NCLT Amaravati Cautions Against Presuming Corporate Actions Are Always Properly Approved
Kirit Singhania
27 Jan 2026 10:04 AM IST
The National Company Law Tribunal (NCLT) at Amaravati, while admitting a real estate company into insolvency, held that the absence of a board resolution authorising the borrowing of funds and execution of promissory notes on behalf of the company did not, in the facts of the case, defeat the existence of a financial debt.
At the same time, it cautioned against a mechanical reliance on the doctrine of indoor management to validate such transactions.
The doctrine of indoor management, also known as the 'Turquand' rule as laid down in Royal British Bank v. Turquand (1856), protects outsiders dealing with a company by allowing them to presume that internal procedures and approvals have been properly complied with.
A coram of Judicial Member Kishore Vemulapalli and Technical Member Umesh Kumar Shukla, applying the principles laid down by the Supreme Court in MRF Ltd. v. Manohar Parrikar, observed,
“Thus, while the doctrine permits a presumption of regularity of internal corporate acts, such presumption is neither absolute nor automatic and must yield where statutory mandates or the company's constitutional documents clearly require specific authorisation.”
The insolvency petition was filed by Global Enterprise and S C Shah Corporation, both partnership firms, under Section 7 (plea by financial creditors) of the Insolvency and Bankruptcy Code. They sought initiation of the corporate insolvency resolution process against Suvarnabhoomi Infra Developers Pvt Ltd. The financial creditors claimed that they had jointly sanctioned a short-term loan of Rs. 2.45 crore to the corporate debtor on April 1, 2023. The loan was recorded through promissory notes carrying interest at 16% per annum.
After repayments failed, demand notices were issued in October 2023. The default was stated to have crystallised in November 2023.
Opposing the petition, the debtor argued that the borrowing was not validly authorised, as no board resolution approving the loan transaction had been passed. The financial creditors, however, argued that as third parties dealing with the company, they were entitled to rely on the doctrine of indoor management and presume that internal approvals had been duly obtained.
Rejecting this contention, the tribunal held that the doctrine cannot be applied mechanically, particularly in insolvency proceedings that carry serious civil consequences. It said that the doctrine is subject to recognised exceptions, including cases of statutory non-compliance or where the circumstances are such that a reasonable person would be expected to inquire into the authority of those acting for the company.
On these findings, the tribunal admitted Suvarnabhoomi Infra into insolvency, declared a moratorium, and appointed K.J. Vinod as the interim resolution professional. It directed Global Enterprise to pay Rs. 4 lakhs as initial CIRP costs.
For Financial Creditors: Advocate Aparna Devi