Section 21 of the Companies Act 2013 – Authentication of documents, proceedings and contracts

Section 21 of The Companies Act, 2013 reads as –

Authentication of documents, proceedings and contracts.—

Save as otherwise provided in this Act,—

(a) a document or proceeding requiring authentication by a company; or

(b) contracts made by or on behalf of a company,

may be signed by any key managerial personnel or an officer of the company duly authorised by the Board in this behalf.

In the realm of corporate governance, the authentication of documents plays a crucial role in ensuring transparency, accountability, and legal compliance. Section 21 of the Companies Act, 2013, lays down clear guidelines regarding the authentication of documents, contracts, and proceedings on behalf of a company. Given that a company is an artificial legal entity, it relies on natural persons to act on its behalf. This blog explores the key aspects of document authentication under Section 21 of the Companies Act, 2013, its significance, and its comparison with the provisions of the erstwhile Companies Act, 1956.

The Need for Authentication of Documents

A company, being a juristic entity, does not possess physical existence and cannot act on its own. Therefore, for any document to be legally recognized, it must be authenticated by an authorized individual. Section 21 mandates that any document or proceeding requiring authentication on behalf of the company, as well as any contract executed by or on behalf of the company, must be signed by a key managerial personnel (KMP) or an officer or employee who has been duly authorized by the board of directors.

Role of Key Managerial Personnel in Authentication

Under the Companies Act, 2013, key managerial personnel (KMP) hold significant positions in the corporate hierarchy. Section 2(51) defines KMP as individuals who are responsible for managing the company at the highest level. These individuals are entrusted with the authority to authenticate documents on behalf of the company, ensuring that corporate decisions and contracts carry legal weight and credibility.

Definition and Scope of ‘Document’

The term ‘document’ is defined inclusively under Section 2(36) of the Companies Act, 2013. Any document that requires authentication falls within the scope of this definition and must be authenticated in compliance with the Act’s provisions. This ensures that legally significant documents maintain their enforceability and authenticity.

Who Can Authenticate Documents?

The responsibility for authenticating documents is not limited to KMP alone. Section 2(59) of the Act defines ‘officer’ broadly to include individuals who are authorized to act on behalf of the company. Any person falling under this definition and duly authorized by the board can authenticate documents, ensuring seamless execution of corporate functions.

The Board’s Authority in Document Authentication

One of the key aspects of Section 21 is that it mandates board authorization for authentication of documents and execution of contracts. The board typically empowers the managing director or chief executive officer with full authority, including the power to sub-delegate this responsibility to other individuals for specific functions. This practice ensures efficiency and avoids unnecessary delays in routine administrative duties.

A landmark ruling by the National Company Law Appellate Tribunal (NCLAT) in Priyaranjani Fibres Ltd v. D. Srinivasa Rao (2019 214 Comp. Case 259) reaffirmed the necessity of proper authorization. The tribunal held that a director selling shares held by him and others in the company without shareholder approval did not create a binding agreement for the company. This underscores the importance of adhering to statutory authorization requirements.

Comparison with Section 54 of the Companies Act, 1956

Section 21 of the Companies Act, 2013, significantly expands upon the provisions of Section 54 of the Companies Act, 1956. The key differences include:

• Expanded Scope: Section 21 covers both authentication of documents and the signing of contracts on behalf of the company, whereas Section 54 was restricted to document authentication.
• Authorized Personnel: The 1956 Act permitted a director, manager, secretary, or any other authorized person to authenticate documents. The 2013 Act specifically empowers KMP or an officer authorized by the board.
• Board Authorization Requirement: Unlike Section 54, Section 21 mandates board authorization for document authentication and contract execution, reinforcing corporate governance mechanisms.
• Common Seal: Under the 1956 Act, authentication did not necessarily require the use of a common seal. The 2013 Act makes the use of a common seal optional for companies, allowing greater flexibility.

Conclusion on Section 21 of Companies Act 2013

The authentication of documents is a fundamental aspect of corporate governance, ensuring that corporate actions and transactions remain legally valid and enforceable. Section 21 of the Companies Act, 2013, introduces a more structured and transparent framework for document authentication by clearly defining who can authenticate documents and emphasizing the necessity of board authorization. As corporate compliance evolves, adherence to these provisions is essential for maintaining legal integrity and operational efficiency within companies.

This article is presented by CA B K Goyal & Co LLP Chartered Accountants, your trusted partner in audit and compliance solutions. For expert assistance, feel free to contact us.