• Board resolution to sell a property of a private ltd (Builder) is signed only by MD

I have got a board resolution from my builder authorizing one person to sign the sale deed in front of the registrar. The company has two directors one Managing director and another director who is the wife of the managing director.
In the minutes of meeting/resolution copy issued to me only the managing director has signed. Is this valid or should I demand the other director also to sign
Asked 8 months ago in Property Law
Religion: Christian

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7 Answers

Dear Client,

If such action is permitted or not can be only determined after going through the MOA of the company. If the MOA doesn't permit such an action then it is ultra vires and void.

Thank you

Anik Miu
Advocate, Bangalore
5011 Answers
53 Consultations

4.9 on 5.0

If the minutes state that the resolution has been passed by the board of directors, then you may obtain the copy of the resolution.

If in case the authorised signatory states that he has signed on behalf of the company, then the signature of the other director may not be necessary.

 

T Kalaiselvan
Advocate, Vellore
78546 Answers
1554 Consultations

5.0 on 5.0

You should insist on other director signing the minutes of meeting 

Ajay Sethi
Advocate, Mumbai
88386 Answers
6228 Consultations

5.0 on 5.0

It depends on articles of association of the company whether he is solely authorised to sign

Prashant Nayak
Advocate, Mumbai
27587 Answers
88 Consultations

4.4 on 5.0

Signing authority is governed by the company's articles of association. As an outsider, you have to legally presume that the company has complied with its legal requirements and not look beyond what is apparent.

Swaminathan Neelakantan
Advocate, Coimbatore
1994 Answers
20 Consultations

4.9 on 5.0

Dear Sir,

Since there are only two directors and MD has signed the resolution so it is valid. 

Kishan Dutt Kalaskar
Advocate, Bangalore
6055 Answers
385 Consultations

4.8 on 5.0

These cases are very common in various Courts of India and Supreme Court of India. I can understand your concern in this regard. Please understand that a director has to run the affairs of the company in the best interest of the company. Equity prohibits a director from making any personal gains by his management, directly or indirectly. You know that directors are required to act on behalf of a company in a fiduciary capacity and their acts and deeds have to be exercised for the sole benefit of the company. Any sale of company property by a director who goes beyond his fiduciary capacity and sells company property to make personal gains at the cost of the company, is an act of oppression and the same could be challenged. Further in order to sell a company property there has to be a valid Board Resolution passed by the Board of Directors authorizing the sale of company property, giving justifiable reasons for the sale in the interest of the Company. In the absence of a valid Board Resolution, the sale transacted by some directors is void and is of no consequence.

To my mind it is important for directors to be acquainted with their rights and powers. It is the right of every director to participate in the meeting of the Board of Directors. Before passing any Resolution, the Board must call for a meeting and notice of such meeting has to be duly served on all the directors of the Company. It is relevant to note that Section 286 of the Companies Act, 1956, mandates that, "notice of every meeting of the Board of Directors of a company shall be given in writing to every director". Hence it is imperative on the part of the managing director to give notice of the meeting of the Board of Directors before passing any resolution. Without there being a valid notice of the meeting, duly served on all the directors, the validity of the resolution passed by the Board becomes voidable at the option of the aggrieved directors/shareholders.

Time and again Courts have held that 'Notice of Meeting' has to be given to all the directors. The Hon'ble Supreme Court in the case of Parmeshwari Prasad Gupta v. Union of India (1973) has categorically held that "notice to all the directors of a meeting of the board of directors is essential for the validity of any resolution passed at the meeting. Where no notice is given to one of the directors of the company, the resolution passed at the meeting of the board of directors is invalid". Further the said principle has been reiterated by several Courts and the Division bench of the Hon'ble High Court of Kerala in the case of Dr. T.M. Paul Vs City Hospital [1999], has gone a step ahead and held that non compliance of Section 286 amounts to fraud. "Section 286 requires notice of every meeting of Board of Directors of company to be given in writing to every Director - holding meeting and passing resolutions invalid for want of notice - adoption of resolutions without including them in agenda amounted to fraud".

 

Section 293 states that, "the Board of Directors shall not, except in a general meeting, sell, lease or otherwise dispose of the whole or substantially the whole undertaking of the company". Sec 293 mandates that for sale of company undertaking, the prior consent in a general body meeting is mandatory and passing of an ordinary resolution in the general meeting is necessary. Although the word "undertaking" as laid down in this section does not necessarily include company property, the test to be applied would be to see whether the capital asset proposed to be disposed of constitutes substantially the bulk of the asset of the company, so as to constitute the integral part of the undertaking of the company. Hence the Board of Directors do not have authority to pass a resolution for sale of company property without taking the consent of the general body as mandated under section 293(1)(a), for which it will have to be shown that the company property that has been sold falls within the meaning of the term "undertaking" as mentioned above.

Besides challenging the sale of company property on the grounds of insufficient notice of meeting and invalid board resolution, the other important aspect would be regarding the justifiable reasons for the sale of company property. As I mentioned earlier, company property can be sold only in the interest of the company and for the benefit of the company. The need or benefit derived by the company has to be clearly stated before authorizing sale of company property. The sale of company property must be in the paramount interest of the company. In the absence of there being a valid reason for sale of company property, the sale transaction is liable to be set aside.

The Hon'ble Company Law Board, Chennai in the case of P. Narayanasamy and Ors. Vs. Neela Spinning Mills P. Ltd. and Ors [2010], while dealing with a mortgage that was unnecessarily created by the Board has held that, "the need or the benefit derived by the company from and out of such borrowing is not established and lacks bona fides on the part of the respondents. The need for sale, adequacy of consideration or the valid authority for effecting sale of the properties is not borne out by any material. The benefit derived by the company has not been established by the respondents. The sale transactions which have come to the knowledge of the petitioners only after filing of the company petition, must be set aside, considering the paramount interest of the company".

Now, in the event of there being illegality in the sale of company property, the remedy available to the Directors/Share holders whose interest has been affected due to the oppressive act of the other directors in unilaterally selling the company property, is twofold, they can challenge the sale transaction by filing a comprehensive suit for declaration before the Civil Court to declare that the board resolution and the sale are illegal and seek for setting aside the illegal sale deed. If the Board Resolution allows one person to sign the sale deed in front of registrar, you can go ahead. However, detailed discussion is required in such cases with complete documents. Aggrieved parties could also approach the Company Law Board under the provisions of Section 397, 398 read with 402 (f) of Companies Act on the grounds of mismanagement and oppression by the board of directors, provided the said application is made within three months from the date of sale.

 

You may contact my secretary to connect with me for clarification.

 

Gopal Verma

Advocate on Record

Supreme Court of India

Shri Gopal Verma
Advocate, New Delhi
316 Answers
5 Consultations

4.0 on 5.0

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