …………………………throws a burden on people entering into contracts with the
company that they are presumed to have read the documents.
14. The …………………………allows all those who deal with the company to assume that the
provisions of the articles have been observed by the officers of the company.
15. The …………………………rule does not protect any person, who has actual or constructive
notice of the want of authority of the person acting on behalf of the company.

Case Study RIL wants Change in Reliance Energy’s Articles of

Association

eliance Industries, the largest shareholder in Reliance Energy, has voted in favour
of entrusting itself with the power to appoint the majority of directors on the REL
Rboard.
Earlier these powers were vested with Mr Anil Ambani, REL Chairman and Managing
Director.
According to sources, RIL was among the 97.24-per cent REL shareholders who voted in
favour of the changes to its Articles of Association, a set of rules that govern day-to-day
workings of a company, through a postal ballot. The result of which was announced
today.
Contd...

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