Introduction:

The Board of Directors (“BOD”) have to take various decisions in effectively managing the day-to-day affairs of the company.[1] In the Board meetings, these decisions have to be made in accordance with the various provisions under the Companies Act, 2013 (“the Act”), The Companies (Meetings of Board and its Powers) Rules, 2014, the company’s Memorandum of Association (“MOA”) and Articles of Association (“AOA”) and ICSI mandated guidelines. Under the Act, Chapter XII titled ‘Meetings of Board and its Powers’ contains the the provisions governing the procedure and requirements to be followed during a board meeting.[2] The object of this chapter is to ensure that meetings are held at reasonably frequent intervals to enable directors to be in contact with the management of company’s affairs.[3]

Main body:

Section 173 corresponds to Sections 285 and 286 of the Companies Act, 1956 (“1956 Act”). Section 173(1) of the Act provides that after incorporation, BOD should conduct first meeting within thirty days[4], and subsequently a minimum of four meetings a year[5] i.e. every 3 months.[6] The requirement with regard to frequency of the Board meetings and the time gap between two Board meetings may be altered by Central Government by notification to that effect under proviso to Section 173(1) of the Act.[7] Sub-clause (2) has kept in mind the fact that in this era of globalisation, it would not be prudent to expect all directors to be physically present at every board meeting, thereby facilitating participation via video-conferencing or other audio-visual means as may be prescribed so long as it is capable of recording and recognising the participation of such directors and also recording the proceedings[8] of such meetings along with details of date and time.[9] Such directors would be counted for quorum. This part has to be read alongwith Rule 3 of The Companies (Meetings of Board and its Powers) Rules, 2014 which provides for the requirements and procedures, in addition to the procedures required for Board meetings in person, for convening and conducting Board meetings through video conferencing or other audio visual means. Corresponding provisions in the UK are found in guidance issued by The Chartered Governance Institute.[10] Participants of such conferences have to follow the various guidelines/precautions with utmost due care and diligence, and  ensure confidentiality/secrecy of such meeting. After the meeting, the minutes are to be entered in the minute book as specified under Section 118.[11] Section 118(10) also has given statutory recognition to the Secretarial Standard issued by ICSI, which mandates observance of these rules.[12]

Meetings of Board Of Directors

Rule 4 of The Companies (Meetings of Board and its Powers) Rules, 2014 prohibits certain matters from being conducted through video conferencing or other audio-visual means. Regulation 65 of Table F of Schedule I to the 2013 Act provides procedures for directors present in person. Further, this section mandates a seven day notice[13] in writing to every director.[14] It provides for an exception for shorter notice in cases of urgent business. In addition, The Ministry of Corporate Affairs in its report[15] has stipulated at least one independent director needs to be present for a short-notice meeting, and if there is no such director, the decision shall be binding and capable of being acted upon only on ratification by at least one Independent Director. The Board of listed companies have to follow the recommendations of the Kumar Mangalam Birla Committee and Narayana Murthy Committee on ‘Corporate Governance’.[16]

A notice for a board meeting is to be issued only to directors and not the shareholders[17], and its purpose of notice is to inform the time/date of the meeting[18]. A standard form of notice is not relevant; where, for instance, by provision in the articles, the directors are informed that there would be meeting on the first Saturday of each month, it is a sufficient compliance with the section.[19] Such notice must be given to all directors, and anything done at a meeting where some directors were not given proper notice (sometimes deliberately[20]) would lead it to being non est and void.[21] An agenda for the meeting is not required by the law,[22] and business transactions can occur without a formal agenda.[23] In T.M. Paul[24], passing resolutions originally not in agenda is not fraudulent, but deliberate omission to give notice would make those resolutions invalid. But an invalid act by directors of a properly convened board may be ratified by subsequent acquiescence.[25]

