Signing requirements of share certificates

1. After a long period of almost two years of enforcing the Companies (Amendment) Act, 2015 and barrage of amendments brought in the Companies(Share Capital and Debentures Rules), 2014, in order to align with policy initiatives or as a corrective measure in response to practical difficulties faced by corporates, the Ministry of Corporate Affairs (MCA) has once again revisited the said rules. However, this time the changes brought in through the Companies (Share Capital and Debentures) Amendment Rules, 20181 (‘Amended Rules’) are to simplify the signing requirements of physical share certificates. Further, the said simplification which is mainly due to the omission of the requirement of mandatorily having a common seal, brought in by the Companies (Amendment) Act, 2015, has also resulted into amending Schedule I of the Companies Act, 2013 (‘Act’) vide MCA’s Notification2 dated April 11, 2018.

This article analyses the changes brought in through the amended Rules and the alteration in Schedule I of the Act.

2. Provisions of law

2.1 Requirements as per Rule 5 (2) of the Companies (Share Capital and Debentures Rules), 2014:

“(3) Every share certificate shall be issued under the seal, if any, of the company, which shall be affixed in the presence of, and signed by-

(a) two directors duly authorized by the Board of Directors of the company for the purpose or the committee of the Board, if so authorized by the Board; and
(b) the secretary or any person authorised by the Board for the purpose:
Provided that in case a company does not have a common seal, the share certificate shall be signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary:

Provided further that, if the composition of the Board permits of it, at least one of the aforesaid two directors shall be a person other than a managing director or a whole time director:

Provided also that, in case of a One Person Company, every share certificate shall be issued under the seal, if any, of the company, which shall be affixed in the presence of and signed by one director or a person authorised by the Board of Directors of the company for the purpose and the Company Secretary, or any other person authorised by the Board for the purpose, and in case the One Person Company does not have a common seal, the share certificate shall be signed by the persons in the presence of whom the seal is required to be affixed in this proviso.

Explanation- For the purposes of this sub-rule, a director shall be deemed to have signed the share certificate if his signature is printed thereon as a facsimile signature by means of any machine, equipment or other mechanical means such as engraving in metal or lithography, or digitally signed, but not by means of a rubber stamp, provided that the director shall be personally responsible for permitting the affixation of his signature thus and the safe custody of any machine, equipment or other material used for the purpose.”

2.2 Requirements as per the Amended Rules:

“(3) Every certificate shall specify the shares to which it relates and the amount paid-up thereon and shall be signed by two directors or by a director and the Company Secretary, wherever the company has appointed Company Secretary:

Provided that in case the company has a common seal it shall be affixed in the presence of persons required to sign the certificate.

Explanations. – For the purposes of this sub-rule, it is hereby clarified that,-

(a) in case of an One Person Company, it shall be sufficient if the certificate is signed by a director and the company secretary or any other person authorised by the Board for the purpose.
(b) a director shall be deemed to have signed the share certificate if his signature is printed thereon as facsimile signature by means of any machine, equipment or other mechanical means such as engraving in metal or lithography or digitally signed, but not by means of rubber stamp, provided that the director shall be personally responsible for permitting the affixation of his signature thus and the safe custody of any machine, equipment or other material used for the purpose.”
3. Changes brought in through the Amended Rules

Pursuant to the enforcement of the Companies (Amendment) Act, 2015, the use of common seal has been made optional and, consequently, several provisions of the Companies Act, 2013 and the Rules dealing with common seal have been amended to incorporate the above requirement. However, even after aligning the changes with the requirements of the Companies (Amendment) Act, 2015, the provisions dealing with the requirement of signing the physical share certificates were not clear. In this regard, the Amended Rules provide the following simple requirements:

(a) The physical share certificates shall be signed by two directors or by a director and the Company Secretary, wherever the company has appointed Company Secretary;
(b) In case the company has a common seal, it shall be affixed in the presence of persons required to sign the certificate as mentioned in point a) above.
(c) In case of an OPC, the certificate shall be signed by a director and the Company Secretary or any other person authorised by the Board for the purpose.
The following requirements have been done away with:

(a) The separate authorisation and signing requirements in case of companies having common seal have been done away with.
(b) Where a company does not have a common seal, the requirement of at least one of the two directors, signing the certificate, is no more required from a person other than a managing director or a whole time director.
3.1 Changes brought in Schedule I of the Act

(a) Alteration in Table F (AoA of a company limited by shares):
In Para 2 (ii) of Table F, the requirement of issuing share certificate under the common seal has been substituted by the following:
“Every certificate shall specify the shares to which it relates to and the amount paid-up thereon and shall be signed by two directors or by a director and the company secretary, wherever the company has appointed a company secretary: Provided that in case the company has a common seal it shall be affixed in the presence of the persons required to sign the certificate.
Explanations.- For the purposes of this item, it is hereby clarified that in case of an One Person Company, it shall be sufficient if the certificate is signed by a director and the company secretary, wherever the company has appointed a company secretary, or any other person authorised by the Board for the purpose.”
The said alteration is in order to align the signing requirements as provide in the Amended Rules.
Further, para 2 (79), after item (ii), the following Explanation has been inserted:
“Explanations.- : For the purposes of this sub-paragraph it is hereby clarified that on and from the commencement of the Companies (Amendment) Act, 2015 (21 of 2015), i.e. with effect from the 29th May, 2015, company may not be required to have the seal by virtue of registration under the Act and if a company does not have the seal, the provisions of this sub-paragraph shall not be applicable.”
The same has been inserted to align the provisions of Table F with the requirements of Companies (Amendment) Act, 2015
(b) Alteration in Table H (AoA of a company limited by guarantee and not having share capital):
In Para 30, after item (ii) but before the ‘Note’, the following Explanation has been inserted:
“Explanations.- For the purposes of this sub-paragraph it is hereby clarified that on and from the commencement of the Companies (Amendment) Act, 2015 (21 of 2015), i.e., with effect from the 29th May, 2015, company may not be required to have the seal by virtue of registration under the Act and if a company does not have the seal, the provisions of this sub-paragraph shall not be applicable.”
This change is similar to the second change inserted in Table F and the same has been inserted to align the provisions of this Table with the requirements of the Companies (Amendment) Act, 2015.

4. Conclusion

Both, the Amended Rules and the alteration in Schedule I of the Act, are mainly clarificatory in nature and are the result of the changes brought in the requirement of having a common seal in the company vide Companies (Amendment) Act, 2015 almost two years before.

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