[2013] 38 taxmann.com 325 (Article)
Law relating to Meetings
T.V. GANESAN
CS
INTRODUCTION
1. The Companies Bill, 2012 was approved by the Lok Sabha on 18th December, 2012 and the same was also approved by the Rajya Sabha on 8th August, 2013. Thereafter, it received the assent of the President of India and became the Companies Act, 2013 (Act 18 of 2013) [hereinafter called the new Act]. The new Companies Act has replaced the Companies Act, 1956 which contained 658 sections and Seven Schedules. The new Act contains 29 Chapters and 470 clauses. Further, the new Act has left so many matters to subordinate legislation, i.e.,Rules, Regulations and Circular, etc., which are yet to be notified. The new Act proposes to bring in easy and efficient way of conducting business with better accountability, Corporate Governance, depicting transparency and making the companies socially responsible.
COMPANY & ITS BOARD OF DIRECTORS
2. A Company has its own legal personality which is different from its members. It acquires a separate legal status through its incorporation and by virtue of its constitution. Further, it can only act within the powers given to it by its Constitution, i.e., Memorandum of Association & in accordance with the rules of management which are established by its Articles. Each company's management of business is vested in the Board of Directors by the Articles of Association. Thus, it can be said that a Company has to act within the objects clause of its Memorandum. The Board of Directors act and conduct the business of the Company according to the law, the Memorandum & Articles of the Company and the resolutions passed by the Company's members at the general meetings. The normal mode of conducting business by the Board is through meetings. Apart from the Board meeting, a company has to hold Annual General Meeting and other meetings which are called as Extraordinary General Meetings to transact various businesses. This Article highlights the provisions of the Companies Act, 2013 relating to conduct of various meetings and the relevant resolutions to be passed in order to validate such businesses.
3. MEETINGS OF THE BOARD
3.1 Number of Meetings - According to section 173(1) of the new Act, the first Board meeting of a company shall be held within 30 days from the date of incorporation. Thereafter, the company should hold a minimum of four Board Meetings every year. However, the gap between one Board meeting and the other should not be of more than 120 days.
If one interprets the meaning given in the aforesaid section the year meant is neither a financial year nor a calendar year. The year would start from the next day of its first Board Meeting, unless the Government clarifies otherwise through a circular. The provisions allow a maximum gap of 120 days between two consecutive Board Meetings, which indirectly gives flexibility in conducting the Board Meetings.
3.2 Participation in Meetings - Section 173(2) allows Directors to participate in the Board Meetings either in person or through video conferencing or through other audio-visual means as may be prescribed in this behalf. However, participation through video conferencing should be capable of recording the proceedings of the meetings with date and time and also should recognize the participation of the directors. The Government may limit the use of video-conferencing and audio-visual means.
3.3 Notice of the Meeting - According to section 173(3) in order to validly hold a Board Meeting, seven days' notice should be given in writing to every director at his address registered with the Company and should be hand delivered or sent by post or by electronics means. This means that the notice has to be sent to all the directors, including those residing abroad.
However, it is also possible to hold a Board Meeting at a shorter notice than the period prescribed above, subject to the condition that at least one independent director, if any, shall be present at the meeting. In the absence of independent director, the decision taken at such a meeting shall be circulated to all the directors and should be taken as final and approved only on ratification by at least one independent director, if any.
3.4 Board Meeting of one man company & others - As per section 173(5), One Man Company [with more than one director], Small Company and Dormant company shall have at least one meeting in each half of a calendar year with a gap of at least 90 days between two consecutive Board Meetings.
3.5 Quorum for the Board Meeting - Section 174(1) prescribes the quorum for a Board Meeting of a Company as one third of its total strength or two directors, whichever is higher. For this purpose, the directors who are participating through video conferencing or other audio-visual means shall be counted for the purpose of quorum. Explanation to the section 174(1) states that any fraction of a number shall be rounded off as one. Also, 'total strength' shall not include directors whose places are vacant.
Further, as per sub-section (2), the continuing directors may act notwithstanding any vacancy in the Board. If and so long as the 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 for the purpose of summoning a general meeting of the Company and for no other purpose.
