Dear Professional Colleagues,
I am compiling a book on Company Law 2013 Ready Referencer. I invite your suggestions to improve the content and presentation of the book. Some pages of the proposed book are as follows:
Board Meetings 173-195
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173. |
Meetings of Board, |
285 |
Board to meet at least once in every three calendar months. |
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286 |
Notice of meetings. |
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174. |
Quorum for meetings of Board. |
287 |
Quorum for meetings. |
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288 |
Procedure where meeting adjourned for want of quorum. |
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175. |
Passing of resolution by circulation. |
289 |
Passing of resolutions by circulation. |
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176 |
Defects in appointment of directors not to invalidate actions taken. |
290 |
Validity of acts of directors. |
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177. |
Audit committee. |
292A |
Audit Committee, |
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178. |
Nomination and Remuneration |
Schedule |
Schedule |
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179, |
Powers of Board. |
291 |
General powers of the Board. |
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292 |
Certain powers to be exercised by Board only at meeting. |
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180. |
Restrictions on powers of Board. |
293 |
Restrictions on powers of Board. |
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181. |
Company to contribute to bona tide and charitable funds, etc. |
293 |
Restrictions on powers of Board. |
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182. |
Prohibitions and restrictions regarding political contributions, |
293A |
Prohibitions and restrictions regarding political contributions. |
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183. |
Power of Board and other persons to make contributions to national defense fund, etc. |
293B |
Power of Board and other persons to make contributions to the National Defence Fund, etc. |
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184. |
Disclosure of interest by Directors |
299 |
Disclosure of interests by Directors. |
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300 |
Interested director not to participate or vote in Boards proceedings. |
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185. |
Loan to Directors, etc. |
295 |
Loans to Directors, etc. |
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296 |
Application of section 295 to book debts in certain cases. |
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188. |
Related Party Transactions |
314 |
Director, etc, not to hold office or place of profit. |
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297 |
Boards sanction to be required for certain contracts in which particular Directors are interested. |
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189. |
Register of contracts or arrangements in which Directors are interested. |
301 |
Register of Contracts, Companies and |
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190. |
Contract of employment with managing or Whole-Time Directors. |
302 |
Disclosure to members of director’s interest in contract appointing manager, managing director. |
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191. |
Payment to Director for loss of office, etc., in connection with transfer of undertaking, property or shares |
320 |
Payment to director for loss of office, etc., in connection with transfer of shares. |
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318 |
Compensation for loss of office not permissible except to Managing or Whole-Time Directors or to directors who are managers. |
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Payment to director, etc., 11w loss of office, etc, in connection with transfer of undertaking or property. |
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192 |
Restriction on non-cash transactions involving Directors |
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No provision exists |
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193 |
Contract by One Person Company |
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No provision exists |
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194 |
Prohibition on forward dealings in securities of company by a key Managerial Personnel |
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No provision exists |
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195 |
Prohibition on Insider Trading of securities |
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No provision exists |
CHAPTER XII - MEETINGS OF BOARD AND ITS POWERS
Comments - Sections 285-290 of the Companies Act, 1956 regarding meeting of board, notices, quorum of the meeting and validity of the action taken has been consolidated and re-organised in Sections 173-176 with some changes. BM can also be conducted through video conferencing. BM is to be convened with notice (electronic means allowed) of 7 days. However, for shorter notice is allowed in certain cases. Exemption to certain private companies as regards the restriction on participation and voting by the interested directors under section 300(2) of the Companies Act, 1956 has been withdrawn. Listed companies and prescribed class of companies have to establish a vigil mechanism. Listed companies and prescribed class of companies have to form a Nomination and Remuneration Committee. Every company having more than 1000 shareholders, debenture holders, deposit holders or other security holders have to form a Stakeholders’ Relationship Committee. Inter-corporate loans and investments, and investments through more than two layer investment subsidiaries are restricted. Increment in the limits of contributions by a company to political parties or for political activities. Forward trading in the shares of companies, its holding, subsidiary and associate companies by the directors is prohibited.