Section 174 of the Act correspond to Sections 287 and 288 under the 1956 Act. Unlike the 1956 Act, Section 174 clarifies that directors attending through video conferencing or other audio-visual means will be counted for quorum. The quorum requires a minimum of one-third of total or two directors, whichever is higher. Through its Articles, a company may indicate a higher, but not lower number/proportion as constituting a valid quorum.[26] A Board meeting held without quorum as required by the AOA would be bad in law and any decisions taken would be invalid.[27] At every stage of a meeting quorum of the Board is required, failing which the business transacted is void.[28] Powers under sub-clause (2) are given to directors to act for the purpose of increasing the number of directors or for summoning a general meeting of the company. In MPDC v Dabhol, the Court held that when a meeting is held for the purpose of appointing directors to constitute quorum, such a meeting should be called only for that purpose. Nothing else should be transacted in that meeting, and all other decisions at that meeting, being against statutory provisions, would be null and void even if they were in the interests of the company. A fresh meeting with a designated agenda can be called thereafter.[29]

Strangely, Section 174(2) is again reproduced in Regulation 69 of Table F.[30] Sub-clause (3) provides an exception in case of two-third or more interested directors. These directors are also mandated to disclose their interest in the board meeting, as per the guidelines laid under Section 184[31] and Rule 9 & 16 of The Companies (Meetings of Board and its Powers) Rules, 2014. There is an interesting contradiction that Section 184 does not cover indirect interest (e.g. relatives) but Rule 15(2) of The Companies (Meetings of Board and its Powers) Rules, 2014 covers indirect interest, and mandates that director to not be present at the meeting which discusses an item of his interest. Sub-clause (4) provides for the adjournment of meetings which are not held for want of quorum.

Section 175 allows for a mechanism of passing of resolutions by circulation in Board meetings. It corresponds to Section 289 of the 1956 Act which enabled companies to pass resolutions of Board and committees thereof by circulation and also contained provisions relating to the procedure.[32] Clause 175 of the Companies Bill, 2011 took into consideration the fact that it may not always be possible to convene a meeting of the Board, and hence allows for resolutions to be passed by circulation also. The purpose is to enable directors to take an informal but informed decision, so the necessary papers must accompany the circular. However, where the legal opinion on the issue of allotment of shares was already available to the directors, it was held that the circular resolution could not be taken to be vitiated for the reason that necessary papers were not circulated with the resolution.[33] There are certain matters which as per the provisions of the Act or AOA of the company require to be sanctioned only by a resolution at the Board meeting and cannot be passed by circulation. This is illustrated under Section 179(3) and Rule 8 of The Companies (Meetings of Board and its Powers) Rules, 2014. Section 175 is to be read with Rule 5, which provides for circulation of resolution in draft form with necessary papers for directors’ approval.[34]

Conclusion:

The purpose behind these meetings is to help the BOD monitor, supervise and be updated on the functioning and progress of the company. The above-mentioned provisions are the corporate governance provisions which apply to meetings of Board of Directors. These rules and regulations governing the Board meetings are of prime importance as they protect the interests of the shareholders.

Notes:-

[1] Divyesh Goyal, Companies Act 2013- Meetings of The Board & Committees, Taxguru, July 2, 2014, available at https://taxguru.in/company-law/companies-act-2013-meetings-board-committees.html, last visited on May 20, 2020.

[2] Sakshi Sethi, Meetings under Companies Act, 2013, Law Times Journal, February 22, 2020, available at http://lawtimesjournal.in/meetings-under-company-act-2013/, last visited on May 20, 2020.

[3] C.R. Dutta, Company Law, 7th Edn.

[4] No such requirement under The Companies Act, 1956.

[5] Maximum gap between two meetings is one hundred and twenty days.

[6] The Company Law Committee (1952), in para 109 of its report, had recommended the board meetings should be held at regular intervals- once at least in every two months and Parliament; while accepting the recommendation thought it fit to substitute ‘three months’ instead of ‘two months’.

[7] A Ramaiya: Guide To The Companies Act, 18th Edition 2014.