Section 174(3) prescribes that in the event 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.
As per section 174(4), where a meeting of the Board could not be held for want of quorum, then 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.
3.6 Passing of Resolution by circulation - Section 175 of the new Act prescribes the procedure for passing of Resolution by Circulation. The resolution shall be circulated in draft together with all necessary papers to all directors or to the members of Committee in same manner as notice. The resolution shall be passed when approved by majority of directors (or members) who are entitled to vote. When one third or more directors require that it must be decided in a meeting, the Chairperson shall put the resolution to be decided in the meeting.
Sub-section (2) provides that every resolution passed by circulation must be noted in next board meeting and made part of minutes of that meeting.
3.7 Resolution passed in Adjourned Meeting - As per section 116, where a resolution is passed at an adjourned meeting of the Board of Directors of a company, the resolution shall, for all purposes, be treated as having been passed on the date on which it was, in fact, passed.
4. GENERAL PROVISIONS OF MEETINGS
4.1 Notice of the Meeting - As per Section 101 of the new Act, a general meeting of a company may be called by giving not less than 21 days clear notice. The notice can be given either in writing or through electronic mode. In case consent is given in writing or by electronic mode by not less than 95% of the members, the general meeting may be called after giving a shorter notice. Such notice shall specify the place, date, day and the hour of the meeting and shall also contain the statement of the business to be transacted at such meeting.
Notice of every meeting of the Company shall be given to:-
| (i) | Every member of the Company, legal representative of any deceased member. | |
| (ii) | The Auditor of the Company. | |
| (iii) | Every director of the Company. |
The notice of the meeting shall also contain a statement of the business to be transacted at such meeting. Accidental omission to give notice to or non-receipt of such notice by any member or other person shall not invalidate the proceedings of the Meeting.
According to section 102 of the new Act, a statement setting out the following material facts concerning each item of special business to be transacted at a general meeting, shall be annexed to the notice calling such meeting.
| (a) | The nature of concern or interest, financial or otherwise, if any in respect of each item of (i) every director and manager, if any, (ii) every other key managerial personnel and relatives of the persons mentioned in (i) & (ii). | |
| (b) | Any other information and facts that may enable members to understand the meaning, scope and implication of the items of business and to take decision thereon. |
In the case of an annual general meeting, all business to be transacted thereat shall be deemed special, other than:
| (i) | the consideration of financial statements and reports of the Board of directors and auditors, | |
| (ii) | the declaration of any dividend, | |
| (iii) | the appointment of directors in place of those retiring, | |
| (iv) | the appointment of, and the fixing of the remuneration of the auditors. |
In the case of any other meeting all business shall be deemed to be special.
The following information should be provided in the Statement:-
| (a) | If any item of special business to be transacted at a meeting of the company relates to or affects any other company. |
| - | The extent of shareholding interest in that other company of every promoter, director, manager, if any, and of every other key managerial personnel of the first mentioned company be set out in the statement. | |
| The above information need to be set out in case the extent of such shareholding interest is not less than 2% of the paid-up share capital of the company. |
| (b) | If any item of business refers to any document, which is to be considered at the meeting, then the time and place where such document can be inspected should be mentioned in the statement. |
4.1-1 Penalty for non-disclosure - The promoter, director, manager, if any, or other key managerial personnel shall hold the benefit received on account of such non-disclosure or insufficient disclosure in trust for the company and also liable to compensate the Company to the extent of the benefit received by him. Further, if any default is made in complying with the provisions of this section, then every promoter, director, manager or other key managerial person who is in default shall be punishable with fine which may extend to Rs. 50,000 or five times the amount of benefit accruing to him, whichever is more.
4.2 Quorum for a General Meeting - As per section 103 of the new Act, the Quorum for a public company would be as follows:–
| No. of members | Quorum |
| Up to 1,000 | 5 |
| More than 1,000 up to 5,000 | 15 |
| Exceeding 5,000 | 30 |
The aforesaid number of members is to be reckoned as on the date of the meeting.
