Companies Act Section 22

Companies Act Section 22: Execution of Bills of Exchange, etc.

Section 22 of the Companies Act delineates the procedures and regulations governing the execution of financial instruments such as bills of exchange, hundis, and promissory notes on behalf of a company. 

This section ensures clarity regarding the authority under which such instruments can be executed, and it outlines the implications of such executions. 

Below is a detailed explanation of the provisions contained in this section.

1. Execution of Financial Instruments

a. General Rule

According to the general rule outlined in this section, a financial instrument such as a bill of exchange, hundi, or promissory note is considered to have been made, accepted, drawn, or endorsed on behalf of a company when it is executed in the name of the company or on behalf of the company by any individual acting under the authority of the company. 

This authority may manifest in two forms:

Express Authority: 

This refers to situations where the authority is clearly stated, either in written form or verbally. 

It is unambiguous and leaves no room for interpretation regarding who is authorized to act on behalf of the company.

Implied Authority: 

In some instances, the authority may not be explicitly stated but can be inferred from the actions or circumstances surrounding the execution of the instrument. 

For example, if an individual has consistently acted on behalf of the company in financial matters, such actions may be construed as granting them the authority to execute financial instruments, even if this authority has not been formally documented.

2. Authorization of Attorneys

a. Authority by Common Seal

A company has the option to empower an individual as its attorney to execute deeds on its behalf. The nature of this authorization can vary:

General Authorization: 

This type of authorization is broad and covers a wide range of matters, allowing the attorney to act on behalf of the company in various capacities.

Specific Authorization: 

In contrast, this authorization is limited to particular matters, meaning that the attorney's power to act is confined to specific transactions or decisions.

b. Location of Authority

The authorization of an attorney can pertain to actions taken either within India or outside India, allowing for flexibility in business operations, especially for companies engaged in international transactions.

c. Common Seal Requirement

If the company possesses a common seal, any authorization must be executed under this seal. 

The common seal serves as a formal mark of the company and provides an additional layer of authenticity to the documents executed.

d. Without Common Seal

If the company does not have a common seal, the process for authorization must follow specific protocols:

Two Directors: 

In the absence of a common seal, the authorization must be signed by two directors of the company. 

This requirement ensures that there is a collective agreement from the company's leadership regarding the authorization.

A Director and the Company Secretary: 

In cases where a Company Secretary has been appointed, the authorization may be executed by a director alongside the Company Secretary. 

This provision recognizes the role of the Company Secretary in corporate governance and adds another layer of oversight to the authorization process.

3. Binding Nature of Authorized Deeds

a. Effect of Authorization

The deeds signed by an attorney, who has been duly authorized as described in this section and executed under the attorney's seal, will bind the company as if the company had executed the deed directly. 

This means that any actions taken by the attorney under the given authorization carry the same legal weight and implications as if the company itself had engaged in those actions. 

This binding nature of authorized deeds ensures that third parties can rely on the validity of the transactions carried out by the attorney, thus facilitating smoother business operations and legal compliance. 

It also underscores the importance of properly authorizing individuals to act on behalf of the company, as such actions will have direct legal consequences for the company.