UNIT III
MANAGEMENT
Directors
A director is not a servant of any master, they are rather the officers of the company. A director is, in fact, a director or controller of a company and he manages all the affairs of the company. However, a director can work as an employee in a different capacity.
Directors are basically registered under the companies act and are duly appointed by the company to direct and manage the business of the company. They are sometimes described as agents, as trustees and sometimes as managing partners.
Appointment -
1) Casual vacancies
A casual vacancy occurs when the director’s office is vacated before the expiry of the term of the director. Such a vacancy can be filled by the procedure or the process prescribed by the articles. If any clause is absent in the articles then the power is given to the directors so that he can fill the vacancy at the board meeting. The person who has been appointed by this procedure, hold the office until the expiry of the period for which the outgoing director would have held the office.
2) Additional directors
Considering the powers of the directors, additional directors can be appointed by the board. There can be an addition to directors but total members of the directors should not exceed the maximum limit as mentioned in the articles. If the strength of directors is below the minimum limit of the members then the addition of directors is valid.
However, the additional directors can hold the office only up to the date of the next meeting which is held annually. The additional director is exempted to fulfill the requirement of consent under Section 264.
3) Appointment by Central Government
The central government has the power to appoint directors for the purpose to prevent mismanagement under Section 408. This power is applied when a petition has been filed to the National Company Law Tribunal to prevent mismanagement.
Consent to act as directors
Every person who has appointed as director shall furnish a consent in writing to the company as such in Form DIR-2. The director must submit such consent with the registrar in Form DIR-12 within thirty days(30 days) of the appointment of the director.
Qualifications of directors
Share qualification
The articles of the company provide that every director should hold a certain number of shares. Such shares are known as qualification shares. A director must obtain the required number within two months of the appointment. If a director is not appointed as a director he cannot be compelled to obtain qualification shares. Also within a period shorter than two months of the appointment, he cannot be compelled to obtain the qualification of shares. The value of the qualification shares cannot be more than five thousand rupees except when the nominal value of the share is more than the amount of the share. A director can hold only shares and not share warrants. A director may suffer if he fails to obtain his qualification shares as advised. He can suffer in two ways:
1) His office can fall vacant.
2) He will be liable to pay a penalty if he continues to act as a director. The director is required to hold the shares in his own right.
Legal position Of Directors
It is not easy to explain the position that a director holds in a corporate enterprise. A director is not a servant of any master. He is the controller of the company’s affairs. Director of a company is neither an employee nor a servant to the company. They are professional people who were hired by the company to direct its affairs.
However there is no restriction under the Act, that a director cannot be an employee to the company. In Lee v. Lee’s Air Farming Ltd2, it was held that, a director may, however, work as an employee in different capacity. There is no definite definition for director under the Companies Act, 1956. Director includes any person who is occupying the position of a director, whatever name called3. So in order to understand the position of a director in a company we have to look in to various decided cases.
In Judhah v. Rampada Gupta4, it was held that, director of a company registered under this Act5 are persons duly appointed by the company to direct and manage the business of the company. A director is sometimes described as agents, trustees, managing partners etc. But each of these expressions is used not as exhaustive of their powers and responsibilities, but as indicating useful points of view from which they may for the moment and for the particular purpose be considered.
Director As Agents
In Ferguson v. Wilson6, the court clearly recognised that directors are in the eyes of law, agents of the company. It was held that, the company has no person; it can act only through directors and the case is, as regards those directors, merely the ordinary case of a principal and agent. When the directors contract in the name, and on behalf of the company, it is the company which is liable on it and not the directors.
In Elkington & Co. v. Hurter7, where the plaintiff supplied certain goods to a company through its chairman, who promised to issue him a debenture for the price, but never did so and company went into liquidation, he was held not liable to the plaintiff. Similarly, a director was held to be personally not liable in a suit against a private chit fund company. Attachment of the property of the director was held to be not permissible8.
Like agents, directors have to disclose their personal interest, if any, in any transaction of the company. In Ray Cylinders & Containers v. Hindustan General Industries Ltd9, held that, the directors are the agents of the institution and not of its individual members, except when that relationship arises due to the special facts of the case. Also granted permission to file a suit against a company was not allowed to be treated as permission against directors as well.
