Thursday, 17 April 2014

12.4.8 (Constructive Notice of Articles and Memorandum)



Section 610 provides that the memorandum and articles, when registered, become public documents and then they can be inspected by anyone on payment of a nominal fee. Therefore, any person who contemplates entering into a contract with the company has the means of ascertaining and is thus presumed to know the powers of the company and the extent to which they have been delegated to the directors. In other words, every person dealing with the company is presumed to have read these documents and understood them in their true perspective. This is known as 'Doctrine of Constructive Notice'. Even if the party dealing with the company does not have actual notice of the contents, it is presumed that he has "constructive notice" of them.

Examples. (i) One of the articles of a company provides that a bill of exchange to be   effective must be signed by two directors. A bill of exchange is signed only by one of the directors. The payee cannot claim under the bill.

(ii) In Kotla Venkataswamy v. Ram Murthy AIR (1934) Mad. 579, the articles provided that all deeds and documents of the company shall be signed by the managing director, secretary and working director. A mortgage deed was         accepted with secretary and working director's signature only. Held, the deed was invalid.

(iii) Similarly, if a person enters into a contract which is beyond the powers of the company, he cannot acquire any right under the contract against the company.

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