DISPENSING WITH COMMON SEAL?

[Mr. M. GOVINDARAJAN]

Introduction

The seal is a relic of the days when mediaeval barons who could not read or write, used their rings to make a characteristics impress.  Thus the seal was considered even in the earlier days and used for the authentication of the  document.  The growth of education paved the individual to sign.  Despite this development affixing seal in the documents has continued to serve till today.

The seal is impressed upon a document as evidence of authenticity or attestation. The intention of affixing the seal in the document is well explained in ‘Cf Stromdale & Ball Limited V. Burclen’ - (1952) Ch.223. In this case it was held that if, on behalf of such a body, a document is signed, bearing wax or water or other indication of a seal and the intention was to execute the document as a deed or other contract, this is sufficient proof of its due execution by the body.

In re ‘County Life Assurance Co.,’ - (1870) 5 Ch.288 it was held that where the seal purports to be affixed as required by the Company’s Articles, the presumption is that it was duly affixed by persons duly appointed and their signatures were duly made, the burden of proving the contrary being upon the party alleging it.

Under Companies Act, 1956                      

Section 34 of the Companies Act, 1956 deals with the effect of registration of a company under the Companies Act, 1956.  Section 34(2) provides that from the date of incorporation mentioned in the certificate of incorporation, such of the subscribers of the memorandum and other persons, as may from time to time be members of the company, shall be a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company and having perpetual success and a common seal, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is mentioned in this Act.

It the Articles of the company requires the affixing of a seal on a particular document every one dealing with the company is bound to take notice of it, but it is not bound to ascertain that de facto directors have been duly appointed, or that the seal has been affixed with the authority of a meeting duly constituted.

The common seal, fixed by a company or corporate body on any document executed by it was the evidence and was duly executed by the authority of the company or corporate body.  There is no prescribed form, shape or substance for the seal. Normally the common seal contains the word ‘Corporate seal’ and includes the corporate name, place of the company, date of its incorporation.

Secretarial Standard

Secretarial Standard 8 was issued by the Institute of Company Secretaries of India with effect from 06.11.2008.  The said standard provides for approval, form and content, authority and mode of affixation of common seal, register of documents executed under common seal and custody of common seal. The standard has also provides similar standards to be followed for an official use for outside India.

The Secretarial Standard 8 defined the common seal as the metallic seal of a company which can be affixed with the approval of the Board of Directors of the company. It is considered as the signature of the company to any document on which it is affixed and binds the company for all obligations undertaken in the document. The standard also provides that the Articles may provide for affixing of common seal in any manner. If the Articles are having no provision for common seal, the standard recommended that the common seal should be affixed to any instrument only by authority of a resolution of the Board or a Committee authorized by the Board and that the Common seal should be affixed in the presence of the Managing Director or any two directors. The Company Secretary  or any person may be authorized by the Board for this purpose.

Provisions for common seal under new Act

The Companies Act, 2013 also provides for the use of common seal.  The following are the provisions dealing with common seal:

• Section 9 - Effect of registration - This section provides that from the date of incorporation mentioned in the certificate of incorporation, such subscribers to the memorandum and all other persons, as may, from time to time, become members of the company, shall be a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated company under this Act and having perpetual succession and a common seal with power to acquire, hold and dispose of property, both moveable and immoveable, tangible and intangible, to contract and to sue and be sued, by the said name.
• Section 12 deals with the registered office of a company.  Section 12(3)(b)  provides that every company shall have its name engraved in legible characters on its seal;
• Section 22 deals with the execution of bills of exchange etc., Section 22(2) provides that a company may, by writing under its common seal, authorize 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 outside India. Section 22(3) provides that a deed signed by such an attorney on behalf of the company and under his seal shall bind the company and have the effect as if it were made under its common seal’
• Section 46 deals with certificate of shares.  Section 46(1) provides that a certificate, issued under the common seal of the company specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.
• Section 223 deals with inspector’s report.  Section 223(4) provides that the report of any inspection appointed under this Chapter shall be authenticated either by the seal of the company whose affairs have been investigated; or by a certificate of any a public officer having  the custody of the report as provided under Section 76 of the Indian Evidence Act, 1872 and such report shall be admissible in any legal proceeding as evidence in relation to any matter contained in the report.

Dispensation of common seal

Section 36A(3) was inserted in the British Companies Act.  By that section the possession and use of common seals by companies has been dispensed with. Section 45(1) of English Companies Act, 2006 provides that a company may have a common seal but need not have one.

Section 5 of the Information Technology Act, 2000 provides that where any law provides that information or any other matter shall be authenticated by affixing the signature of any document shall be signed or bear with the signature of any person then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of digital signature affixed in such manner as may be prescribed by the Central Government. A question arised as to how the common seal of the company would be put in documents authenticated by digital signatures, in cases where common seal is necessary.

The Central Government as a first step dispensed with the common seal in LLP Act.  The LLP Act has no mandatory provision to have a common seal. It is at the option of the LLP to have it or not.

The Central Government with a view to dispense with the use of common seal proposed to amend the Companies Act, 2013 to that extent.  The Companies (Amendment) Bill, 2014 has been put in Lok Sabha and has been passed by the Lok Sabha.  The amendment bill proposes to dispense with the common seal and the companies are having the option to have the common seal or not. The bill also provides for the procedure to be followed for the authentication of document in the absence of common seal.  The following are the amendments made to the Companies Act, 2013:

• Clause 3 of the Bill proposes to omit the words ‘and a common seal’ in Section of the Act which reveals that common seal is not mandatorily required;
• Clause 5 of the Bill proposes to substitute the words ‘(b) have its name engraved in legible characters on its seal, if any’ for the words ‘(b) have its name engraved in legible characters on its seal’ in Section 12(3)(b).  The amendment itself reveals that having the common seal by a company is an optional one. If the company wants to have a common seal then  the name of the company is to be engraved in legible characters on its seal, which is mandatory;
• Clause 6(i) (a)of the Bill proposes to substitute the words ‘under its common seal, if any’ for the words ‘under its common seal’ in Section 22(2) which also reveals the common seal is only at the option of the company;
• Clause 6(i) (b) of the Bill proposes to insert the proviso as - Provided that in case a company does not have a common seal, the authorization 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.  - This proposal gives the procedure for the authentication of a document in case the company does not have a common seal.  The authorization shall be made in two ways as detailed below:

• By two directors; or
• By a director and the Company Secretary.

• Clause 6(ii) of the Bill proposes to omit the words ‘and have the effect as if it were made under the common seal’ in Section 22(3) of the Act;
• Clause 7 of the Bill proposes to substitute the words ‘issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary’ for the words ‘issued under the common seal of the company’ in Section 46(1);
• Clause 18 of the Bill proposes for the substitute the words ‘by the seal, if any’ for the words ‘by the seal’ in Section 223 (4) (a) of the Act.

Conclusion

The Companies (Amendment) Bill, 2014, thus, proposes to dispense with the use of common seal. The very long procedure adopted by the companies will be come to an end if the amendment bill got the assent of the President of India. The use of common seal is at the option of the Company.  However the company in case of having a common seal or not has to comply with the procedure as indicated in the amendment bill.