In Sarathi Leasing Finance Ltd v. B Narayana Shetty10, the articles of association empowered the managing director to represent the company in legal proceedings. It was held that a further authorization was not necessary to enable him to file a complaint for dishonor of cheque under Sec. 138 of Negotiable Instrument Act.
Directors are the agents of a company. They are acting on behalf of the company. So the directors cannot be held personally liable for any default of the company. It was held that, for a loan taken by a company, the directors, who had not given any personal guarantee to the creditor, could not be made liable merely because they were directors.
Director As Trustees
Directors are the trusties of the company’s money, property and their powers and such must account for all the moneys over which they exercise control and shall refund any moneys improperly paid away, and shall exercise their powers honestly in the interest of the company and all the shareholders, and not their own sectional interest.
The directors of a company are trustees for the company, and for reference to their power of applying funds of the company and for misuse of the power they could be rendered liable as trustees and on their death, cause of action survives against their legal representatives11. Directors are those persons selected to manage the affairs of the company for the benefit of shareholders. It is an office of trust, which if they undertake, it is their duty to perform fully and entirely. This peculiar nature of their office is one of the reason why the directors been described as trusties.
In the real sense the directors are not trustees. A trustee is the legal owner of the trust property and contracts in his own name. On the other hand, director is a paid agent or officer of the company and contracts for the company12. In fact, the directors are commercial men managing a trading concern for the benefit of themselves and of all the shareholders in it.
To whom the directors are trustee? Whether to the company or to the individual shareholders. This principle was laid down in 1902 in Percival v. Wright13, and still holds ground as a basic proposition. In this case the court held that, directors have no duty towards individual shareholders. From this it is very clear that, the directors are trustees to the company and not of individual shareholders. The principle of the case was reiterated in Peskin v. Anderson14. Ordinarily the directors are not agents or trustees of members or shareholders and owe no fiduciary duties to them.
However we have to take the decision of Allen v. Hyatt15. It was held that, the directors are trustees of the profit for the benefit of the shareholders. They cannot always act under the impression that they owe no duty to the individual shareholders. But it is of no doubt that the primary duty of the director is to the company.
But in such circumstances where the directors act as agents for the share holders, the later would be liable to the purchasers of their shares for any fraudulent misrepresentation made by the directors in the course of negotiations16.
Director As Organs Of Corporate Body
The organic theory of corporate life “treats certain officials as organs of the company, for whose action the company is held liable just as a natural person is for the action of his limbs17. Thus the modern directors are more than mere agents or trustees. The Board is also correctly recognised to be a primary organ of the company. Directors and managers represent the directing mind or will of the company and control what it does.
The state of mind of these managers is the state of mind of the company and is treated by law as such. The practical effects of these rules are that the directors’ personal fault in the business of the company becomes the “fault of the company”; their reason to believe is attributed to the company and the intention to occupy a premises as expressed by their conduct is the intention of the company.
Duties of a Director-
The duties and responsibilities of directors stipulated by the Indian Companies Act of 2013, can broadly be classified into the following two categories: ---
[i] The duties and liabilities which encourage and promote the sincerest investment of the best efforts of directors in the efficient and prudent corporate management, in providing elegant and swift resolutions of various business-related issues including those which are raised through "red flags", and in taking fully mature and wise decisions to avert unnecessary risks to the company.
[ii] Fiduciary duties which ensure and secure that the directors of companies always keep the interests of the company and its stakeholders, ahead and above their own personal interests.
The following duties and liabilities have been imposed on the directors of companies, by the Indian Companies Act of 2013, under its Section 166: ---
1) A director of a company shall act in accordance with the Articles of Association (AOA) of the company.
2) A director of the company shall act in good faith, in order to promote the objects of the company, for the benefits of the company as a whole, and in the best interests of the stakeholders of the company.
3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
6) A director of a company shall not assign his office and any assignment so made shall be void.
7) If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one Lakh Rupees but which may extend to five Lac Rupees.
