The Kotla Venkataswamy v/s Chinta Ramamurthy Case
Facts of the case
The plaintiff, Kotla Venkataswamy, held a mortgage bond that had been
executed by a company known as the South Indian Agricultural and Industrial
Improvement Co., Ltd.
This mortgage bond had been signed by two individuals representing the
company: the Working Director and the Secretary of the company. These
individuals, identified as defendants 1 and 2, were the signatories on the
mortgage bond.
Kotla Venkataswamy, the plaintiff, asserted that the company had a consistent
history of making payments toward both the principal debt and the associated
interest to her.
Subsequently, the South Indian Agricultural and Industrial Improvement Co.,
Ltd., decided to undergo voluntary liquidation as part of its business operations.
During the liquidation process, the property that had been mortgaged was put up
for sale.
As a result, Kotla Venkataswamy initiated legal action by filing a lawsuit in a
lower court. Her objective was to enforce her rights regarding the mortgaged
property.
Issues Of The Case
Q. Whether the mortgage bond, which was signed by the Working Director and
the Secretary of the company (defendants 1 and 2), duly executed in accordance
with the legal requirements and the company's governing documents?
Q .Whether the plaintiff, Kotla Venkataswamy, has a legal remedy for enforcing
her rights related to the mortgage deed. This involves an assessment of whether
the plaintiff has a legitimate claim to the property or any other rights based on
the mortgage agreement.
Judgement
The judgment in the case of Kotla Venkataswamy vs. Chinta Ramamurthy,
delivered by Justice Curgenven, can be summarized as follows:
Both lower courts ruled that the mortgage bond was not validly executed,
making the company not liable. The judgment emphasized the importance of the
valid execution of documents by a company. Article 15 of the Company's
Articles of Association stipulated that certain documents, including deeds, must
be signed by the Managing Director, Secretary, and Working Director to be
considered valid.
In this case, the mortgage bond was signed only by the Secretary and the
Working Director, not by the Managing Director. Even though the Managing
Director was allegedly dismissed and facing criminal charges at the time, the
court held that this did not make the execution by the remaining officers valid.
Additionally, the court found no evidence to support the claim that the company
had authorized defendants 1 and 2 to borrow money.
The judgment referred to the Doctrine of Constructive Notice, which presumes
that individuals dealing with a company have knowledge of its Articles and
Memorandum. It was noted that individuals engaging with a company must be
presumed to have read and understood the governing documents.
Steps In Incorporation of A
Company
1. Ascertaining Availability of Name
The first step in the incorporation of any company is to choose an appropriate
name. A company is identified through the name it registers. The name of the
company is stated in the memorandum of association of the company. The
company’s name must end with ‘Limited’ if it’s a public company and ‘Private
Limited’ if its a private company.
2. Preparation of Memorandum of Association and Articles of Association
The memorandum of association of a company can be referred to as its
constitution or rulebook. The memorandum states the field in which the
company will do business, objectives of the company, as well as the type of
business the company plans to undertake. It is further divided into five clauses
Name Clause
Registered Office Clause
Objects Clause
Liability Clause
Capital Clause
3. Printing, Signing and Stamping, Vetting of Memorandum and Articles
The Registrar of Companies often helps promoters to draw up and draft the
memorandum and articles of association. Above all, with promoters who have
no previous experience in drafting the memorandum and articles.
Once these have been vetted by the Registrar of Companies, then the
memorandum of association and articles of association can be printed. The
memorandum and articles are consequently divided into paragraphs and
arranged chronologically.
4. Power of Attorney
To fulfil the legal and complex documentation formalities of incorporation of a
company, the promoter may then employ an attorney who will have the
authority to act on behalf of the company and its promoters. The attorney will
have the authority to make changes in the memorandum and articles and
moreover, other documents that have been filed with the registrar.
5. Other Documents to be Filed with the Registrar of Companies
The First – e-Form No.32 – Consent of directors
The Second – e-Form No.18 – Notice of Registered Address
The Third – e-Form No.32. – Particulars of Directors
6. Statutory Declaration in e-Form No.1
This declaration, furthermore states that ‘All the requirements of the Companies
Act and the rules thereunder have been compiled with respect of and matters
precedent and incidental thereto.’
7. Payment of Registration Fees
A prescribed fee is to be paid to the Registrar of Companies during the course
of incorporation. It depends on the nominal capital of the companies which also
have share capital.
8. Certificate of Incorporation
If the Registrar is completely satisfied that all requirements have been fulfilled
by the company that is being incorporated, then he will register the company
and issue a certificate of incorporation. As a result, the incorporation certificate
provided by the Registrar is definite proof that all requirements of the Act have
been met.
