Company is an artificial person created under the Companies Act 1956
with perpetual succession and common seal.It is a legal person different from
its members /shareholders.It possesses all the powers to enter into valid
contracts, sell, purchase, hold, lease and mortgage the immovable property.It
has a legal entity.
There are
two important types of companies.They are private limited company and public
limited company. Any two persons can form a private company and its
membership/shareholders are limited to 50.A minimum number of seven persons
can form a public limited company.
Under the
Companies Act, the registration of both private limited company and public
limited company is compulsory.The certificate of incorporation is issued on registration.The registrar of Joint Stock Companies issues the certificate of
commencement of business to the public limited companies. This is not
applicable to private limited companies.
The
Memorandum and Articles of Association is an important document of a company.The memorandum refers to the objectives and powers of the company and articles
of association deals with the powers, duties,liabilities of the Board of
Directors, share holders/members and rules and regulations governing the
management of the company.
Common
Seal:
Companies
are not physical persons who can sign. Common seal is the physical form of the
company.The common seal is used as a physical impression made upon the
documents executed by the companies. This is special seal engraved on steel
block.This is to supplement the signature of the corporate officers and to
authenticate company documents.Authorization by a resolution of the Board of
Directors of the company or by an authorized committee of the Board is
necessary to affix the common seal. In case of some companies the articles of
association deal with affixing of the common seal.
Immovable
Property Transaction:
The Transfer of Property Act mentions that a living person includes company. It is taken for
granted that all outsiders are aware of the contents of the Memorandum and
Articles of Association of a company. The Memo randum and Articles of
Association deals with the objectives of the company. The powers and rules
regarding governance of the company must be verified to ascertain that the
transactions are as per the objectives and are within the powers of the
company.
The Articles
of Association specifically deal with powers of the directors regarding sale,
purchase and mortgage of immovable property.The company may also execute Power
of Attorney under its common seal empowering any person to execute deeds on its
behalf.
Director,
Managing agent, Secretary, Treasurer, Manager or any authorized official may
also authenticate the documents on behalf of the company, and it need not be
under the common seal.Any charge created by the company on its property needs
to be registered with the Registrar of Companies within 30 days of such creation of charge by filing Form No.8.Charges not registered within the
stipulated time are not taken into account against the liquidator of the
company on liquidation, or against any creditor.Such registered charge will
serve as notice to all persons dealing with the property.
The
Registrar of Companies maintains the Register of Charges and it is open to the
public for inspection.This is different from the details maintained at
sub-registrar office and mentioned in the Encumbrance Certificate.It is
necessary to inspect the Register of Charges while transacting with the company
Apart from the Register of Charges maintained by the registrar, the company is
also bound to maintain a Register of Charges on its properties. This is open
for inspection by the members of the company or creditors.
The
Companies Act has restricted the powers of the Board of Directors on
conveyancing in some cases. Section 293 of the Companies Act deals with these
restrictions. Consent of the general body of the company is mandatory to sell,
lease or otherwise dispose of the whole or substantially the whole undertaking
of the company. Likewise the consent of the general body of the company is
necessary to borrow in excess of the aggregate of the paid up capital and free
reserves. The Board of Directors cannot authorize this type of transaction
without the prior consent of the general body. The only exception is temporary
loans taken by the company from its bankers in the ordinary course of business.
So, while
transacting with the company it is necessary to ascertain that the property is
not whole or substantially whole part of the undertaking of the company and if
the transactions involve whole or substantially whole part of the undertaking,
the consent of the general body is obtained. However, where the ordinary
business of the company is selling / leasing this restriction will not apply.
Similar
caution needs to be exercised when the company borrows on mortgage of its
properties in excess of its paid up capital and free reserves. If the company
is in liquidation, only the liquidator, with the sanction of the court, can
sell its property in the name of the company.The Board of
Directors by a resolution in the board meeting has to authorize the sale,
lease, mortgage or otherwise disposal of the property / purchase of the
property. The resolution by the Board of Directors is necessary even in cases
where general body has consented.
Unless the
Memorandum and Articles of Association empowers the Board of Directors to sell
/ purchase/ otherwise deal with immovable properties, any resolution passed by
the Board of Directors in this regard will not be binding on the company. At times,
it so happens that some of the directors have interest in some transactions.
Such interested directors are not allowed to participate in the discussions and
vote. Otherwise, the resolution is void.If the
resolution prescribes affixing of the common seal on the documents, it has to
be followed in the manner prescribed in the resolution. Copy of the resolution
passed by the Board of Directors, certified by the Chairman and counter signed
by the Secretary should be obtained, which should be part of the documents.
The dealings
with and by a foreign company are governed by Foreign Exchange Maintenance Act,
1999.According to the FEMA 1999, a company resident outside India, which has
established in India, a branch, office, other place of business, for carrying
on any activity in accordance with Foreign Exchange Management Regulations,
2000, excluding liaison office, can acquire an immovable property in India
which is necessary for carrying on its activity after complying with all the applicable laws, rules, regulations and directions in force for the time being,
such company has to file form IPI with RBI within 90 days of acquiring such a
property. Such company is also permitted to mortgage the immovable property as
security to an authorized dealer for borrowing.
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