General powers of Board
Subject to the provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do.
However, the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting.
Certain powers to be exercised by Board only at meeting
The Board of directors of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board:-
1) the power to make calls on shares holders in respect of money unpaid on their shares.
2) the power to issue debentures.
3) the power to borrow moneys otherwise than on debentures.
4) the power to invest the funds of the company.
5) the power to make loans.
Key Takeaways:
(1) Every director of a company who is in any way, whether directly, or indirectly, concerned or interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into, by or on behalf of the company, shall disclose the nature of his concern or interest at a meeting of the Board of directors.
(2)
(a) In the case of a proposed contract or arrangement, the disclosure required to be made by a director under sub-section (1) shall be made at the meeting of the Board at which the question of entering into the contract or arrangement is first taken into consideration, or if the director was not, at the date of that meeting, concerned or interested in the proposed contract or arrangement, at the first meeting of the Board held after he becomes so concerned or interested.
(b) In the case of any other contract or arrangement, the required disclosure shall be made at the first meeting of the Board held after the director becomes concerned or interested in the contract or arrangement.
(3)
(a) For the purposes of sub-sections (1) and (2), a general notice given to the Board by a director, to the effect that he is a director or a member of a specified body corporate or is a member of a specified firm and is to be regarded as concerned or interested in any contract or arrangement which may, after the date of the notice, be entered into with that body corporate or firm, shall be deemed to be a sufficient disclosure of concern or interest in relation to any contract or arrangement so made.
(b) Any such general notice shall expire at the end of the financial year in which it is given, but may be renewed for further periods of one financial year at a time, by a fresh notice given in the last month of the financial year in which it would otherwise expire.
(c) No such general notice, and no renewal thereof, shall be of effect unless either it is given at a meeting of the Board, or the director concerned takes reasonable steps to secure that it is brought up and read at the first meeting of the Board after it is given.
(4) Every director who fails to comply with sub-section (1) or (2) shall be punishable with fine which may extend to fifty thousand rupees.
(5) Nothing in this section shall be taken to prejudice the operation of any rule of law restricting a director of a company from having any concern or interest in any contracts or arrangements with the company.
(6) Nothing in this section shall apply to any contract or arrangement entered into or to be entered into between two companies where any of the directors of the one company or two or more of them together holds or hold not more than two per cent of the paid-up share capital in the other company.
(1) A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard:
Provided that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 163 to appoint not less than two thirds of the total number of directors according to the principle of proportional representation.
(2) A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
(3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.
(4) Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so,—
(a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and
(b) send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting:
Provided that copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.
(5) A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board, be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2).
(6) A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed.
(7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions of this Act:
Provided that the director who was removed from office shall not be re-appointed as a director by the Board of Directors.
(8) Nothing in this section shall be taken—
(a) as depriving a person removed under this section of any compensation or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director; or
(b) as derogating from any power to remove a director under other provisions of this Act.
COMPANY SECRETARY
Section 2(24) of the companies Act, 2013 defines “company secretary” or “secretary” means a company secretary as defined in clause (c) of sub-section (1) of section 2 of the company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under this Act;
A company secretary may be a principally an employee even though he holds very high rank. He / She could also be the Chief Executive & then his position is near to those of the directors. in reality, he's the sole employee who has advisory powers.
CS advice is pursued in carrying out general administration and within the decision-making process at the time of framing policies of the company. he's consulted to work out the lawful suggestions of policy decisions. Therefore, he/she is that the only outsider who is present at the Board meetings.
Company Secretary is that the one that may be a member of the (ICSI) Institute of Company Secretary of India appointed by the company to perform the functions of the company Secretary.
Time period for such appointment of company secretary:
The Companies Act 2013 doesn't provide the period wherein the company has to designate Company Secretary as (KMP) key managerial personnel. But it's advisable to appoint a corporation Secretary as KMP within the first board meeting which is to be conducted after applicability of such a provision.
PROCESS FOR APPOINTMENT OF COMPANY SECRETARY-
Arrange for board meeting only after giving notice to every director to discuss besides others the following matters. Approve the terms and conditions at which the company Secretary (CS) is proposed to be appointed.