Section 173: Meetings of Board (Similar to Section 285,286)
Comment - This Section provides that a minimum of four board meetings are to be held in a year and the time gap between two meetings shall not be more than 120 days. There is no requirement to hold the meeting every quarter as provided under the Companies Act, 1956.Atleast 7 days notice of Board meeting shall be given to every director at his address registered with the company by post or by electronic means failing which officers shall be liable for penalty.However, a provision for shorter notice is there. Shorter notice in private limited companies may not be practically possible. Participation of directors at Board Meetings has been permitted through video-conferencing. In case of One Person Company, Small Company and Dormant Company, atleast 1 meeting of the Board of Directors must be held in each half of a calendar year and the gap between the 2 meetings shall be atleast 90 days. The provision of this Section shall not apply to OPC which has only one Director.
First Board Meeting, Interval between Board Meetings & Relaxation by the Central Government [Sec 173 (1)]:
a. First Board Meeting - Every company shall hold the first meeting of the Board of Directors withinthirty days of the date of its incorporation
b. Interval between Board Meetings - After the first meeting, the company shall 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.
c. Relaxation by the Central Government - The Central Government may, by notification, direct that the provisions of this subsection shall not apply in relation to any class or descriptttion of companies or shall apply subject to such exceptions, modifications or conditions as may be specified in the notification.
Four Board Meetings Held – Whether Contravention of Section 173?
Example: Does the company comply with the provisions of section 173(1) in the following cases?
a. A company held its 1st, 2nd, 3rd and 4th Board meetings on 1st January, 30th June, 1st July and 31st December respectively.
b. A company held its 1st, 2nd, 3rd and 4th Board meetings on 1st March, 30th May, 15th September and 31stDecember respectively.
Answer a. The company has held four board meetings in a year. However, as the gap between 1st & 2ndmeeting as well as 3rd & 4th meeting exceeds 120 days, the company has not complied with the provisions of Section 173(1).
Answer b. The company has held four board meetings in a year. Also the gap between all meetings does not exceed 120 days; the company has complied with the provisions of Section 173(1).
Ø Participation of Directors in Meeting [Sec 173(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 recognising the participation of the directors and of recording and storing the proceedings of such meetings along with date and time. The Central Government may, by notification, specify such matters which shall not be dealt with in a meeting through video conferencing or other audio visual means.
Whether Participation by Video Conferencing in Board Meeting is Valid?
Example: A private ltd co. has 12 directors out of which 7 directors stay abroad. Out of the remaining 5 directors, four directors are in New York presently. The company wants to hold a board meeting in which the 7 directors residing abroad and 5 directors went on a visit to New York will participate through video conferencing. Can the company hold a valid Board Meeting in which those directors will participate by means of video conferencing?
Answer: Sec. 173(2) allows the participation of directors in Board Meeting through video conferencing or other audio visual means also. However, it should be capable of recording and recognising the participation of the directors and recording and storing the proceedings of such meetings along with date and time. Hence, the company can hold a valid board meeting.
Length of Notice, Shorter Notice [Sec 173(3)]:
a. Length of Notice - 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:
b. Shorter Notice - Provided that a meeting of the Board may be called at shorter notice to transacturgent business subject to the condition that at least one independent director, if any, shall be presentat 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 onratification thereof by at least one independent director, if any.
Whether Notice by Email is Valid?
Example: A company wants to hold its Board Meeting on 15th September. The company wants to send the notice by email on 13th September. Examine Its Validity.
Answer: Sec 173(3) allows the delivery of notice by electronic means. In case of urgent business, a notice shorter to 7 days is allowed provided atleast one independent director is either present at the meeting or ratify the transaction afterwards in the manner prescribed.
Date, Place & Time of Board Meeting
Example: A company wants to hold its Board Meeting abroad on Sunday at 11 PM at night. Examine the validity.
Answer: Unlike an AGM, the date, place & time of the board meeting has been left with the discretion of the directors and there is no restriction under the companies act, 2013 regarding the date, time and place of board meeting. Hence the Board Meeting is valid provided a proper notice for such Board meeting is given to all the directors at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means Form or Content of Notice
Example: In the above example, is it necessary that notice shall specify the nature of business to be transacted?
Answer: No form or content has been prescribed by the act. Agenda is not required to be sent along with the notice unless the act requires specific notice to be moved for a resolution at a Board Meeting.
