"Every person contracting with the Company is presumed to have Notice of the Memorandum and Articles of Association of the Company." this presumption is said to be 'unreal'. How have the courts minimised the rigour of the presumption?
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Question: "Every person contracting with the Company is presumed to have Notice of the Memorandum and Articles of Association of the Company." this presumption is said to be 'unreal'. How have the courts minimised the rigour of the presumption? [BJS 1987]Find the question and answer of Company Law only on Legal Bites. ["Every person contracting with the Company is presumed to have Notice of the Memorandum and Articles of Association of the Company." this presumption is said to be 'unreal'....
Question: "Every person contracting with the Company is presumed to have Notice of the Memorandum and Articles of Association of the Company." this presumption is said to be 'unreal'. How have the courts minimised the rigour of the presumption? [BJS 1987]
Find the question and answer of Company Law only on Legal Bites. ["Every person contracting with the Company is presumed to have Notice of the Memorandum and Articles of Association of the Company." this presumption is said to be 'unreal'. How have the courts minimised the rigour of the presumption?]
Answer
The memorandum of association and articles of association are the two most important documents needed for the registration and incorporation of a company. The memorandum of association of a company contains the fundamental conditions upon which alone the company has been incorporated. Both Memorandum and Articles of Association are considered to be public documents. They are available for public inspection in the Registrar's Office.
Section 399 of the Companies Act, 2013 gives the legal foundation for this doctrine. As per this section, the Companies Act allows the outsider person to inspect and go through the records of the Company which are available to the registrar of the Company. This section also provides the right of inspection of the documents of the company. The MOA and AOA of the company are public documents and the outsider person shall get into the contract only after the inspection of these documents.
By this provision, the doctrine of constructive notice is established by which the person is presumed to have knowledge of the information in the documents available publically. Before getting into a contract with any company, the outsider person must have knowledge of the company and he shall ensure that his purpose shall be fulfilled. Making available the documents of the public is the assumed and implied notice to the outsider person. This doctrine is applicable to the documents which are available in the public record at the Registrar of Company.
However, even if a person fails to read them, the law assumes that he is aware of the contents of the documents and understood them. This apparent presumption is called the “Doctrine of Constructive Notice”. A person dealing with the company in a way contrary to provisions of the Memorandum- or Articles will have to bear the consequences of the lapse. A common example of Constructive Notice is when a court is unable to directly reach someone and publishes a summons in the public newspaper and it is assumed that everybody has read it.
Further, there is a constructive notice not merely of the memorandum and articles, but also of all the documents, such as special resolutions (section 117) and particulars of charges (section 77) which are required by the Act to be registered with the Registrar. But there is no notice of documents which are filed only for the sake of the record, such as returns and accounts. According to Palmer, the principle applies only to the documents which affect the powers of the company.
In Griffith v. Paget, (1877) 6 Ch. D. 517 case, the Court held that it is presumed that individuals dealing with the company have not only read these documents but that they have also understood their proper meaning.
In Oakbank Oil Co. v. Crum, 1882 8 AC 65 case, the Court held that anyone who is dealing with the company shall be presumed to have read and understood the MOA and AOA of the company, thus presuming to be a notice to the public.
In Kotla Venkaswami v. Ram Kurthi, AIR (1934) Mad. 579 case, all deeds, etc., were to be signed by the managing director, the secretary, and a working director as per articles of the company. R accepted a deed from the company which was signed by a secretary and a working director on behalf of the company. It was held that R could not have accepted such a deed as it was not signed by the required persons and hence was invalid. The Court observed:
“If the plaintiff had consulted the articles, she would have discovered that a deed such as she took required execution by three specific officers of the company and she would have refrained from accepting a deed inadequately signed. Notwithstanding, therefore she may have acted in good faith and her money may have been applied to the purpose of the company, the bond is nevertheless invalid.”