1) Obtain a written consent from the one that is to be appointed as Company Secretary.
2) Inform the stock market with which shares of the company are listed on the date of this meeting before the board meeting
3) Inform the said stock market within 15 minutes of the board meeting, of the result of the meeting by letter or fax.
4) File the relevant form with the concerned ROC within 30 days from the date of Appointment.
5) Pay the requisite fee for the same.
6) Make necessary entries within the Register of Directors/ Secretary.
7) The ‘whole-time secretary’ indicates that a corporation Secretary must be within the employment of the company.
Roles and responsibilities of company secretary
The three main areas, a company Secretary, has the role to play viz. to the Board, to the company, and to the Shareholder.
Core Duties of the company Secretary-
1) Meetings of the Board of Directors.
2) General Meetings.
3) Memorandum and Articles of Association.
4) Requirements of Stock Exchanges.
5) Statutory Registers.
6) Statistical Books.
7) Statutory Returns.
8) Report and Accounts.
9) Registration of Shares.
10) Communications to and from Shareholder.
11) Issues of Share and Capital and Restructuring.
12) Acquisitions, Disposals, and Mergers.
13) Corporate Governance.
14) Common Seal of the company etc.
MEANING
The board of directors is that the supreme authority during a company and that they have the powers to require all major actions and decisions for the company. The board is also liable for managing the affairs of the entire company.
For the effective functioning and management, it's imperative that board meetings be held at frequent intervals. For this, Section 173 of Companies Act, 2013 provides –
In the case of a Public limited company, the first board meeting has got to be held within the first 30 days, since the incorporation date. Additionally, a minimum of 4 board meetings must be held during a span of 1 year. Also, there can't be a niche of quite 120 days between two meetings.
In the case of small companies or one person company, a minimum of two meetings must be conducted, one in each half the financial year. Additionally, the gap between the 2 meetings must be a minimum of 90 days. during a situation where the meeting is held at a brief notice, a minimum of one independent director must be attending the meeting.
Requirements for Conducting a Valid board meeting
Right Convening Authority
The board meeting must be held under the direction of proper authority. Usually, the company secretary (CS) is there to authorize the board meeting. just in case the corporate secretary is unavailable, the predetermined authorized person shall act as the authority to conduct the board meeting.
Adequate Quorum
The proper requirements of the quorum or the minimum number of Directors required to conduct a board meeting must be present for it to be considered a valid board meeting.
Proper Notice
Proper notice is one among the main requirements to be fulfilled when planning a board meeting. Formal notice has got to be served to all or any members before conducting a board meeting.
Proper leader
The meeting should be conducted within the presence of a md of the board.
Proper Agenda
Every board meeting features a set agenda that has got to be followed. The agenda refers to the topic of discussion of the board meeting. No other business, which isn't mentioned within the meeting must be considered.
Agenda of the meeting
• The dictionary meaning of the term agenda is that the “list of things to be dealt with especially at a meeting”.
• It may be aa part of the notice of the meeting which indicates the list of business issues to be transacted at the meeting.
• It is normally called as Agenda Paper
Creating a Agenda
1. State the aim of the meeting
2. Organize items to be discussed so as of their importance, state with the top priority
3. Describe each item to be discussed and explain why it must be addresses
4. Set time limits prior to discussion
Objectives of Agenda •To bring in to the notice of all the members in advance that, what matters are going to be discussed at the time •It enables the members to prepare their strategy in advance regarding the problems which will be discussed at the meeting •It helps to get rid of the confusion among the minds of members if any regarding the aim of the meeting •To prevent many questions being put to the chairman, which are usually raised by members having insufficient information •To bring discipline among members while within the meeting
Notice of board meetings-
1 The act requires that not but seven days notice in writing shall tend to each director at the registered address as available with the company. The notice are often given by hand delivery or by post or by electronic means.
2. just in case the board meeting is named at shorter notice, a minimum of one independent director shall be present at the meeting. If he's not present, then decision of the meeting shall be circulated to all or any directors and it shall be final only after ratification of decision by a minimum of one Independent Director.
