Companies without common seal are at great risk

The Companies (Amendment) Act,2015, has been  notified. By the said Amendment Act few sections of the Companies Act,2013, have been amended. One of the amended sections is section 22(2) which in its amended form reads as under:

“ A company may, by writing under its common seal, if any, authorise any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place either in or outside India.”

“Provided that in case a company does not have a common seal, the authorisation under this sub-section shall be made by two directors or by a director and the Company Secretary, wherever   the company has appointed a Company Secretary.”

The above provisions are in two parts now. The first part is that when a company has Common Seal a power of attorney can be issued by a company in favour of any person for execution of any documents and agreements whether in India or outside India but authorisation for the same has to be from the Company as the words used are “a company may”. It will be useful to mention here that in the Companies  Act, 2013, wherever it is stated that a company  may or a company can or company will  It means either the Board of directors or the members of the company in view of section 179 according to which the board of directors shall be entitled to exercise all such powers and to do all such acts as the company is authorised to exercise and do provided that the board shall not exercise any power or do any act which  as per the Act to be exercised or done by the company in general meeting i.e members’ power. According to section 179 a company acts through its Board of directors in all most all matters except few which the Act or the MOA provides for doing through general meeting i.e Members. So there is no other authority other than the Board of Directors or members of the company.

The second part which is the Proviso now provides that in case of a company not having Common Seal the power of attorney can be issued in favour of any person for execution of any documents and agreements but such authorisation for the same must be either by the two directors together or one director and the Company Secretary together. That means now power of a company has been vested   either in only two directors or one director and the Company Secretary when the company is not having common seal. This provision is dangerous from the safety and security point of view of a company. Let us assume a company having five directors and one Company Secretary but does not have Common Seal. Two fraud directors or one fraud director and fraud Company Secretary in this company can even sell entire property of the company without knowledge of any other director, members and the Board of directors by issuing a power of attorney in favour of their near and dear for sale of entire properties of the company. It is needless to state that two directors or a director and the Company Secretary are neither the Board of directors nor the members of the company. It is pertinent to take note of sub-section 3 of section 22 according to which a deed signed by the power of attorney holder in the manner as above shall bind the company. It is also important to mention here that the section 22 is independent section which is not subject to any provisions of any other section.  Now it is declaration of law that in case of a company not having Common Seal, for the purpose of execution of deeds, the company means either any two directors or a director and the Company Secretary. It is needless to state that the term “ Deeds” is very wide term.

Thus for the safety and security of a company the company must have Common Seal which has been made optional now

CS Anmol Jha