Board authorization for signing documents digitally is it re

Board authorization for signing documents digitally

is it required & to be submitted to regulatory authorities

Prof. R Balakrishnan CS

1. Introduction

Many a times a question is asked by the directors and even by some of our own professional colleagues i.e. as to why do we require authority from the Board of Directors to digitally sign and & file the electronic form / documents under Ministry of Corporate Affairs when Managing Director or the Executive Director / Whole time Director himself puts his digital signature on the electronic form / documents.

Further it is also argued does the Managing Director / Executive Director / Whole time Director by virtue of his office not carry a right to sign, authenticate and file any form / documents of the Company in which they are holding the directorship, without having any specific Board of Directors’ resolution in his favour authorizing him to digitally sign and submit the documents / forms.  Our own professional colleagues in secretarial filed,  many a times argue out that they face problems particularly in holding Board of Directors” meeting or passing circular resolution since in many companies most of the Directors are sitting at different locations. 

2. Further arguments on this 

It is also further argued out that it is the duty of all the directors to see that legal compliance including the electronic filling of documents with Ministry of Company Affairs are met by the company from time to time within prescribed time and if the company is in default then the concerned people like Registrar Of Companies issues the notice to all the directors. Once this happens then the directors as such have an inherent powers/authority to sign the documents for filling with Ministry of Corporate Affairs. In view of this position, many feel at times, in their opinion, there is no need to pass resolution authorizing the director for signing the forms / documents with Ministry of Corporate Affairs.

Let us examine the issue keeping the above background and see, what is the provision of the law and what needs to be done / can be done.

3. The Regulatory framework 

On this subject, if one examines the provision of the law as to what is required and what is the framework, the following could be summarized.  

3.1 Under Companies (Central Government’s) General Rules and Forms of

       1956

The following is the relevant provision under the general rules and forms which makes it mandatory for the authentication for the authorized persons to sign the documents

·        The Companies (Central Government’s) General Rules and Forms of 1956 in its Rule 3 (4)   provide that the electronic forms shall be authenticated by authorized signatories using digital signatures. The provision pursuant to Rule 3(4) is a mandatory one.

3.2 Term Authorized Signatory

Though the term “authorized signatory” has not been defined under the Rules under the Companies Act, 1956, by and large, by convention and also in popular sense, the term “authorized signatory” would mean the individual / individuals who is/ are duly authorized to sign the electronic forms by the Board of Directors.

3.2 Provision under the Companies Act 1956

Under the provisions of the Indian Companies Act 1956, a company being an artificial legal personality, it has to act through its officers and authorized persons. The delegation of the authority to specified individuals cannot be presumed, but, has to be borne on the records of that artificial legal personality which acts through the authorized person. One can not presume as a rule that the managerial personnel of the company would always be deemed to have the authority to sign the electronic forms for and on behalf of the company.

To illustrate this better a Whole-time Director or Executive Director may be charged with all the responsibility to handle matters relating only to production and nothing more. Similarly it is also possible that a Managing Director of a company may be delegated substantial powers of management to run the day to day affairs of the company, but, such powers may or may not include the authority to sign and submit the electronic forms to the Ministry of Corporate Affairs.

3.3 Provision in the electronic form

If one look at the electronic forms introduced by the Ministry of Corporate Affairs, one could note that the electronic forms provide for a declaration and also for the reference to the record under which the specified authority is delegated to the authorized signatory by the Board of Directors. Perhaps, the intention of the Ministry of Corporate Affairs for such provision is to ensure the proper clarity, in the electronic mode of filing while filing the online filing of forms, such provision is made in their formats so as to make the proper and complete disclosure while

filing the information by the company. .

3.4. Disclosure of complete and correct information

If one talks about, achieving excellence in corporate governance, then there has to be proper, complete, correct and up-to-date disclosures are primarily required. Benefit of limited liability is accorded in the Companies Act of 1956 on the presumption of proper disclosures therein. In the days of rapid globalization, it is more than imperative that the electronic forms contain proper and correct disclosures and are user-friendly in which contexts the additional features of the confirmation about the contents therein being correct and complete.

The e form contains a column “declaration” and one has to enter date of board resolution authorizing the signatory to sing and submit the e-form.

Needless to mention that the e-form could be signed by a managing director or director or manager or company secretary of the company duly authorized by the board of directors

3.5 Certification of electronic forms by professional

Further the electronic forms also provides for additional certification by a professional which also in the opinion of the author,   add more care and seriousness in filling-in the particulars – disclosure of information is filled therein are confirmed by a professional who works independently and makes the confirmation as to the contents of the form, details along with required authority

Currently the certification of e-form could be done by a Chartered Accountant or Cost Accountant or a Company Secretary (in whole time practice) by digitally signing the form.

3.6 Electronic forms are more authentic and reliable

If one seriously considers, it can be realized that the electronic forms are more authentic, credible and reliable than the earlier physical company forms which used to be filed with the Register of Companies who in fact followed varied procedures at different locations.

4. Practice in UK for filing the forms

The practice followed in UK pursuant to the provision of the UK regulations, the form itself specifies, who could sign the forms. To illustrate more on this, one may like to note the following:-

·        Form 169(1B) -  Return by a public company purchasing its own shares for holding in treasury – this form could be signed by a director, secretary, administrator, administrative receiver, receiver manager or receiver only and not by others.

·        Form 353a – Notice of place for inspection of s register of members which is kept in a non-legible form, or of any change in that place – this form could be signed only by a director or secretary of the company.

·        Form 652a – Application for striking off – this form can only be signed by director / directors of the company.

However, in India, the Ministry of Corporate Affairs have made the flexible law that an authorized person can sign and submit the form rather than providing specific executives could only sign the form and hence, it is absolutely necessary to state the authorization reference in the electronic form in India.

5. The practical solution where directors are situated in different locations

Whenever the board appoints the person, an agreement or contract is entered spelling out the power – perhaps at this point of time, authorizing the directors to sign and submit the documents to Ministry of Corporate Affairs could be one of the item which can be included in the terms of contract / agreement and there is no separate resolution would be required if this is done at one go so that the required board resolution is in place and the signing, filing etc. could be done without any problem. This solution would be great help for those who argue that they are facing problem in getting the board meeting organized or even getting the circular resolution passed etc.

If the board would like to authorize more individuals or change the authorized signatories, the same could be done in one of the board meeting whenever the board meets subsequently.  In any case, the circulation resolution would come in handy whenever the board is unable to meet and there is an exigency / emergency situation to get the resolution passed – especially in today’s technology driven world – the passing of resolution could easily be done through e-mails and even the digital signature is obtained.

6. Conclusion

In the above context, the managing director, other executive director / whole time   director would not find it unjustified, unnecessary or avoidable to get the specific authority to sign the electronic forms through one specific Board- resolution. Apart from having good governance practices to get the authorization done, yet the law specifies as a mandatory requirement for such authentication as per “The Companies (Central Government’s) General Rules and Forms of 1956” as mentioned in the earlier Para 3.1

Good information, indeed. But if an employee other than the director is made an authorized signatory, what is the law on this.

Thanks

Ruchira