Chapter: 7.2 Doctrine of Constructive Notice

Doctrine of Constructive Notice:

Section 610 of the Companies- Act, 1956 provides that the memorandum of association and articles of association when registered with Registrar of Companies becomes 'public document' and then they can be inspected by anyone on payment of a nominal fee.

Any person who contemplates entering into contract with the company can ascertain about the constitution of the company from inspecting these documents and thus in law is presumed to know the powers of 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 a 'Doctrine of Constructive Notice'. Even if the party dealing with the company does not have actual notice of the contents of these documents, it is presumed that he has an implied Constructive notice of the contents of the documents. Consequently, if a person enters into a contract which is beyond the power of the company as defined in memorandum of association or outside the prescribed authority of the directors as per the memorandum of association or articles of association, he cannot as a general rule, acquire any rights under the contract against the company.

Kotla Venkataswamy v/s Chinta Ramamurthy

The articles of the company required that all documents should be signed by the managing director, secretary and working director on behalf of the company. A deed of mortgage was executed by secretary and working director only. The court held that no claim would lie under such deed. The court observed that mortgagee should have consulted the articles before the deed was executed. Therefore, even though the mortgagee may have acted in ' good faith and the money borrowed was applied for the purpose of the company, still the mortgage was invalid.