pri Board Meetings: Combined Analysis of Section 118, 173 & Secretarial Standards 1 Board Meetings: Combined Analysis of Section 118, 173 & Secretarial Standards 1

OVERVIEW

Board Meetings are the meeting of directors to discuss and take decision on various corporate and non-corporate matters for smooth functioning of the Company and in today’s dynamic and changing scenarios, it is must needed to take regular updates on the matters affecting the business of the companies. The Board of Directors is the authority in Companies who act on behalf of shareholders and members for managing the day to day activities of the business.

The Board of Directors take these decisions in the meeting of board (Board Meetings) and the Companies Act, 2013 mandates every company to comply with the few statutory requirements to convene such board meetings and a Secretarial Standard 1 on Board Meetings also mandate the companies to comply with the standards stated therein in relation to meetings.

The Act empowers the Board to exercise all such powers, and to do all such acts and things, as the company is authorized to exercise and do.

All the powers vested in Directors are exercisable by them collectively, acting together, unless such powers have been delegated to one or more Directors by the Board.

Section 173 of the Companies Act, 2013

Meetings of Board

1. Every company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation and thereafter hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board.

2. The participation of directors in a meeting of the Board may be either in person or through video conferencing or other audio visual means, as may be prescribed, which are capable of recording and recognizing the participation of the directors and of recording and storing the proceedings of such meetings along with date and time:

3. A meeting of the Board shall be called by giving not less than seven days’ notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means:

Provided that a meeting of the Board may be called at shorter notice to transact urgent business subject to the condition that at least one independent director, if any, shall be present at the meeting:

Provided further that in case of absence of independent directors from such a meeting of the Board, decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director, if any.

4. Every officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty-five thousand rupees.

5. A One Person Company, small company and dormant company shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days.

Section 118 (10) of Companies Act, 2013 and Secretarial Standard 1

Section 118 (10) of the Companies Act, 2013 requires every company to observe Secretarial Standards with respect to General and Board Meetings specified by the Institute of Company Secretaries of India (ICSI) and approved as such by the Central Government.

Secretarial Standards are a codified set of good governance practices which seek to integrate, harmonize and standardize the diverse secretarial practices followed by companies with respect to conduct of Meetings and play indispensable role in enhancing the corporate culture and governance across the organizations.

The Secretarial Standard on Meetings of the Board of Directors (SS-1) has been introduced under the legal umbrella of Companies Act, 2013 which is first of its kind in the world. Section 118(10) of the Companies Act, 2013 makes it mandatory for companies to comply with the Secretarial Standards.

SS-1 prescribes a set of principles for convening and conducting Meetings of the Board of Directors and matters related thereto.

Where any Meeting of the Board is called and held on the basis of a requisition by a Director, the provisions of the Act and SS-1 relating to Notice, Agenda, Notes on Agenda, length of Notice and manner of service of Notice and all other applicable provisions have to be complied with.

Exemption to Small Company, Dormant Company & One-Person Company

An One Person Company, small company and dormant company & private company (if such private company is a start-up) shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days. In case of one person company, where there is only 1 director, Board meeting is not required to be conducted.

Which means a category of Companies covered here is deemed to complied of this provision, if at least one Board meeting is conducted in each half of the calendar year with a gap of minimum of 90 Days within 2 Board meetings.

Here we want to emphasize our discussion on criteria of minimum 90 days for conducting consecutive meeting. Here the confusion arise with respect to conducting of more than one Board meeting within 90 days. As the law prohibits to conduct two consecutive board meeting within 90 days.

But we wish to put light on the provision that it prohibits the conducting of board meeting in each half of the calendar year with a minimum gap of 90 days within 2 Board meetings. Ministry has considered it to curb the practice of convening two board meetings back-to-back (i.e., one board meeting on 30th June and another board meeting on 1st July) which means a BM is convened in each half of the calendar year as per legal provision but, it will not meet the spirit of law of convening BM and hence to curb this practice, the provision of 90 days interval between two consecutive BM was introduced. Though, the companies can convene more than 2 BM in a calendar year and there they don’t need to keep the minimum gap of 90 days.

For instance. If the Meeting of the First half is held on 30th May, 2018, then the other meeting for the second half should be held after 28th August, 2018. However, there are no restrictions for holding more than two meetings in a calendar year, for example there may be a meeting on 15th June, 2018 for the requirements of the company because the restriction is basically to have atleast 90 days gap between the qualifying Board meetings for each half of the year.

