Uses, Relevance & Importance of Common Seal- Companies Act, 2013

CA Durgesh Kabra

Introduction- As we all know that a Company being an artificial person does not have a physical presence, it acts through its Board of Directors for carrying out its activities and for entering into various agreements. Therefore, Company uses Common Seal as its Signature. Common Seal is the signature of the company to any document on which it is affixed and binds the company for all obligations undertaken in the document. Companies Act, 2013 provides that, the company shall have a Common Seal from the date of its incorporation. However, Companies Act, 2013 does not describe the form, mode of affixing Common Seal or its custody etc. To remove the ambiguity and to prescribe best and uniform practices with respect to affairs pertaining to Common Seal, Council of the Institute of Company Secretaries of India has issued Secretarial Standard-8 (SS-8): “Affixing of Common Seal”.

In this Article we have thrown light on provisions pertaining to Common Seal contained in Companies Act, 1956, Companies Act, 2013 and SS-8.

DEFINITION OF COMMON SEAL

In general, Common Seal means a metal stamp for stamping documents with the name of the company to show that they have been approved officially.

There is no definition prescribed under the Companies Act, 1956 and Companies Act, 2013. As per the Secretarial Standards issued by Institute of Company Secretaries of India, Common Seal means, the metallic seal of a company which can be affixed only with the approval of the Board of Directors of the Company. It is the signature of the company to any document on which It is affixed and binds the company for all obligations undertaken in the document.

In other words, Common Seal is the official signature of the company and each company shall have only one seal, on its incorporation. It is to be used in the manner prescribed in the Articles of Association and the Companies Act, 2013. Any document, on which the company’s seal is affixed and is duly signed by the authorized official of the company becomes binding on the company.

Approval- The Common Seal should be adopted by a resolution of the Board. The Common Seal is generally adopted at the first Board meeting. The impression of the Common Seal should be made part of the minutes of the meeting in which it is adopted.

Form and Content- Under the provisions of the Companies Act, 1956 the Common Seal should be made of metal and capable of being manually operated. On the other hand, there is no compulsion under the Companies Act, 2013 that the Common Seal should be made of metal or any other material. The Common Seal should have the name of the company and state in which the registered office is situated engraved in legible characters.

Authority- 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.

Affixing of Common Seal- Under the Companies Act, 1956, the following are the provisions and sections related to the Affixing of Common Seal:

a) As per Section 48, the deeds can be executed by the Company through its authorized representative under its Common Seal.  The affixing of Common Seal needs to be under the authority of the Board.

b) As per Section 54, a document or proceeding requiring authentication by a company may be signed by a director, the manager, the secretary or other authorized officer of the Company and need not be under its Common Seal.

The following are the provisions under the Companies Act, 2013 for the Affixing of Common Seal:

a) Article 2(ii) of TABLE F – Articles of Association of a Company Limited by Shares specifies that every certificate shall be issued under the seal of the Company.

b)  79. (i) & (ii) of TABLE F and 30(i) & (ii) of TABLE H – (Articles of Association of a Company Limited by Guarantee and not having Share Capital) provides that

(i) The Board shall provide for the safe custody of the seal.

(ii) The seal of the company shall not be affixed to any instrument except by     the authority of a resolution of the Board or of a committee of the Board authorized by it in that behalf, and except in the presence of at least two directors and of the secretary or such other person as the Board may appoint for the purpose; and those two directors and the secretary or other person aforesaid shall sign every instrument to which the seal of the company is so affixed in their presence.

Register of Common Seal – Every company should maintain a register containing particulars of documents on which the Common Seal of the company has been affixed and should be kept at the registered office of the Company.

Custody of Common Seal- The Common Seal should be kept at the registered office or at any other office of the company authorized by the Board. The Common Seal should be kept in the custody of a director of the company or the company secretary or any other official, as authorized by the Board.

Official Seal for use Outside India-

Section 50 of the Companies Act, 1956 states, regarding power of the Company to have official seal for use outside India, that to transact any business outside India, if authorized by its articles, a company can use a seal which shall be a facsimile of the Common Seal of the company, with the addition on its face of the name of the territory, district or place where it is to be used. A deed or other document to which an official seal is duly affixed shall bind the company as if it had been sealed with the Common Seal of the company.

Under the Companies Act, 2013, in this regard, Section 22(ii) states 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 or outside India.

