Bombay High Court Applies Doctrine of Indoor Management in Hoarding Contract Dispute

The Bombay High Court has reaffirmed the importance of the Doctrine of Indoor Management by holding that a contractor was justified in assuming that a federation secretary had the authority to sign a commercial agreement on behalf of the organization. The Court observed that internal administrative lapses cannot be used to invalidate a contract entered into by a third party acting in good faith.

The case arose from a dispute between an outdoor advertising agency and a cooperative housing federation regarding the installation of an advertising hoarding within the federation’s premises. The agency had participated in a competitive bidding process, following which its proposal was approved by the federation’s General Body. Based on this approval, the federation’s secretary executed the agreement and issued the necessary No Objection Certificate (NOC).

Subsequently, the federation attempted to stop the project, arguing that the secretary lacked proper authority to execute the agreement. Rejecting this contention, Justice Sandeep V. Marne held that the contractor was entitled to rely on the apparent authority of the secretary. Since the General Body had already approved the proposal, any failure to complete internal formalities was an internal matter that could not prejudice a third party.

The Court further noted that the federation’s objections primarily related to the location of the hoarding rather than the existence of the contract itself. It observed that the structure was temporary and could easily be removed if the final arbitral award favored the federation. Finding a strong prima facie case in favor of the contractor, the Court restrained the federation from obstructing the construction while leaving the final determination to the arbitral tribunal.

The decision highlights that organizations cannot escape contractual obligations by citing internal procedural defects after benefiting from a duly approved transaction.