Focus on Quorum for Board Meetings

BACKGROUND

The Directors of a company function and exercise most of their powers at priodical meetings of the Board. The meeting to be vaild has to comply with the provisions of the Companies Act 2013 with regard to due convening, holding and  conducting of the meeting. Hence the meeting should be held at a proper frequency,  called by a proper notice, duly held with required quorum and conducted by the chairman duly in place, and proceedings correctly noted and minuted. 

This discussion is confined to the requirement of quorum for the board meeting which was earlier regulated by sections 287 and 288 of the Companies Act 1956 and now by section 174 of the new Companies Act 2013.  { New Companies Act}`.

SECTION 174

QUORUM

Law

“174. (1) The quorum for a meeting of the Board of Directors of a company shall be one third of its total strength or two directors, whichever is higher, and the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum under this sub-section.

Provided that the quorum shall not be less than two members.”

Comments

The quorum is the minimum number of directors required to validly act as a board at a duly convened and conducted Board meeting. Each director must be qualified to act.

This sub section {1} provides the quorum for a meeting of the Board of Directors of a company. As per the provision, quorum shall be :-

• one third of total strength of the Board, or
• two directors,

whichever is higher.

It is made amply clear  that the quorum cannot be less than two directors.

Some earlier case laws

It was held in the case of Balakrishna v Balu Subudhi AIR 1949 Pat 184 that the quorum during the board meeting was required at every stage. Where the number of directors was reduced below the quorum, the directors couldnot act. { Ref; Alma Spg. Co., Re.,(1880) 16 Ch D 681}. In the case of Re, Plymoth Breweries v Penwill {1967} 111 SJ  715 it was held that where a person was aggrieved on account of lack of quorum and challenged the validity of the meeting, he had to take legal action within a reasonable time.

Video Conferencing or by other Audio Visual Board meeting

This sub section also provides that to constitute a valid quorum the participation of the directors in the Board meeting by:-

• video conferencing or
• other audio visual means shall also be counted.

    This will be over and above the usual physical participation of the directors at the Board meeting. This is a new provision. The holding of board meeting through video conferencing or other audio visual means was not provided for in the erstwhile Companies Act 1956; however,  in that regard the Central Government had already issued a General Circular no. 28/2011 dated 20.5.2011  .   

VACANCY IN BOARD

Law

“174. (2) The continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company and for no other purpose.”

Comments

As per this provision, the continuing directors may act notwithstanding any vacancy in the Board.  If the vacancy {which could be due to resignation of director, removal, disqualification., etc.}, results in the number of directors of the Board going below the quorum fixed under the Companies Act 2013,  the Board cannot function, the exception is that during this period the continuing director/s  of the Board are permitted to only act for the purpose of :-

• increasing the number of directors to that fixed for the quorum, or
• summoning a general meeting of the company.

The Table F of the Model articles, in terms of section 5, Schedule I of the new Act also provides likewise.

Interestingly even one continuing director can act where there is only one in the Board.  Otherwise all continuing directors have to act.  It is also made very clear that the continuing director/s can act for no other purpose except as permitted above.

There is no restriction as to how the continuing director/s may act  to increase the number of directors to the level of quorum or for calling a general meeting. It is legally possible to appoint additional director in the Board in terms of section 161 of the Companies Act 2013.  Also the general meeting can make the apppointment.

It was held in an earlier case of  Fateh Chand Kad v Hindsons {Patiala} Ltd., (1957) 27 Comp cases 340, 359  that where there never existed a board sufficient in number, to authorise such the board to carry on the business and to validate the past activities of such board, the applicable provisions  couldnot  be invoked.

INTERESTED DIRECTOR – QUORUM

Law

“174 (3) Where at any time the number of interested directors exceeds or is equal to two thirds of the total strength of the Board of Directors, the number of directors who are not interested directors and present at the meeting, being not less than two, shall be the quorum during such time.

Explanation.—For the purposes of this sub-section, “interested director” means a director within the meaning of sub-section (2) of section 184.”

Comments

This sub section {3} provides a situation at any point of time where the number of interested directors of a company:-

• exceeds two thirds of the total strength {excludes directors whose places are vacant} of its Board of Directors, or
• is equal to two thirds of the total strength {excludes directors whose places are vacant} of its Board of Directors.

In that case, the number of directors who are not interested directors and who are also present at the Board meeting, their number being not less than two shall constitute the quorum during such time.

Interested Director

The explanation elaborates the meaning of “interested director” for the purpose of this sub section. He /she is a director within meaning of section 184 {2} of the Companies Act 2013 which provides for direct and/or indirect concern or interest of the director of the company in a contract or arrangement, or a proposed contract or arrangement:-

               {a} entered into, or

               {b} to be entered into

by the company with certain specified entities given below:-

• a body corporate in which that director or he/she in association with any other director , holds more than two per cent shareholding of that body corporate, or that director is a promoter, manager, Chief Executive Officer {CEO} of that body corporate, or
• a firm or other entity in which, that director is a partner, owner or member, as the case may be.
  

Disinterested Quorum

Hence it is clear that the directors forming the quorum of the Board meeting must be disinterested. Where there is no such disinterested quorum the advisable action should be to increase the strength of the Board  by appointing disinterested  additional directors or  place the matter of such appointment before the members in a general meeting in terms of articles of association of the company. Of course the total strength of the Board cannot be exceeded.

BOARD MEETING NOT HELD FOR WANT OF QUORUM

Law

“174 (4) Where a meeting of the Board could not be held for want of quorum, then, unless the articles of the company otherwise provide, the meeting shall automatically stand adjourned to the same day at the same time and place in the next week or if that day is a national holiday, till the next succeeding day, which is not a national holiday, at the same time and place.