Documents on Which Common Seal is Mandatory- Under the Companies Act , 1956, the following documents are statutorily required to be affixed with a Common Seal:

a)A certificate of shares or stock;

b)A share warrant;

c) A power of attorney for execution of deeds;

d)A power of attorney authorizing a person to use its official seal at a place outside India;

e) An instrument of proxy executed by a body corporate.

NOTE : A certificate, under the Common Seal of the company, specifying any shares held by any member, shall be prima facie evidence of the title of the member to such shares [Section 84(1)].

Rule 6 of Companies (Issue of Share Certificates) Rules, 1960 regulates –

“Every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of (i) two directors or persons acting on behalf of the directors under a duly registered power of attorney and (ii) the secretary or some other person appointed by the board for the purpose. The two directors or their attorneys and the secretary or other person shall sign the share certificate”.

Under the Companies Act, 2013, the following documents are statutorily required to be affixed with a Common Seal:

a) A certificate of shares or stock; (The share certificates issued by the company shall be sealed and signed in accordance with the provisions of the Share Certificate rules.)

b) A power of attorney for execution of deeds;

c) A power of attorney authorizing a person to use its official seal at a place outside India;

d) An instrument of proxy executed by a body corporate;

e) A report of the Inspector under Section 223 of the Companies Act 2013;

f) Any document as required by Liquidator in the event of winding up.

NOTE: 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 46(1)].

Rule 5(3) of Companies (Share Capital and Debentures) Rules, 2014 regulates:

Every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of, and signed by-

(a) two directors duly authorized by the Board of Directors of the company for the purpose or the committee of the Board, if so authorized by the Board; and

(b) the secretary or any person authorized by the Board for the purpose:

Provided that, in companies wherein a Company Secretary is appointed under the provisions of the Act, he shall deemed to be authorized for the purpose of this rule:

Provided further that, if the composition of the Board permits of it, at least one of the aforesaid two directors shall be a person other than the managing or whole-time director:

Provided also that, in case of a One Person Company, every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of and signed by one director or a person authorized by the Board of Directors of the company for the purpose and the Company Secretary, or any other person authorized by the Board for the purpose.

Explanation.- For the purposes of this sub-rule, a director shall be deemed to have signed the share certificate if his signature is printed thereon as a facsimile signature by means of any machine, equipment or other mechanical means such as engraving in metal or lithography, or digitally signed, but not by means of a rubber stamp, provided that the director shall be personally responsible for permitting the affixation of his signature thus and the safe custody of any machine, equipment or other material used for the purpose

Appointment of Proxies

Section 175(5)(b) of the Companies Act, 1956 and Section 105(6) of the Companies Act, 2013 in regard to sign the documents on which Common Seal is so affixed states that:

The instrument appointing a proxy shall—

(a) be in writing; and

(b) be signed by the appointer or his attorney duly authorized in writing or, if the appointer is a body corporate, be under its seal or be signed by an officer or a attorney duly authorized by it.

Legal View on Affixing of Common Seal

The Common Seal is a symbol of identification of the company as well as authorization. The judgment of the Supreme Court in Panchanan Dhara & Others vs Monmatha Nath Maity (Decd.) thru L.RS. [2006] 131 Comp Cas 577 (SC) lays down that “Even in absence of a seal, the company may still be held to be liable having regard to the nature of a transaction and the authority of those who had executed it. If the act of the directors is not ultra vires or no public policy is involved, the parties acting thereupon cannot be left at large.” The Common Seal of the company is akin to the signature of a natural person.

In ICICI Bank Ltd. vs Maikaal Fibres Limited and Ors., 2006 (3) CHN 365, the High Court observed that “the document of guarantee was sealed with the common seal and on the authority of the Board of Directors signed and such use of such common seal conclusively binds the company under Sub-section (2) of Section 48. Result is that there the Court shall ordinarily hold in favour of its existence and denial of guarantee given by the Company is false.”

The decision made by Company Law Board in Sri A.M. Gopalan And Ors. vs Panchamy Pack (Kerala) Private Company 2007 138 Comp Cas 117 CLB, 2008 84 SCL 279 CLB was that “the share certificates purportedly held by the petitioners do not confirm to rule 6 of Companies (Issue of Share Certificates) Rules, 1960 and neither bear the signature of the authorised signatory of the Company nor is the common seal affixed. The share certificates do not disclose the transfer number thereon. Though the respondents categorically denied the transfer of shares in favour of the petitioners, the petitioners have not chosen to claim any relief in regard to title to the shares said to have been purchased by them.”

(Author can be reached at durgeshkabra@gmail.com)

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