Authorization to the person, other than Employee of the Company, to authenticate Documents, Proceedings and Contracts, on behalf of the Company:

The designation of an Authorized Signatory within a corporate framework stands as a cornerstone in the edifice of corporate governance. Occupying a pivotal position, the Authorized Signatory acts as the emissary of both personal and corporate interests, wielding the power to affix signatures that bear the weight of the entity. It is imperative, therefore, for an organization to establish a comprehensive Authority Policy, delineating a precise framework of regulations, terms, and stipulations. This policy serves as the guiding compass, delineating the parameters within which designated personnel from various echelons possess the prerogative to scrutinize, endorse, validate, or enact documents on behalf of the company. A discerning inquiry arises as to the delineation of individuals qualified to hold the mantle of Authorized Signatory, extending beyond the realms of Key Managerial Personnel (KMP), Directors, and promoters of the parent company, to encompass affiliated entities under the umbrella of the Companies Act, 2013. Thus, a meticulous examination ensues to discern the purview of potential candidates who can aptly shoulder the responsibilities incumbent upon an Authorized Signatory, fortifying the operational and regulatory fabric of corporate governance.

II ANALYSIS:

2.1 Section 21 of the Companies Act, 2013 reads as below:

• Section 21: Authentication of documents, proceedings and contracts:

Save as otherwise provided in this Act:

1. a document or proceeding requiring authentication by a company; or
2. contracts made by or on behalf of a company,

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

a. As per above mentioned section, any document or proceedings requiring authentication by the Company, may be signed by any key managerial personnel or an officer or an employee which is duly authorised in this behalf by the Board of Directors of the Company.

b. Here the legislature was well aware of the use of the terms 'may be' instead of 'shall be' in this context. If the intent of the legislature would have been to ensure that the documents, proceeding or contract should have been signed by the key managerial personnel or an officer or employee of the Company only, then they would have used the term 'shall be' instead of 'may be' and would not have provided space for the confusion.

By applying this principal, it can be understood that any document or proceedings or contracts of the Company can be signed by any other person as well, duly authorised by the Board and need not be an employee or officer or KMP of the Company.

2.2 Analysis of Definition of Officer and Officer in Default:

2.2.1 Section 2(59): “Officer” includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the Directors is or are accustomed to act;

2.2.2 Section 2(60): “Officer who is in default” for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:-

1. whole-time director;
2. key managerial personnel;
3. …………………….
4. any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;

2.2.3 Definition of Officer, as per Page No. 180 of Taxmann’s Company Law Volume-1

1. According to Stroud’s judicial dictionary, “Officer” means a person under a contract of service; a servant of special statute holding an appointment to an office which carries with an authority to give directions to other servants.
2. In Letter No. 8/17/2(30)/ 76-CL-V dated, 23rd August,1976 and No. 8/65/2/30/63-PR dated 7th October, 1963, issued under companies’ act, 1956, MCA has clarified that term “Officer” includes an employee, if he has been vested with the powers of financial control or one or more field of operations of the Company and therefore, such an employee should be deemed to be falling under the category of the term “Officer”.
3. After reading the content of both the section 2(59) and 2(60) above, we can state that definition of “Officer” is an inclusive definition and it is a wider in terms.  It includes whole time directors, KMPs and any other person upon whose instruction Board of Director is or are accustomed to act and all such persons who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility or authority. However, there should be contract of service.
4. Though definition of an “Officer” is not clear about the person, who can be the “Officer” other than KMPs, however, Definition of “Officers in Defaults” penalises any person, failing to take corrective action after being authorised by the board with any responsibility. Considering the intent of law makers, we can state that persons other than KMPs, who are authorised by Board can also be called as “Officer” of the Company.

2.2.4 Analysis of Section 203 of the Act:

1. The third proviso to Section 203(3) of the Act, states that the Company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other Company and such appointment or employment is made or approved by a resolution passed at a meeting of the board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.
2. Section 2(53) of the Act, defines the term manager to mean an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of the Company, and includes a director or any other person occupying the position of a manager, by whatever name called, 'whether under a contract of service or not'.
3. The term 'whole-time' is analogous to 'full-time' and this term has been defined in several dictionaries. The Webster's Dictionary gives the meaning of the words 'whole-time' as ‘full time’.
4. The phrase "whole-time" was considered by the Bombay High Court in the context of whole-time director and it has been held that “the expression ‘whole-time director’ must refer to a director who spends his whole-time in the management of the Company” [Ramaben A. Thanawala v. Jyoti Ltd]
5. Further, Section 203(3) of the Act uses the term 'appoint' as well as 'employ'. Therefore, it may be concluded that, companies have been given an option under the Act to appoint or employ KMPs. The definition of manager under the Act, provides that a manager can be appointed under a contract of service or otherwise.
6. This view has also been adopted by the Gujarat High Court, while interpreting sub-section (1) of section 383A (1) of Companies Act, 1956 in State of Gujarat v Coromandal Investment Pvt. Ltd. (1991) [as it stood before the 2000 amendment]. It says words “shall have” cannot be read as “shall be in the employment” therefore, the Company secretary need not be in the employment of the Company but may be engaged on a contractual basis.

The reference of the above case law under Companies Act, 1956 can be held valid under the extant Companies Act, 2013 by applying the principle of Pari Materia, which means same matter or subject. Accordingly, similar language in statutes with common purpose is to be interpreted in the same way.

It was held in Rajapalyam Mills Ltd. v. Commissioner of Income-Tax, Madras AIR 1979 SC 117:1978 (4) SCC 322: 1979 (1) SCR 1138 that where the provisions of the two statutes, one succeeding the other, was found to be identical, the interpretation and applicability of earlier provision would govern the subsequent provision as well.

From the above aforementioned interpretation of Section 203 of the Act and the case laws discussed, it may be rightly concluded that KMPs under Section 203 of the Act may be appointed as such on a contractual basis and need not be in the employment of the Company in question. However, he should be appointed by the Board of Directors of the Company.

Considering above analysis, if KMP can be appointed on contractual basis as per section 203, then by applying the same principal, it may be right to say that the “Officer” appointed by the board of directors, shall also be eligible to be appointed on contractual basis and not necessary to be employee of the Company.

3. CONCLUSION:

• After analyzing all the above-mentioned provisions, we can conclude that:
• Since, B is private limited company and its Paid-up share capital is less than as prescribed under Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, appointment of KMPs is not mandatory in the B. However, as per section 203 of the Act, KMPs can be appointed on a contractual basis and need not be in the employment of the Company. However, he should be appointed by the Board of Directors of the Company and shall enter in to the contract, if circumstances permit.
• Board of Directors of the B can appoint the key employee of the A Company, provided the A Company also by-passing board resolution authorised such employee to act as an Authorised signatory of the B.
• There should be a contract between B and the key employee of the A Company, which appoint him and defines his roles and responsibilities.

[Disclaimer: The content of this article is only to provide knowledge and reference on the subject matter and should not be relied upon as it is without seeking advisory from professionals on the specific case and matter.]