Explanation.—For the purposes of this section,—

(i) any fraction of a number shall be rounded off as one;

(ii) “total strength” shall not include directors whose places are vacant.”

Comments

This sub section {4} lays down the legal consequence where a meeting of the Board could not be held for want of quorum. It says that unless the articles of association of the company otherwise provide:-

• the Board meeting shall automatically stand adjourned in the next week :-
  • to the same day,
  • at the same time, and
  • at the same place
• in case that day in the next week is a national holiday, the meeting will stand adjourned till the next succeeding day, which is not a national holiday, at the same time and place.

Articles can provide differently

It is apparent that the articles of association of a company can provide differently in case the Board meeting could not be held due to lack of quorum. Here, for example, the adjournment can be done on any other day and the time and place of the adjourned meeting can also be differently provided.  However, the applicable  provisions of  Act  or any other law will have to be kept in view.

Section 288 (2) of the Act of 1956

Pertinently the provision in section 288 (2) of the  erstwhile Companies Act 1956 relating to such adjournments not deeming to contravene the requirement of holding meeting at least once in every three months and holding minimum four numbers of Board meetings every year  in terms of section 285 of that Act , does not find place in the new provisions. Hence if there are adjournments of board meetings due to absence of quorum, the company has to ensure that provisions of section 173 of the Companies Act 2013 {frequency of Board meeting} are continued to be complied and there is no leeway.

Public Holiday changed to National Holiday

Moreover, section 288 {1} of the erstwhile Act used the words “public holiday” which has been changed to “national holiday” in these provisions.

From the aforesaid provisions it is clear that original board meeting can be held on any day even on a national holiday or a public holiday, {Ref: Company News & Notes, Aug 1 , 1964 issue under ther ertswhile law} but the adjourned board meeting due to want of quorum has to be held on a day which is not a national holiday. This , as discussed , is subject to the provisions in articles of association of the company and other provisons.

It should be emphasised that in these provisions what is regulated is adjournment of board meeting due to only want of quorum and not for adjournments due to any other reason.

Moreover, at any adjourned board meeting it is mandatory that the requisite quorum is present.

It was held in the case of Maharani Yogeshwari Kumari v Lake Shore Palace Hotel (1996) 21 CLA 107 {Raj} that adjourned board meetings without quorums were void and non est.

The Explanation lays down that for the purposes of this section (i) any fraction of a number shall be rounded off as one; and (ii) “total strength” of the board shall not include directors whose places are vacant. This is a clarificatory provision.

 SECRETARIAL STANDARDS OF ICSI

The Secretarial Standards  issued by the Institute of Company Secretaries of India on meetings of the Board of Directors has been mandated to be complied in terms of Section 118  {10} of the Companies Act 2013.  As can be seen, {SS-1} is in line with the section 174  and other provisions of the Act and reiterated herein for the sake of emphasis  and clarity.

As per ICSI,  some of the applicable provisions are as follows given in SS-1:-

• “Quorum” means the minimum number of Directors whose presence is necessary for holding a meeting.
• A Meeting adjourned for want of quorum shall also not be held on a National Holiday.
• Quorum shall be present throughout the Meeting.
• Quorum shall be present not only at the time of commencement of the Meeting but also while transacting business.
• A Director shall not be reckoned for quorum in respect of an item in which he is interested and he shall not be present, whether  physically or through Electronic Mode, during discussions and voting on such item.
• Directors participating through Electronic Mode in a meeting shall be counted for the purpose of quorum, unless they are to be excluded for any items of business under the provisions of the Act or any other law.
• The quorum for a meeting of the Board shall be one-third  of the total strength of the Board, or two Directors, whichever is higher.
• Any fraction contained in the above one-third  shall be rounded off to the next one.
• Where the quorum requirement provided in the Articles is higher than one-third  of the total strength, the company shall conform to such higher requirement.
• Total strength for this purpose, shall not include Directors whose places are vacant.
• If the number of Interested Directors exceeds or is equal to two-thirds  of the total strength, the remaining Directors present at the meeting, being not less than two, shall be the quorum during such item.
• If a meeting of the Board could not be held for want of quorum, then, unless otherwise provided in the Articles, the Meeting shall automatically stand adjourned to the same day in the next week, at the same time and place or, if that day is a National Holiday, to the next succeeding day which is not a National Holiday, at the same time and place.
• If there is no quorum at the adjourned Meeting also, the meeting shall stand cancelled.
• Where the number of Directors is reduced below the minimum fixed by the Articles, no business shall be transacted unless the number is first made up by the remaining Director(s) or through a general meeting.
• If the number of Directors is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing Directors may act for the purpose of increasing the number of Directors to that fixed for the quorum or of summoning a general meeting of the company, and for no other purpose.
• In case a meeting is adjourned, the Minutes shall be entered in respect of the original meeting as well as the adjourned meeting. In respect of a meeting convened but adjourned for want of quorum, a statement to that effect shall be recorded by the Chairman or any Director present at the meeting in the Minutes.
• Minutes shall inter-alia contain: Record of presence of Quorum.
  

CONCLUSION

There is ample clarity in the provisions of the Companies Act 2013  read with the Secretarial Standards of ICSI relating to board meetings and quorum. Although the earlier law  in the Companies Act 1956  has been by and large retained, there have been some practical amendments and  those reflecting technical advancements bringing in audio/video methodology of holding meetings, which are in line with modern times.