[8] Similar provision in Section 248 and 249, Companies Act, 2006 (UK).

[9] Ibid.

[10] Good Practice for virtual voard and committee meetings, The Chartered Governance Institute, available at https://www.icsa.org.uk/knowledge/resources/good-practice-for-virtual-board-and-committee-meetings, last visited on May 2, 2020.

[11] Rule 3(12)(c), The Companies (Meetings of Board and its Powers) Rules, 2014

[12] Companies Act, 2013, Meetings of Board and Its Powers, Institute if Company Secretaries of India, available at https://www.icsi.edu/media/portals/0/MEETINGS%20OF%20BOARD%20AND%20ITS%20POWERS%20BOOK.pdf, (last visited on May 21, 2020)

[13] Refer to Form MR 3, Secretarial Audit Report.

[14] Section 173(3), Companies Act, 2013.

[15] Report Of The Expert Committee On Company Law Management And Board Governance, at para 26, available at http://www.mca.gov.in/MinistryV2/management+and+board+governance.html, (last visited on May 22, 2020)

[16] Clause 49 I(C)(i) of SEBI, No. SEBI/MRD/SE/ 31/2003/26/08, dt. 26-08- 2003

[17] Maharashtra Power Development Corporation v. Dabhol Power (2004) 120 Com Cases 560 (Bom).

[18] Sunder Lal Jain v. Sandeep Paper Mills P. Ltd., (1986) 60 Com Cases 77(P&H).

[19] Arunachalam Chettiar Firm v. Kalesswarar Mills Ltd., AIR 1957 Mad 309

[20] See generally, Kamal Kumar Dutta v. Ruby General Hospital Ltd. (2006) 134 Com Cases 678 : (2007) 7 SCC 613

[21] Nazir Hoosein v. Darayus Bhattena, (2000) 37 CLA 414 : (2000) 4 SLT 680(SC).

[22] Abnash Kaur v. Lord Krishna Sugar Mills Ltd., (1974) 44 Com Cases 390, 413(Del)

[23] Sunil Dev v. Delhi & District Cricket Association, (1994) 80 Com Cases 174(Del); see also, Maharashtra Power Development Corporation. Ltd. v. Dabhol Power Co. (2004) 120 Com Cases 560(Bom).

[24] T.M. Paul v City Hospital (P.) Ltd., (1999) 97 Com Cases 216.

[25] Parmeshwari Prasad Gupta v. Union of India, (1974) 44 Com Cases 1 : AIR 1973 SC 2389; see also, Kuldip Singh Dhillon v. Paragaon Utility Financiers (P.) Ltd., (1988) 64 Com Cases 19(P&H); Puchpa Prabhudas Vora v. Voras Exclusive Tools P. Ltd., (2000) 36 CLA 377

[26] Amrit Kaur Puri v. Kapurthala Flour Oil & General Mills Co. P. Ltd., (1984) 56 Com Cases 194(P&H).

[27] Murari Mohan Kajriwal v. Shree Hanuman Cotton Mills Ltd. (2013) 116 CLA 50 : (2014) 123 SCL 341(CLB).

[28] Balakrishna v. Balu Subudhi, AIR 1949 Pat 184; Bell v. Royal Western India Turf Club Ltd., AIR 1946 Bom 88.

[29] Maharashtra Power Development Corporation. Ltd. v. Dabhol Power Co. (2004) 120 Com Cases 560(Bom).

[30] Regulation 69, Table F, Schedule I of 2013 Act.

[31] Section 184, The Companies Act, 2013.

[32] Supra Note 7.

[33] Chatterjee Petrochem (Mauritius) Co. v. Haldia Petrochemicals Ltd. (2007) 77 CLA 408(CLB); Mulammoottil Consumer Credit Ltd. v. E R Sreenivasan (2007) 80 CLA 434(Ker).

[34] Rule 5, The Companies (Meetings of Board and its Powers) Rules, 2014.

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