Doctrine of Constructive Notice

What is Doctrine of Constructive Notice?

The Doctrine of Constructive Notice acts as a shield that protects the company against external parties. As against the Doctrine of Indoor Management which safeguards the external parties against the company.

Constructive Notice implies that the public documents, i.e. articles of association and memorandum of association, which is filed with the Registrar of Companies (ROC), prevents the outsiders from filing suit against the company, on the grounds of lack of knowledge related to the company’s objectives and powers.

  • Memorandum of Association and Articles of Association are the two public documents that are required at the time of incorporation of the company.
  • Memorandum of Association (MOA) deals with external affairs of the company, i.e. it determines the basic conditions upon which a company is registered. It contains the objects, scope, registered office, etc. of the company.
  • Articles of Association (AOA) deals with a company’s internal management of affairs, i.e. it contains regulations related to the company’s management, powers of directors, the rights of the members etc.
  • These public documents are submitted to the ROC at the time of incorporation which is checked and verified by the Registrar. Further, these are open to all the external parties for public inspection who transact with the company.
  • Hence, when the constructive notice is served, it is held that every party entering into a contract with the company has knowledge of the contents of these documents and understood them in the manner intended. This presumption is termed as Doctrine of Constructive Notice.
  • Further, the doctrine of constructive notice is not confined to only MOA and AOA, rather all the documents which are submitted to the ROC, are covered in it. However, there is no specific constructive notice of public documents which are submitted to the ROC for the purpose of recording.

As per Section 399 of the Company’s Act, 2013 any party can electronically inspect, record or take a copy of these documents maintained by the Registrar, for a nominal fee.

In a nutshell, the party once the notice is provided, it is assumed that he/she has read it. So, it is a matter of legal intent, rather than legal inference. Thus, we can say that mistake of fact is justified, whereas the mistake of law is not justified in the eyes of law.

Therefore, the parties dealing with the company need to have knowledge of their rights and obligation and the conditions of the firm they are entering into a contract with. For this purpose, prior to dealing with the company every person must inspect these documents and check whether the company has the power to enter into the proposed contract or not, as well as the degree to which these powers are delegated to the company’s directors.

What is Constructive Notice?

Constructive Notice means the legal knowledge of the facts which the law suggest or intimate to a party, i.e. law assumes that party has knowledge of facts, irrespective of the fact that whether that party has actual knowledge of it or not. So, the external party will be held accountable even when it is clear that they did not have actual knowledge of the same.

The basic feature of this doctrine is that its rebuttal will not be admitted, which means the party dealing with the company who is presumed to have the constructive notice cannot try to justify that he/she is not having the actual knowledge. This is because, if they have the notice, it does not matter if they have actual knowledge of it or not.

Exception to the Doctrine of Constructive Notice

As discussed above, the Doctrine of Indoor Management is in favour of outsiders, which protects them against the company. This is true that MoA and AoA are available to the public for inspection but the details of internal management are not open to the public for inspection.

Therefore, the external party dealing with the company is said to have knowledge of the constitution of the company and not of what takes place behind the doors which are not open to them, i.e. the internal matters of the company.

Wrap Up

In case of any dispute, the outsider cannot take recourse to the fact that he has not gone through the documents, as these are available for public record with the Registrar itself.

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