In today’s market landscape, the sale and purchase of goods and the delivery of services by vendors, suppliers, corporations, manufacturers, and professionals increasingly depend on legally enforceable agreements to safeguard business transactions and maintain hygiene market relationships. As a result, the presence of a well-drafted agreement has become essential in any commercial engagement.
To ensure legal validity, corporations and business professionals are investing significantly in legal services, including law firms, legal practitioners, chartered accountants, and company secretaries.
However, in their eagerness to quickly onboard clients or close deals, many corporations often overlook the proper execution of agreements. This promptness frequently results in procedural deficiencies that compromise the legal soundness of the agreement.
This is to be noted that an agreements play a crucial role in achieving business objectives and safeguarding interests such as the protection of intellectual property rights and ensuring indemnity in cases of confidentiality breaches. While clauses within these agreements are often drafted with great precision, errors frequently occur during the execution stage, which is essential to making the agreement legally binding. It is important to recognize that the execution of an agreement is just as critical as its drafting. Even the most well-drafted agreement may carry little legal weight if it is not executed properly, thereby weakening any claim for relief or indemnity that may arise in the event of dispute.
If an agreement is executed by an Authorised Representative (AR) on behalf of an individual, such AR must hold valid authority in his name or possess a duly executed Power of Attorney(PoA) granting them the right to act, either specifically for the transaction in question or generally for any permissible transactions under the law.
Similarly, where an AR is acting on behalf of a corporation or other legal entity, they must be expressly authorised to enter into or execute such Agreements on behalf of Corporation. Furthermore, such authority must be granted directly by the Board of Directors through a duly passed Board Resolution or a PoA, appointing an individual to act on behalf of the corporation or to further delegate the powers of the Board. In light of this it is to be noted herein that any agreement executed without such authorisation or delegation as mentioned herein on behalf of the Corporation shall be deemed invalid and shall not be legally enforceable before the Court of Law.
Furthermore, under the doctrine of constructive notice, any person dealing with a corporation is presumed to have reviewed and understood its Articles of Association (AOA) and Memorandum of Association (MOA). Accordingly, if an Individual executes a transaction without proper authorisation under a valid Board Resolution, or if such Individual's appointment does not comply with the procedures prescribed in the AOA and MOA, such authorisation shall be deemed invalid. Consequently, any agreement executed by any such an Individual or signatory shall be considered null and void ab initio. In such instances, the doctrine of indoor management may not offer protection to the corporation in the event of a dispute arising from such transactions or agreements.
Therefore, it is essential for the organization to ensure that any agreement executed through any such individual acting on behalf of the organisation is backed by legally binding authority to enter into such an agreement or transaction.
In conclusion, for the lawful execution of agreements, it is incumbent upon every organization or party to the Agreement to ensure that any individual acting on behalf of any Corporation and Individual, either being an agent or as an employee, POC’s, must possesses clear, documented authority granted in accordance with due process of law. Furthermore, such appointments must strictly adhere to the procedures outlined in the MoA and AoA, and must not contravene any provisions of the Companies Act or any other law for the time being in force. Non-compliance with these formalities may render the agreement null and void and could expose the organization and parties to the Agreement to legal disputes and liabilities. Observing proper authorisation protocols not only upholds legal validity but also fosters trust, transparency, and accountability in all business dealings.
Thanks,
Shubham Chhaleriya
B.A.,LL.B