In the case of a private company, two members personally present shall be the quorum. However, a company may fix a larger number than the above as quorum through the Articles of Association and in that case the quorum fixed in the Articles shall be the quorum.
4.2-1 If quorum is not present-its consequences - If the quorum is not present within half-an-hour from the time appointed for holding the meeting of the company, then the meeting shall stand adjourned to the same day in the next week at the same time and place or to such other date and such other time and place as the Board may determine. If at the adjourned meeting also a quorum is not present within half-an-hour from the time appointed for holding the meeting, the members present shall be the quorum.
As per section 116 of the Act, where a resolution is passed at an adjourned meeting of a company or the holders of any class of shares in a company, the resolution shall, for all purposes be treated as having been passed on the day on which it was, in fact, passed. It cannot be deemed to have been passed on any earlier date.
4.3 Chairman of meetings - As per section 104 of the new Act, the members personally present at the meeting shall elect one of members to be the Chairman thereof on a show of hands. But the Company can always provide otherwise in the Article of Association of the Company.
In case a poll is demanded on the election of the Chairman, it shall be taken forthwith and the Chairman elected on a show of hands under the aforesaid section shall continue to be the Chairman of the meeting until some other person is elected as Chairman as a result of the poll. This other person shall act as Chairman for the rest of the meeting.
4.4 Ordinary and special resolutions - As per section 114 of the Act, a resolution shall be an ordinary resolution. The resolution can be passed in the following ways:
| (i) | on a show of hands, | |
| (ii) | electronically, | |
| (iii) | on a poll, | |
| (iv) | Postal ballot. |
Further, the members who are entitled to vote can vote either in person or through proxy. The casting vote, if any, of the Chairman is included for this purpose. Further, the notice required to be given under this Act should have been duly given.
A resolution shall be a special resolution if it fulfils the following conditions:-
| (a) | the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting; | |
| (b) | the notice required under this Act has been duly given; and | |
| (c) | the votes cast in favour of the resolution, whether on a show of hands, or electronically or on a poll, as the case may be, by members who, being entitled so to do, vote in person or by proxy or by postal ballot, are required to be not less than 3 times the number of the votes, if any, cast against the resolution by members so entitled and voting. |
4.5 Resolutions requiring special notice - Section 15 specifies that where by any provision contained under this Act, or in the Articles of the company, special notice is required of any resolution then notice of intention to move such a resolution shall be given to the company by such number of members holding not less than 1% of total voting power or holding shares on which an aggregate sum not exceeding five lakh rupees has been paid-up. Upon receipt of the same, the Company shall give its members notice of the resolution in such manner as may be prescribed.
ANNUAL GENERAL MEETING
5. According to section 96 of the new Act, every company other than a One person company shall in each year hold in addition to any other meeting, a general meeting which is called as its annual general meeting. In the notice calling the meeting, the company should specify that it is the annual general meeting. The time gap between two consecutive Annual General Meetings should not exceed 15 months.
The first annual general meeting of a company should be held within a period of 9 months from the date of closing of first financial year and in other cases, within a period of 6 months from the date of closing of the financial year. If a company holds its first annual general meeting as aforesaid, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation. The Registrar may, for any special reason, extend the time within which any annual general meeting, other than the first annual general meeting, shall be held, within a period of not exceeding three months.
Further, every annual general meeting shall be called during the business hours, that is, between 9 AM and 6 PM on any day that is not a National Holiday. This means that the Annual General Meeting can be held even on a Sunday. The same shall be held at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated.
5.1 Power of the Tribunal to call Annual General Meeting - As per section 97 of the new Act, if any default is committed in holding the annual general meeting of a company under section 96, the Tribunal may direct calling of an annual general meeting of the company on the application of any member of the company. It has power to do so notwithstanding anything contained in this Act or in the articles of the company. The Tribunal has got absolute powers to give ancillary or consequential directions in conducting the annual general meeting. The directions may also include that one member of the company present in person or by proxy shall be deemed to constitute a meeting. A general meeting held under the directions of a Tribunal according to this section is deemed to be an annual general meeting of the Company.