Quorum for the committee meeting
If thanks to resignations or removal of director(s), the amount of directors of the company is reduced below the quorum as fixed by the Articles of Association of the company, then, the continuing Directors may act for the aim of increasing the number of Directors thereto required for the quorum or for summoning a general meeting of the corporate . It shall not act for the other purpose.
For the aim of determining the quorum, the participation by a director through Video Conferencing or other audio visual means shall even be counted.
If at any time the amount of interested directors exceeds or is adequate to two-thirds of the entire strength of the Board of directors, the amount of directors who aren't interested and present at the meeting, being not but two shall be the quorum during such time.
The meeting shall be adjourned thanks to want of quorum, unless the articles provide shall be held to an equivalent day at the same time and place within the next week or if the day is national holiday, the next working day at an equivalent time and place.
It can thus be observed that the provisions of the companies Act, 2013 concerning board meetings are made more realistic and in line with the present expectations of the company sector.
PROXIES
(1) Any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf:
Provided that a proxy shall not have the right to speak at such meeting and shall not be entitled to vote except on a poll:
Provided further that, unless the articles of a company otherwise provide, this subsection shall not apply within the case of a company not having a share capital:
Provided also that the Central Government may prescribe a class or classes of companies whose members shall not be entitled to appoint another person as a proxy:
Provided also that a person appointed as proxy shall act on behalf of such member or number of members not exceeding fifty and such number of shares as could also be prescribed.
(2) In every notice calling a gathering of a company which features a share capital, or the articles of which give for voting by proxy at the meeting, there shall appear with reasonable prominence a statement that a member entitled to attend and vote is entitled to appoint a proxy, or, where that's allowed, one or more proxies, to attend and vote rather than himself, which a proxy needn't be a member.
(3) If default is formed in complying with sub-section (2), every officer of the company who is in default shall be punishable with fine which can reach five thousand rupees.
(4) Any provision contained within the articles of a company which specifies or requires a extended period than forty-eight hours before a gathering of the company, for depositing with the company or the other person any instrument appointing a proxy or the other document necessary to point out the validity or otherwise concerning the appointment of a proxy so as that the appointment could also be effective at such meeting, shall have effect as if a period of forty-eight hours had been laid out in or required by such provision for such deposit.
(5) If for the aim of any meeting of a company, invitations to appoint as proxy a person or one among variety of persons laid out in the invitations are issued at the company‘s expense to any member entitled to possess a notice of the meeting sent to him and to vote thereat by proxy, every officer of the company who knowingly issues the invitations as aforesaid or wilfully authorises or permits their issue shall be punishable with fine which can reach one lakh rupees:
Provided that an officer shall not be punishable under this sub-section by reason only of the issue to a member at his request in writing of a sort of appointment naming the proxy, or of a list of persons willing to act as proxies, if the shape or list is out there for the asking in writing to each member entitled to vote at the meeting by proxy.
(6) The instrument appointing a proxy shall—
(a) be in writing; and
(b) be signed by the appointer or his attorney duly authorised in writing or, if the appointer may be a body corporate, be under its seal or be signed by an officer or an attorney duly authorised by it.
(7) An instrument appointing a proxy, if within the form as could also be prescribed, shall not be questioned on the ground that it fails to suits any special requirements specified for such instrument by the articles of a company.
(8) Every member entitled to vote at a meeting of the company, or on any resolution to be moved thereat, shall be entitled during the period beginning day before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting, to inspect the proxies lodged, at any time during the business hours of the company, provided not but three days‘ notice in writing of the intention so to inspect is given to the company.
VOTING-
Restriction on voting rights
(1) Notwithstanding anything contained during this Act, the articles of a company may provide that no member shall exercise any voting right in respect of any shares registered in his name on which any calls or other sums presently payable by him haven't been paid, or in reference to which the company has exercised any right of lien.
(2) a corporation shall not, except on the grounds laid out in sub-section (1), prohibit any member from exercising his right on the other ground.