Comparative Analysis of provisions of Companies Act, 2013 & Secretarial Standard -1

Basis Section -173 Secretarial Standard -1
Notice of the Meeting not less than seven days’ notice in writing to every director not less than seven days’ notice in writing to every director
Manner of Notice Notice in writing of every Meeting shall be given to every Director by hand or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means. Further, proof of sending Notice and its delivery shall be maintained by the Company. Section 173(3) states that notice in writing shall be sent to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means.
  The Notice shall specify the serial number, day, date, time and full address of the venue of the Meeting. The notice shall specify the place, date, day and hour of the meeting and shall contain the business to be transacted at the meeting
Numbering of Board Meetings No such provision Every Meeting of the Board should be serially numbered for ease of reference.
Time, Place & Day of BM No such provision A Meeting may be convened on any day as per the Gregorian calendar, including on a public holiday, unless the Articles provide otherwise.

 

Section 174 of the Act prohibits holding of Board Meetings adjourned for want of Quorum on National Holidays. However, law is not specifically prohibiting the original meeting to be held on a National Holiday

Frequency of Meetings Every company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation and thereafter hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board: The Board shall meet at least once in every calendar quarter, with a maximum interval of one hundred and twenty days between any two consecutive Meetings of the Board, such that at least four Meetings are held in each Calendar Year.
Attendance Register All the Books & papers need to be maintained at the Registered Office of the Company or such other place as may be approved by the Board. The attendance register shall be maintained at the Registered Office of the company or such other place as may be approved by the Board.
  No Such Provision The attendance register is open for inspection by the Directors.
   

No Such Provision

Entries in the attendance register shall be authenticated by the Company Secretary or where there is no Company Secretary, by the Chairman by appending his signature to each page.
  No Such Provision The attendance register shall be preserved for a period of at least eight financial years and may be destroyed thereafter with the approval of the Board.
Minutes Minutes shall be recorded in books maintained for that purpose. Same Provision
  A distinct minute book shall be maintained for each type of meeting A distinct Minutes Book shall be maintained for Meetings of the Board and each of its Committees.
  Under CA, 2013, there was no such requirement of maintaining the e-minutes along with timestamp Minutes may be maintained in electronic form in such manner as prescribed under the Act and as may be decided by the Board. Minutes in electronic form shall be maintained with Timestamp
  Pursuant to Section 118(1) of the CA, 2013 – the pages of the minutes book need to be consecutively numbered The pages of the Minutes Books shall be consecutively numbered
  Minutes shall not be pasted or attached to the Minutes Book, or tampered with in any manner Minutes shall not be pasted or attached to the Minutes Book, or tampered with in any manner.
  No Such Provision Minutes of the Board Meetings, if maintained in loose-leaf form, shall be bound periodically depending on the size and volume and coinciding with one or more financial years of the company.
  No Such Provision Minutes shall state, at the beginning the serial number and type of the Meeting, name of the company, day, date, venue and time of commencement and conclusion of the Meeting.
  No Such Provision A copy of the signed Minutes certified by the Company Secretary or where there is no Company Secretary, by any Director authorised by the Board shall be circulated to all Directors within fifteen days after these are signed.

Penalty for not sending Notice

Every officer of the company whose duty is to give notice of Board Meeting under section 173 and who fails to do so shall be liable to a penalty of twenty-five thousand rupees.

 Further, CLB held that a meeting of board of directors held without sending notice to the director was invalid and the resolutions passed in the meeting are also not valid. [Manmohan Singh Kohli v Venture India Properties (P) Ltd. (2005) 125 Comp Cas 853]

Penalty for non-observance of Secretarial Standards while conducting Board Meeting and other matters incidental thereto.

A Company is adhered to comply with the applicable Secretarial Standards with respect to conducting of board meeting vis-à-vis:

  • Sending of the Notice, Agenda (including Shorter Notice),
  • Manner of sending the notice,
  • Minimum number of Board meetings,
  • Quorum of the meeting,
  • Attendance of Directors,
  • Circulation of Draft minutes & Approval thereupon, &
  • Recording of Final Minutes etc.

Apart from the respective provision of the Companies Act, 2013 related to penalty on any non-compliance of the matters stated above. The company and its officers in default shall be liable to a penalty under Section 118 (11) of the Companies Act, 2013 (i.e., Non- Adherence of Secretarial Standards as issued by ICSI).

Section 118(11) provides that if any default is made in complying with the provisions of this section, then the Company is liable to a penalty of ₹ 25,000 and every officer of the company who is in default shall be liable to a penalty of ₹ 5,000.