5.2 Power of Tribunal to call meetings of members, etc. - As per section 98 of the Act, if for any reason, it was not practicable to call a meeting of a company other than an annual general meeting, in any manner in which the meetings of the Company may be called, then the Tribunal may, either of its own motion or on the application of any director of member of the company who would be entitled to vote at the meeting-
| (a) | order a meeting of the company to be called, held and conducted in such manner as the Tribunal thinks fit; and | |
| (b) | give such ancillary or consequential directions as the Tribunal thinks expedient, including modification relating to calling, holding and conducting of the meetings or the operations of the provisions of this Act or articles of the Company. |
The Tribunal's direction may also include that one member of a company present in person or by proxy shall be deemed to constitute a meeting.
EXTRAORDINARY GENERAL MEETING
6. As per section 100, the Board of Directors can call an extraordinary general meeting whenever they deem it fit.
Further, the Board shall, at the requisition made by—
| (a) | a company having a share capital, such number of members who hold on the date of the receipt of the requisition, not less than one-tenth of such of the paid-up share capital of the company and on that date carries the right of voting; | |
| (b) | a company not having a share capital, such number of members who have, on the date of receipt of the requisition, not less than one-tenth of the total voting power of all the members having on the said date a right to vote; | |
| proceed to call an extraordinary general meeting of the company within 21 days from the date of receipt of a valid requisition in regard to any matter, on a day not later than 45 days from the date of receipt of such requisition. For this purpose the requisitionists shall set out the matters for the consideration of the meeting and shall be signed by them and the same shall be sent to the registered office of the company. |
In case the Board fails to call and hold the meeting as aforesaid within the time frame given, the meeting may be called and held by the requisitionists themselves within a period of 3 months from the date of the requisition. In that event, any reasonable expenses incurred by the requisitionists in calling the meeting shall be reimbursed by the company.
RESOLUTIONS AND AGREEMENTS TO BE FILED
7. As per section 117(3), the following resolutions or agreements together with explanatory statement as specified in section 102, if any annexed to the notice calling the meeting shall be filed with the Registrar of Companies within 30 days of the passing or making of :-
| (a) | Special resolutions; | |
| (b) | Resolutions which have been agreed to by all the members of a company, but which, if not so agreed to, would not have been effective for their purpose unless they had been passed as special resolutions; | |
| (c) | Any resolution of the Board of Directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment of a managing director; | |
| (d) | Resolutions or agreements which have been agreed to by any class of members but which, if not so agreed to, would not have been effective for their purpose unless they had been passed by a specified majority or otherwise in some particular manner; and all resolutions or agreements which effectively bind such class of members, though not agreed to by all those members; | |
| (e) | Resolutions passed by a company according consent to the exercise by its Board of Directors of any of the powers under clause (a) and clause (c) of sub-section (1) of section 180; | |
| (f) | Resolutions requiring a company to be wound up voluntarily passed in pursuance of section 304; | |
| (g) | Resolutions passed in pursuance of sub-section (3) of section 179; and | |
| (h) | Any other resolution or agreement as may be prescribed and placed in the public domain. |
In case the aforesaid resolutions and agreements are not filed within 30 days of passing, the same can be filed with such fees as may be prescribed within the time specified under section 403 of the Act.
In case any resolution which has been passed has the effect of altering the articles, the copy of every agreement referred to in section 117(3) above shall be embodied in or annexed to every copy of the articles issued after passing of the resolution or making of the agreement.
Failure to file the resolution or the agreement under this section before the expiry of the period mentioned under section 403 with additional fee, will attract huge penalty and the company shall be punishable with fine which shall not be less than Rs. 5 lac but may extend to Rs. 25 lac. Every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 1 lakh but which may extend to Rs. 5 lac.
