Absence of a Director from a Board meeting and its consequences

In this fast paced world, people (including Directors of companies) keep on travelling from one place to other either for personal or official reasons.

In the case of a company, it is governed by the Board which comprises of Board members i.e directors of the company. For such governance, Board meetings are held where various matters related to company are discussed and decided.

So it becomes very important that all the directors should attend the Board meeting and contribute in decision making process.

However it may not be practically possible for all the directors to be present in all Board meeting (due to other business exigencies or personal commitment).

In this article we will discuss on two aspects:

1) Quorum for a Board Meeting and

2) Consequences of absence of a director in a Board Meeting

1) Quorum for a Board Meeting

Section 174(1) of Companies Act 2013 takes care of the situation that it may not be possible for all the directors to be present in every Board meeting. It provides that quorum (i.e minimum number of members required to hold a valid meeting) is 1/3^rd of total strength of Board or 2 members whichever is higher. The Explanation (i) to this section provides that any fraction of a number shall be rounded off as one.

Example 1: X Ltd has total 7 directors then quorum for Board meeting will be 1/3^rd of 7 i.e 2.33 ~ 3 directors (i.e any fraction is rounded off as one) or 2 directors whichever is higher. Hence in this case the quorum is 3 directors which shall be present throughout the Board meeting.

Example 2: Y Ltd has total 11  directors then quorum for Board meeting will be 1/3^rd of 11  i.e 3.67 ~ 4 directors (i.e any fraction is rounded off as one) or 2 directors whichever is higher. Hence in this case the quorum is 4 directors which shall be present throughout the Board meeting.

It may be noted that a director may attend a Board meeting either physically or through VC (Video conferencing).

2) Consequences of absence of a director in a Board Meeting

A director may intentionally or for the reasons beyond his control, may not attend one or  more Board meeting. He may not attend such Board meeting either by taking Leave of Absence or without taking Leave of Absence.

A common question arises does it in any way affect his directorship in that Company.

Section 167(1)(b) of Companies Act 2013 addresses this scenario and provides that if a director absents himself from all the meetings of the Board of Directors held during a period of 12 months with or without seeking leave of absence of the Board, his office shall become vacant (i.e he will be removed from his directorship in that company).

Let’s understand the above provisions of with example:

Case 1) Mr A is a director in Company X Ltd as well as in Y Ltd. He attends all the Board meeting of X Ltd. However he fails to attend all the Board meeting of Y Ltd for a period of 12 months. In such a situation his office of directorship in Y Ltd will become vacant. However his directorship in X Ltd is not affected.

Case 2) Mr A is a director in Company X Ltd . No Board meeting of X Ltd is held for last 12 months and hence he is not able to attend any Board meeting. Since X Ltd did not held any board meeting in last 12 months, so there is no fault on part of Mr A (director) u/s 167. So his directorship in X Ltd will not get affected.

Case 3) Mr A is a director in Company X Ltd . In last 12 months X Ltd held 12 Board meetings (assuming 1 meeting in each calendar month). Mr A attended the 10^th Board meeting out of these 12 Board meeting. He is fulfilling the requirement of section 167 (since he is not continuously absent for 12 months) and hence his directorship in X Ltd will not get affected.

Case 4) Mr A is a director in Company X Ltd . The dates of Board meeting of X Ltd is as below:

Mr A attended the Board meeting on 10.01.2023 and after that he could join Board meeting only on 11.05.2024 (i.e he continuously missed Board meetings held from 25.06.2023 to 06.04.2024). In this case two interpretations are possible:

1^st interpretation): Mr A missed all Board meetings held in last 12 months (i.e there is a gap of almost 16 months from 10.01.2023 to 11.05.2024) and hence his office of directorship will become vacant as per section 167 of Companies Act 2023.

2^nd interpretation) Mr A attended last Board meeting on 10.01.2023 and after that 1^st Board meeting was held on 25.06.2023. So counting of 12 months will start from 25.06.2023 and since he attended next Board meeting on 11.05.2024 (i.e within 12 months from 25.06.2023), so his office is not vacated as per section 167 of Companies Act 2013.

In the given case 2^nd interpretation is appropriate since act says he fails to attend all Board meeting in last 12 months and the 1^st applicable such meeting was on 25.06.2023.

However in the above case if Mr A, would have attended meeting on 01.01.2023 and after that next meeting attended by him was on 11,05.2024, then his office would have become vacated since the period of 12 months would have started from 10.01.2023 (i.e next meeting subsequent to attending his last meeting).

Few people use to refer that such period is not 12 months and rather 3 months and in case Leave of Absence is granted then he continue to be a director even after 12 months.

The above concept of a period of 3 months and Leave of absence was there in the erstwhile Companies Act 1956 which has been substituted by Companies Act 2013. Hence after the introduction of Companies Act 2013, whether Leave of Absence is granted or not granted, does not make any difference wrt vacating the office of directorship and such period of 3 months has been substituted by 12 months.

It may be noted that in a number of Judicial pronouncement it has been decided that if notice of Board meeting is not communicated to a director and due to this reason he is not able to attend the Board meeting then the application of automatic vacation of office of Directorship may be challenged.