Notice by way of Telephonic Call due to urgent necessity
Example: A company called a meeting by a telephone call due to very urgent necessity. The meeting is attended by all directors and five items were transacted. None of the directors objected to the absence of notice. Examine validity.
Answer: As per sec 173(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. As the notice has not been given in writing, such notice is not valid. Hence the meeting cannot be said to be properly called and will be invalid.
Notice to a foreign director present in India by courier at his hotel
Example: A company sent a notice of meeting to a foreign director (present in India) by courier at his hotel. Examine validity.
Answer: As per sec 173(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. As the notice has not been given at his address registered with the company, such notice shall be invalid.
Whether Notice To An Interested Director(S), Foreign Director (S), Alternate Director(S) As Well As Original Director Necessary?
Example: A company has 5 directors, A, B, C, D & E. A is a foreign director. X has been appointed as alternate director to B. C is an interested director for the purpose of proposed resolution. The Company does not want to send notice to A (as he is a foreign director and not likely to attend), B (on the grounds that he is out of state) & C (as he cannot vote in the meeting). Examine validity.
Answer: As per sec 173(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. Hence the company is required to send notice to A, B & C also.
Can Resolution Passed To Hold A Board Meeting Be Treated As Notice?
Example: A company passed a resolution to hold a board meeting on 1st day of every month at 11:00 AM at its registered office. Examine validity.
Answer: Sec 173(3) do not prescribe the form or mood of notice. A copy of resolution passed will be sufficient and can be treated as notice provided the resolution is served on every director. Merely passing of resolution is not sufficient. [A.L.A.R. Arunachalam Chettiar Firm V Kaleeswarar Mills Ltd AIR (1957) Mad 309]
Article Of Association Specifying The Date, Place And Time Of Board Meeting
Example: The AOA of the company fixes the date, time and place of Board meeting. Can this be treated as notice?
Answer: A provision in the article is equivalent to the notice in writing. Hence no further notice is required.
Notice for Adjourned Board Meeting
Example: A company adjourned its board meeting and do not want to give further notice. Examine validity
Answer: Adjourned Board Meeting is a continuation of the original meeting. Hence no further notice is required except in the following cases:
1) Where the articles of the company provides for fresh notice for adjourned meeting. [Pramod Kr. Mittal V Southern Steel Ltd (1980) 50 Comp Cas 555]
2) Where a board meeting is adjourned for an indefinite time
Whether Right to Receive Notice Can Be Waived?
Example: Mr. Rohit, a director states that he will not be able to attend the board meetings for the next 1 month. Company does not want to send notice to Mr. Rohit. Examine Validity.
Answer: Notice is to be sent to each director even if he waives his right to receive notice [Re, Portuguese Consolidated Copper Mines Ltd. (1889) 42 Ch D 160 (CA)]
Omission to give notice – Consequences
Example: A Ltd. failed to send notice to a director. Examine Validity.
Answer: The provisions of Sec. 173(3) are mandatory and failure to send notice to even a single director will make the meeting and the resolution passed at the meeting null and void [Kuldip Singh Dhillon V Paragon Utility Finaciers Pvt Ltd. (1988) 60 Comp Cas 77]. Even an accidental omission to give notice to a director would make the meeting invalid. [Parmeshwari Prasad Gupta V Union of India (1974) 44 Comp Cas 1]
Penalty [Sec 173(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.
Relaxation for OPC, Small Co. & Dormant Co. [Sec 173(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.
Two Board Meetings Of OPC Held – Whether Contravention of Section 173?
Example: Does the OPC comply with the provisions of section 173 in the following cases?
a. A company held its 1st & 2nd Board meetings on 31st May and 16th August respectively.
b. A company held its 1st & 2nd Board meetings on 11th April and 11th September respectively.
Answer a. The OPC has held two board meetings in each half of a calendar year. However, as the gap between the two meetings does not exceed 90 days, the OPC has not complied with the provisions of Section 173.
Answer b. The OPC has held two board meetings in each half of a calendar year. However, as the gap between the two meetings exceeds 90 days, the OPC has complied with the provisions of Section 173.