Further, if a person is found guilty of tampering with the minutes of the proceedings of meeting, he shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than ₹ 25,000 but which may extend to ₹ 1 lakh.

The imposition of penalty by the ROC under this section has been seen in various adjudication orders issued by the ROC and mainly the penalties were issued on the non-compliance of SS-1 in relation to Sending of Notices, Agenda items, non-maintenance of proper minutes books and other records of the meetings as required by the Companies Act & the Secretarial Standards.

Relaxation To The Companies Due To Covid-19

1. The gap between two consecutive meetings of the board may extend to 180 days

General Circular No. 11/2020 dated 24thMarch, 2020 :- The mandatory requirement of holding meetings of the Board of the Companies within the intervals provided in Section 173 of the Companies Act, 2013 (i.e. 120 Days) stands extended by a period of 60 days till next two quarters (i.e., till 30th September 2021). Accordingly, as a one-time relaxation the gap between two consecutive meeting of the Board may extend to 180 days till the next two quarters, instead of 120 days as required in the CA -2013

General Circular No. 08/2021 dated 03rd May, 2021 :-  the requirement of holding meeting of the Board of the Companies within the intervals provided in section 173 of the Companies Act, 2013 (120 days) stands extended by a period of 60 days for first 2 Quarters of Financial Year 2020-21. i.e., the gap between two consecutive meetings of the Board may extend to 180 days during the Quarter – April to June 2021 and Quarter – July to September, 2021, instead of 120 days as required in the Companies Act, 2013.

2. Rule 4 of Companies (Meeting of Board and its Powers) Rules, 2014 : Matters not to be dealt with in a meeting through video conferencing or other audio visual means

Rule 4 provides that the following matters shall not be dealt with in any meeting held through video conferencing or other audio visual means:

  • to approve the annual financial statements;
  • to approve the Board’s report;
  • the approval of the prospectus;
  • the Audit Committee Meetings for consideration of financial statement including consolidated financial statement, if any, to be approved by the Board under section 134(1) of the Act; and
  • the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.

Inserted by the Companies (Meetings of Board and its Powers) Amendment Rules, 2020. Dated 19th March 2020. :- In the Companies (Meetings of Board and its Powers) Rules, 2014, rule 4 shall be renumbered as sub-rule (1) thereof and after sub-rule (1) as so renumbered, the following sub-rule shall be inserted, namely:

“(2) For the period beginning from the commencement of the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 and ending on the 30th June, 2020, the meetings on matters referred to in sub-rule (1) may be held through video conferencing or other audio-visual means in accordance with rule 3.”.

Which means the matters listed in Rule 4 can be dealt in BM Held through VC/OAVM.

Substituted by the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2020. Dated 23rd June 2020. :-  the period referred in Rule 4 (2) (i.e., 30th June 2020 shall be substituted by 30th September 2020) which means the matters listed in Rule 4(1) can be dealt in BM held through VC/OAVM up to 30th September 2020.

Substituted by the Companies (Meetings of Board and its Powers) Third Amendment Rules, 2020. Dated 28th September 2020. :- the period referred in Rule 4 (2) (i.e., 30th September 2020 shall be substituted by 31st December 2020) which means the matters listed in Rule 4(1) can be dealt in BM held through VC/OAVM up to 31st  December 2020.

Substituted by the Companies (Meetings of Board and its Powers) Fourth Amendment Rules, 2020. Dated 30 Dec 2020. :- the period referred in Rule 4 (2) (i.e., 31st December 2020 shall be substituted by 30th June 2021) which means the matters listed in Rule 4(1) can be dealt in BM held through VC/OAVM up to 30th June 2021.

Omitted by the Companies (Meetings of Board and its Powers) Amendment Rules, 2021. Dated 15th June 2021. :- Rule 4 of Companies (Meeting of Board and its Powers) Rules, 2021 as amended from time to time is stand omitted. Which means, now the matters can be dealt in BM held through VC/OAVM without any restrictions.

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Disclaimer – Author has exercised utmost care while writing this article, but still this article may contain some error or mistake and no part of this article/writing should be construed or considered as any advice or consultancy whether professional or otherwise.

Author may be reached at csmalkitsingh@gmail.com

Author Bio

Qualification: CS
Company: Malkit Singh & Associates
Location: New Delhi, Delhi, India
Member Since: 14 Mar 2021 | Total Posts: 5
Practicing Company Secretary & a member of Institute of Company Secretaries of India. He has also obtained degree in Bachelor of Commerce (B.CoM) and also Registered as a GST Practitioner. View Full Profile

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