MINUTES OF MEETING
8. As per section 118 of the new Act, every company shall prepare the minutes of the following, consecutively numbered, signed and kept within 30 days of the conclusion of every such meeting:–
| (a) | General meeting of any class of shareholders | |
| (b) | Meeting of creditors | |
| (c) | Every resolution passed by the postal ballot | |
| (d) | Board Meeting or Committee Meeting |
The minutes of each meeting shall contain a fair and correct summary of the proceedings. All appointments made at any of the meetings aforesaid shall be included in the minutes of the meeting.
In the case of a meeting of the Board of Directors or of a Committee of the Board, the minutes shall also contain—
| (a) | the names of the directors present at the meeting; and | |
| (b) | in the case of each resolution passed at the meeting, the names of the directors, if any, dissenting from or not concurring with the resolution. |
Further, the minutes should not include the following which in the opinion of the Chairman of the meeting :
| (a) | is or could reasonably be regarded as defamatory of any person; or | |
| (b) | is irrelevant or immaterial to the proceedings; or | |
| (c) | is detrimental to the interests of the company. |
The Chairman has got the discretionary power to include or not to include any matter in the minutes on the grounds specified above.
The minutes in accordance with the provisions of this section shall be evidence of the proceedings recorded therein.
Where the minutes have been kept in accordance with this section, until the contrary is proved, the following presumption would prevail:-
| (a) | the meeting shall be deemed to have been duly called and held, | |
| (b) | all proceedings thereat to have duly taken place, | |
| (c) | the resolutions passed by postal ballot to have been duly passed, | |
| (d) | all appointments of directors, key managerial personnel, auditors or company secretary in practice shall be deemed to be valid. |
A company cannot circulate or advertise any document purporting to be a report of the proceedings of any general meeting of a company, unless it includes the matters required by this section to be contained in the minutes of the proceedings of such meeting.
8.1 Secretarial Standards - As per section 118(10) of the new Act, every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved, as such, by the Central Government.
9. OTHER MEETINGS
9.1 Audit Committee Meeting - As per section 177 of the new Act, every listed company and such other company as may be prescribed shall form Audit Committee. The Audit Committee shall comprise of minimum 3 directors with independent directors forming a majority. Further, the majority of the members of the Audit Committee including its Chairperson shall be persons with ability to read and understand the financial statement. Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board. The Audit Committee may call for the comments of the auditors about the internal control system, scope of audit, including observations of the auditors and review of financial statement before submission to the Board. Further, the auditors of the company and the key managerial personnel shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor's report but shall not have the right to vote. The Board's Report shall disclose the composition of the Audit Committee. Where the Board has not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons.
9.2 Nomination and Remuneration Committee meeting - As per section 178(1), the Board of Directors of every listed company shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one half should be independent directors. The Chairperson of the Company, whether executive or non-executive, may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee. The nomination and remuneration committee shall also identify persons who are qualified to become directors and who may be appointed in senior management positions in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every director's performance. The Chairperson of the Committee constituted under this Committee or in his absence any other member of the Committee authorised by him in this behalf shall attend the general meeting of the Company.
9.3 Stakeholders Relationship Committee meeting - As per section 178(5), the Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security-holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a Chairperson who shall be a non-executive director and such other members as may be decided by the Board. The main function of the Committee is to consider and resolve the grievances of the security holders of the company. The Chairperson of the Committee constituted under this Committee or in his absence any other member of the Committee authorised by him in this behalf shall attend the general meetings of the Company.
CONCLUSION
10. The Companies Act, 2013 has replaced the entire provisions of the Companies Act, 1956 and has inter alia made various changes in conducting of meetings, passing of resolutions, etc. The Companies Act, 2013 is forward looking in its approach which empowers the Central Government to make rules. As per section 469, contravention of any of the rules shall be punishable with fine. The rules are yet to be notified by the Central Government. The new Act has brought provisions relating to conducting of Board Meeting and other general meetings which are flexible and at the same time bring transparency which will boost the investors' confidence. On the other hand, certain provisions in the Act are very tough to comply with and plug the loopholes in the earlier Act. While the new Act brings enthusiasm and cheer in various spheres, it is yet to be seen whether the corporates would conduct their business with ease or will face various nuances and difficulties in complying with the provisions of the Act.
Regards
Prarthana Jalan
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