Exemption for OPC [Sec 173(5)]: Nothing contained in this sub-section and in section 174 shall apply to One Person Company in which there is only one director on its Board of Directors.
Section174: Quorum for meetings of Board (Similar to Section 287,288)
Comment - This Section provides that the quorum for a meeting of the BOD of a company shall be 1/3 of its total strength or 2 directors, whichever is higher, and the directors participating by video conferencing or other audio visual means shall be counted for quorum. Where the number of interested directors exceeds, or is equal to, 2/3 of the total strength of the Board, the number of directors who are not interested and present at the meeting, being not less than 2, shall be the quorum. The meeting shall stand adjourned if it could not be held for want of quorum. Now where due to removal / resignation etc. the number of Directors is reduced below the quorum requirement, then the continuing Directors may act for the purpose of increasing the number of Directors to that required for the quorum, or for summoning a general meeting of the Company. The provisions that the frequency of the Board meeting shall not be deemed to be contravened merely by the reason that the meeting of the Board had been called in compliance with the Section could not be held for the want of quorum, has been dispensed with. Provisions do not apply to the OPC.
Quorum for Board Meeting [Sec 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.
Whether Participation by Video Conferencing Counted For Quorum?
Example: A private ltd co. has 12 directors out of which 7 directors stay abroad. Out of the remaining 5 directors, 2 directors are in New York & 2 Director are in New Delhi at present. The company wants to hold a board meeting in which the 7 directors residing abroad and 4 directors in New York & New Delhi will participate through video conferencing. Can the participation by video conferencing will be counted for the purpose of quorum?
Answer: Sec. 174(1) states that the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum. Hence, such participation will be counted for the purpose of Quorum.
Position of Alternate Directors while computing Quorum and whether quorum has to be present throughout the meeting.
Example: The board meeting of a company started at 01:00 PM where 7 directors were present, out of which 2 directors were alternate director. The total no. of directors was 10. The Board transacted 10 items. At 02:00 PM, after the completion of 4 items in the agenda, 4 directors left the meeting. Examine the validity of transaction.
Answer: In the given case, quorum will be 1/3 of 10 directors i.e. 3.33 taken as 4 directors. Alternate directors shall also be included while computing quorum. Since 7 directors were present upto the completion of 4 items in the agenda, the Board meeting has been has been validly held. However, quorum has to be present at the time of transacting each and every business. As after transacting 4 items, 4 directors left, because of which the no. of directors present has fallen below the quorum, the remaining 6 items of the agenda cannot be validly discussed and voted upon. Therefore, resolutions passed in respect of 6 items are void and have no legal effect.
Summoning of General Meeting [Sec 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.
How can number of directors be increased if fallen below quorum?
Example: The no. of directors of a Private Ltd. Co. has been reduced to 1. How can the co. appoint director to increase the no. of strength to that fixed for quorum?
Answer: Sec. 174(2) empowers the continuing director(s) to act for the purpose of increasing no. of directors to that fixed for the quorum or for summoning a general meeting, if the no. has been reduced below the quorum. In such a case, the continuing director may appoint an additional director or may summon a general meeting for the purpose of appointment of director.
Quorum in case of Interested Directors [Sec 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. “Interested director” means a director within the meaning of sub-section (2) of section 184.
Whether Quorum Is Present?
Example (a) In a meeting, out of 11 directors only 7 directors were present of which only two directors were not interested in one of the transaction. How should the meeting deal with the matter?
(b) Suppose, in the above example, 10 directors were present of which only two directors were not interested in one of the transaction. How should the meeting deal with the matter?
Answer: In the given case, the required quorum comes to 4 directors (1/3 of total strength or 2; whichever is higher) but only 2 directors who are not interested in the transaction are present. 2/3 of the total strength comes to 8.
(a) Since the no. of interested director is only 5, section 174 is not attracted. Thus the remaining 2 directors who are not interested do not constitute a quorum and hence the Board meeting cannot be validly convened.
(b) Since the no. of interested director is 8, section 174 is attracted. Thus the remaining 2 directors who are not interested will constitute a quorum and hence the Board meeting shall be valid.
Warm Regards
CA Nitesh Kumar More | FCA
CAclubindia
