Common Seal – Relevance and importance

We all are aware that a Company being an artificial person does not have a physical presence. Therefore, it acts through its Board of Directors for carrying out its activities and entering into various agreements. But what is the authenticity that Board of Directors is acting on behalf of the Company. Here, comes the role of “Common Seal”. Through this article we have made an effort to understand Common Seal, what does Companies Act, 1956 says about it, how should it be, does all the agreements entered by Company require Common Seal, are there any other documents which require affixing Common Seal, when to affix it, how to affix it, etc.

What is Common Seal?

Board of Directors sign various Contracts/Agreements, on behalf of the Company, with the help of Common Seal. The Common Seal is the official signature of the Company. It is die or signet on which, the name of the Company is engraved. It is affixed to a document to prove its authenticity. A Company can have a Common Seal on its incorporation/registration with the Registrar of Companies.

The expression ‘Common Seal’ is not defined in the Companies Act, 1956. General practice is to adopt the Common Seal, at the first Board Meeting of the Company. It must be kept under the safe custody of authorized director/officer. The Articles of Association, may set out how and when the Common Seal has to be affixed.

Provisions of Companies Act, 1956 with respect to Common Seal:

The following sections of The Companies Act, 1956 explain about the significance and usage of Common Seal.

• Section 34 – Effect of Registration:

Registration of Memorandum of Association of the Company with Registrar of Companies, enables a Company to have its Common Seal.

• Section 147 – Publication of name by Company:

Section 147(1)(b) provides that every Company shall have its name engraven in legible characters on its seal. To engrave means inscribe, cut, or carve (a text or design), on a hard surface, to incise (letters, designs, etc.) on a hard surface, as of metal, stone, or the end grain of wood. It is desirable to have a common seal of a metallic substance.

• Section 48 – Execution of Deeds:

A Company may, by writing under its common seal, empower any person either generally or specifically as its attorney, to execute deeds on its behalf in any place either in or outside India. That is, the Power of Attorney or the Board Resolution, authorizing a person to execute the deeds on behalf of the Company, should necessarily bear Common Seal.

• Section 50 –Power for company to have official seal for use outside India:

To transact any business outside India, if authorised 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.

• Section 84(1)– Certificate of Shares:

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.

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”.

• Section 114: Issue and effect of share warrants to bearer.

A public company limited by shares, if so authorized by its articles, may, with the previous approval of the Central Government, with respect to any fully paid-up shares, issue under its common seal a warrant stating that the bearer of the warrant is entitled to the shares therein specified, and may provide, by coupons or otherwise, for the payment of the future dividends on the shares specified in the warrant.

• Section 176 (5)(b) – Proxies:

The instrument appointing a proxy shall-

1. be in writing; and

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

Documents on which common seal is mandatory:

• A certificate of shares or stock;
• A share warrant;
• A power of attorney for execution of deeds;
• A power of attorney authorising a person to use its official seal at a place outside India;
• An instrument of proxy executed by a body corporate.

Procedure to Affix Common Seal:

The mode of affixation of the common seal is generally provided in the articles of a company. Regulation 84(2) of Table A of Schedule I provides that 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 authorised 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 as aforesaid shall sign every instrument to which the seal of the company is so affixed in their presence. The articles of association of a company may, however, contain a different provision than that of regulation 84(2) of Table A.

Judicial view:

The Supreme Court in Panchanan Dhara & Others vs Monmatha Nath Maity (Decd.) thru L.RS. [2006] 131 Comp Cas 577 (SC) observed that, “it is a relic of the days when mediaeval barons, who could not read or write, used their rings to make a characteristic impress. 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.”

Conclusion:

It is not mandatory that all the documents and deeds/agreements should bear the Company’s Common Seal. The list of documents mentioned above should mandatorily bear Common Seal. Moreover, we need to consider the Articles of Association, if any, require the affixation to Common Seal, on any other documents.

Therefore unless expressly mentioned in the Company’s Articles of Association, any contract (other than the above listed documents) signed by a director/ person acting under authority of a proper resolution or duly executed Power of Attorney, under the Seal of the Company, shall be binding on the Company even if the Common Seal is not affixed on such Contract. Failure to affix the common seal cannot be a ground on which the company can escape its obligations.

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The above Article has been published in the April, 2012 Issue of Newsletter published by Hyderabad Branch of ICAI

Disclaimer: The entire contents of this document have been developed on the basis of relevant provisions and are purely the views of the author. Though the author has made utmost efforts to provide authentic information however, the author and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.