1981 (5) TMI 97 - HC - Companies Law

Requirements with respect to memorandum, General provisions with respect to memorandum and articles - Effect of memorandum and articles, Company Incorporation of

Summary

Issues:
Validity of lease agreement due to lack of common seal and signatures on the deed.

Analysis:
The case involved a dispute regarding the validity of a lease agreement entered into by a company, where the directors challenged the agreement due to the absence of the common seal and signatures on the deed. The plaintiffs alleged that a term was fraudulently inserted into the lease agreement without their knowledge, extending the lease for an additional 20 years based on modernization conditions. The defendants denied the allegations and argued that the lease was executed based on a resolution passed by an extraordinary general meeting of shareholders. The lower court decreed in favor of the plaintiffs, leading to the second appeal by the defendants.

The primary contention raised by the appellant was regarding the necessity of the common seal for the validity of the document. The appellant argued that the affixation of the seal is directory, not mandatory, and relied on precedents to support this claim. However, the respondent contended that the seal is essential to bind the company, citing relevant regulations under the Companies Act, 1956. The court emphasized the importance of adherence to the company's articles of association in executing documents to bind the company.

The court examined the authority of directors to act on behalf of the company and highlighted the distinction between actions taken by individual directors and those taken on behalf of the company. It was established that the company, as a separate legal entity, must sue or be sued in its own name, and actions challenging agreements should be brought by the company itself. The court referenced legal principles and cases to support the requirement for the company to be the plaintiff in such disputes. Consequently, the court found that the suit, filed by individual directors instead of the company, was not maintainable, leading to the dismissal of the suit.

In conclusion, the court allowed the appeal, dismissed the suit without costs, and rejected the oral prayer for a stay of the order. The judgment emphasized the importance of adherence to legal formalities, such as the affixation of the common seal and signatures, in executing agreements on behalf of a company and underscored the necessity for the company itself to initiate legal actions concerning its affairs.