Nither thc Compamy nor thc Members are bound to Outsiders

Nither thc Compamy nor thc Members are bound to Outsiders. The Articles or Memorandum do not give a right to outsiders i.e:, vendors, solicitors, secretary etc. against the company or the members. An outsider cannot claim a right on the basis-of any provision in the Articles. Even a member enjoying certain rights in capacity other titan tIlat of a member cannot enforce tI1em against the company. In the case of Eley Vs. Positive Life Assurance Company, the Articles of tile company provided that Eley should be tle solicitor of the company for life and should not be removed from office except for misconduct. Eley acted as solicitor to the company and also became a member of the company. After some time the company dismissed him without
alleging misconduct. E sued the company for damages for breach of illations of Articles in a capacity other than that of a shareholder. Held, Articles did not .constitute any contract between the company and an outsider and as such no action would lie.
The principle laid down in Eley's case proved to be rather harsh. Therefore, the court modified the rule by developing the doctrine of implied contract between the company and an outsider in terms of Articles. In New British Iron Co. on the basis of the clause in the Articles to be paid 100 as his remuneration. The term of the Articles becomes a part of the contract which the director could enforce against the company. The said decision was ratified in Gulah Singh J\'.. Punjab Zamindara Bank Ltd. In this case Gulab Singh was appointed as managing director under the Articles and he acted in that capacity for eleven years. Later on he was removed. It was held that the articles constituted an implied contract between the company and Gulab
Singh and hence his removal was invalid.