Section 21 of the Companies Act, 2013 has been enacted to provide for the authentication of documents, proceedings, and contracts of a company by persons authorized on that behalf. This section seeks to protect the company from any unwarranted and unauthorized issues of its documents, which in turn protects the company from any improper or wrongful transactions in relation to its business organizations.
This provision states that all official documents or contracts that need to be authenticated on behalf of the company must be signed by the designated Key Managerial Personnel (KMP) or any officer authorized by the Board. The purpose of this article is to analyze the applications and frameworks of Section 21 of the Companies Act, highlighting the measures that prevent interferences proffered by such sections as well as the consequences of contravening the law. In the contemporary business world, one cannot overlook the significance of these stipulations in corporate governance, due diligence, and regulatory compliance.
Purpose of Section 21
The core aim of Section 21 is to establish the authority and authenticity behind documents and contracts related to the company. This proves that:
All official documents, proceedings, and contracts are verifiable.
These documents can only be authenticated by persons with authorized power.
It excludes unauthorized personnel from executing or binding the company in legal and official matters.
Key Provisions of Section 21
Section 21 contains two main provisions, detailing who can sign or authenticate various documents and contracts on behalf of a company:
Clause (a): Documents or Proceedings Requiring Authentication by a Company
Any document or proceeding that needs to be authenticated by the company can be signed by a “key managerial personnel” (KMP) or an officer who has been duly authorized by the Board of Directors.
This provision implies that documents requiring the company’s validation, such as internal resolutions, financial statements, legal filings, etc., must be authenticated by designated individuals with Board approval.
Clause (b): Contracts Made by or on Behalf of a Company
Any contracts made either by the company or on behalf of it also fall under Section 21’s authentication requirements.
Similar to Clause (a), these contracts can be signed by any key managerial personnel or an officer authorized by the Board.
This provision ensures that only duly authorized representatives can sign contracts that bind the company, which reduces the risks of unauthorized obligations or liabilities.
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Authorized Signatories
Section 21 specifically identifies those persons in a company empowered to attest documents, proceedings, and contracts as follows:
Key Managerial Personnel (KMP): It includes the chief executive officer or equivalent, chief financial officer, company secretary, and such other officers of a company as may be declared KMPs under section of the Companies Act.
Board-approved officer: If there is no KMP, then the Board might give one of the officers of the company the mandate to perform the process.
Role of the Board of Directors
The Board of Directors is responsible for giving authority to individuals who can authenticate documents and execute contracts for the company. By assigning this authority, the Board maintains control and oversight, helping to prevent unauthorized or accidental signing of important documents.
Read more in detail about the powers of directors in a company.
Example Scenario
For instance, if it enters into a service contract and an employee not being a KMP is required to execute the agreement on his behalf that has not been particularly authorized by the Board, then this contract will be null and void. This could expose the company to legal issues and potentially void the contract, causing reputational and financial harm.
Find out what an Article of Association is.
In summary,
Section 21 of the Companies Act, 2013, ensures that documents and contracts made by or on behalf of a company are authentic, reliable, and legally enforceable. By limiting signing authority to KMPs and Board-authorized officers, the section creates a layer of accountability, protecting the company from unauthorized commitments and ensuring legal compliance.
Frequently asked questions on Section 21 of the Companies Act, 2013
What does Section 21 of the Companies Act, 2013 cover?
Section 21 specifies how a company should authenticate, or legally confirm, documents, proceedings, and contracts. It allows designated officers or authorized personnel to sign documents, ensuring the company’s actions are legally valid.
Who can sign documents on behalf of a company under Section 21?
Any key managerial personnel (KMP) or an officer authorized by the Board can sign documents. This ensures that only approved individuals handle important company matters, safeguarding against unauthorized actions.
Why is document authentication important in corporate governance?
Document authentication confirms the validity of official documents and transactions, building trust and transparency. It’s essential for maintaining legal accountability in company dealings.
Does Section 21 apply to all types of companies?
Yes, Section 21 applies to all companies incorporated under the Companies Act, 2013. This provision ensures uniform standards for document authentication across all registered companies.
How does Section 21 impact contract signing for a company?
Section 21 allows the Board to authorize individuals to sign contracts on the company’s behalf. This delegated authority prevents misunderstandings and ensures contracts are legally binding and enforceable.
