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 random
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 convincing
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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