Saturday 17 October 2015

IMMOVABLE PROPERTIES HOLDING BY COMPANIES



As any individual could hold, enjoy and dispose of property in his or her name, the same way a company also could deal with the property in its name, though it is an inanimate body. A Company is an artificial person created under the Companies Act 1956 with the right of perpetual succession and use of its unique and individual common seal. Mainly, there are two types of companies’ viz., Private Limited Company and Public Limited Company. A private limited company can be formed by two persons with a restriction of maximum membership to 50 persons and a public limited company can be formed with minimum number of members at seven. There are no restrictions on the maximum number of members. A company is a legal person different from its members/shareholders and it possesses the right to enter into valid contracts for sale, purchase, to hold, to lease out or take on lease and to mortgage immovable properties in its own name.

Under the Companies Act, 1956 registration of both the Private Limited Company and the Public Limited Company is compulsory for which purpose the formalities enumerated in the Act are to be complied with. The Registrar of Joint Stock Companies will issue a certificate of incorporation and the certificate of commencement of business on being satisfied of the compliance of the formalities. However, the certificate of commencement of business is not required to form Private Limited Companies.


The Memorandum and Articles of Association are important documents of a company. The memorandum of association refers to the name of the company, objectives of the company, liabilities of its members, capital of the company and the subscription clause and articles of association deals with the powers, duties, liabilities of the Board of Directors, share holders/members and rules and regulations governing the management of the company.


As Companies are inanimate bodies, all the official documents belonging to or relating to the company are executed by the authorized signatory and shall invariably have the common seal of the company affixed on such documents to authenticate the same as the documents of the company.


Resolution passed in the Meetings of the Board of Directors or by an authorized Committee of the Board of directors of a company authorizes any of its Officers to represent the company and act on its behalf only to the extent Authorities are delegated in the resolution. Such persons, however, are required to affix the common seal of the company to supplement their signature/s and to authenticate the company documents.

The Articles of Association specifically deals with powers of the Directors regarding sale, purchase and mortgage of immovable property. A Company could appoint a Power of Attorney holder empowering that person to execute deeds on behalf of the company and such a document should bear the company's common seal. If empowered the Directors, Managing Agents, Secretary, Treasurer, Manager or any other authorized official to authenticate the documents on behalf of the company.
Apart from the Register of Charges maintained by the Registrar, a company is also duty bound to maintain a separate Register of Charges created on its properties. This Register of charges is open for inspection by the members of the company and its creditors.


The Companies Act, 1956 restricts the powers of the Board of Directors to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking, remit or give time for repayment of any dues by a director, invest, otherwise than in trust securities, borrow money in excess of the aggregate of the paid up capital of the company, contribute to charitable and other funds not directly relating to the business of the company as are enumerated in clauses (a) to (e) of Section 293(1) and the consent of the General Body of the Company is mandatory to sell, lease or otherwise dispose of the whole or substantially the whole undertaking of the company. Likewise, the consent of the general body of the company is necessary to borrow in excess of the aggregate of the paid up capital and free reserves. The only exception provided is for the temporary loans taken by the company from its Bankers in the ordinary course of its business.


According to the Transfer of Property Act, 1882 a living person includes a company. However, it is necessary that the person who deals with a company should know the contents of the Memorandum of Association and the Articles of Association to ascertain whether the transaction which is being entered into is as per the objectives and the powers and rules regarding governance of the company and are not ultra virus of the powers conferred on a company.


While transacting with a company it is necessary to ascertain at the first instance that the property is not whole or substantially whole part of the undertaking/company. If the transactions involve whole or substantially whole part of the undertaking, it is necessary to ascertain whether the consent of the general body is obtained. However, where the ordinary business of the company is selling/leasing of properties, this restriction will not apply. Similar caution needs to be exercised when the company borrows or mortgages its properties in excess of its paid up capital and free reserves. 


The Foreign companies, who enter into any kind of transaction in India, are governed by Foreign Exchange Management Act, 1999[FEMA]. According to the FEMA, a company registered outside India, which has established a branch Office or other place of business in India for carrying on any activity in accordance with Foreign Exchange Management Regulations 2000 may acquire any immovable property in India which is necessary for or incidental to carrying on such activity after complying with the requirement of the Laws, rules, regulations and directions as are applicable.[Regulation No.5] Such company has to file form III with RBI within 90 days of acquiring such property.

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