(3) On a poll taken at a gathering of a company, a member entitled to quite one vote, or his proxy, where allowed, or other person entitled to vote for him, because the case could also be , need not, if he votes, use all his votes or cast within the same way all the votes he uses.
Voting by show of hands
(1) At any general meeting, a resolution put to the vote of the meeting shall, unless a poll is demanded under section 109 or the voting is carried out electronically, be selected a show of hands.
(2) A declaration by the Chairman of the meeting of the passing of a resolution or otherwise by show of hands under sub-section (1) and an entry thereto effect within the books containing the minutes of the meeting of the company shall be conclusive evidence of the very fact of passing of such resolution or otherwise.
Voting through electronic means
The Central Government may prescribe the class or classes of companies and manner during which a member may exercise his right to vote by the electronic means.
Demand for poll
(1) Before or on the declaration of the results of the voting on any resolution on show of hands, a poll could also be ordered to be taken by the Chairman of the meeting on his own motion, and shall be ordered to be taken by him on a demand made therein behalf,—
(a) within the case a company having a share capital, by the members present in person or by proxy,
where allowed, and having not but one-tenth of the total voting power or holding shares on which an aggregate sum of not but five lakh rupees or such higher amount as could also be prescribed has been paid-up; and
(b) within the case of the other company, by any member or members present in person or by proxy, where allowed, and having not but one-tenth of the total voting power.
(2) The demand for a poll could also be withdrawn at any time by the persons who made the demand.
(3) A poll demanded for adjournment of the meeting or appointment of Chairman of the meeting shall be taken forthwith.
(4) A poll demanded on any question other than adjournment of the meeting or appointment of Chairman shall be taken at such time, not being later than forty-eight hours from the time when the demand was made, as the Chairman of the meeting may direct.
(5) Where a poll is to be taken, the Chairman of the meeting shall appoint such number of persons, as he deems necessary, to scrutinize the poll process and votes given on the poll and to report thereon to him within the manner as could also be prescribed.
(6) Subject to the provisions of this section, the Chairman of the meeting shall have power to regulate the way during which the poll shall be taken.
(7) The results of the poll shall be deemed to be the decision of the meeting on the resolution on which the poll was taken.
Procedure for minutes-
Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolutions gone by postal ballot.—
(1) Every company shall cause minutes of the proceedings of each general meeting of any class of shareholders or creditors, and each resolution passed by postal ballot and each meeting of its Board of Directors or of each committee of the Board, to be prepared and signed in such manner as could also be prescribed and kept within thirty days of the conclusion of every such meeting concerned, or passing of resolution by postal ballot in books kept for that purpose with their pages consecutively numbered.
(2) The minutes of every meeting shall contain a fair and correct summary of the proceedings thereat.
(3) All appointments made at any of the meetings aforesaid shall be included within the minutes of the meeting.
(4) within 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) within the case of every resolution passed at the meeting, the names of the directors, if any, dissenting from, or not concurring with the resolution.
(5) There shall not be included within the minutes, any matter which, within the opinion of the Chairman of the meeting,—
(a) is or could reasonably be considered defamatory of any person; or
(b) is irrelevant or immaterial to the proceedings; or
(c) is detrimental to the interests of the company.
(6) The Chairman shall exercise absolute discretion in reference to the inclusion or non-inclusion of any matter within the minutes on the grounds laid out in sub-section (5).
(7) The minutes kept in accordance with the provisions of this section shall be evidence of the proceedings recorded therein.
(8) Where the minutes are kept in accordance with sub-section (1) then, until the contrary is proved, the meeting shall be deemed to possess been duly called and held, and every one proceedings thereat to have duly taken place, and therefore the resolutions gone by postal ballot to have been duly passed and in particular, all appointments of directors, key managerial personnel, auditors or company secretary in practice, shall be deemed to be valid.
(9) No document purporting to be a report of the proceedings of any general meeting of a company shall be circulated or advertised at the expense of the company, unless it includes the matters required by this section to be contained within the minutes of the proceedings of such meeting.
(10) Every company shall observe secretarial standards with reference to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the company Secretaries Act, 1980 (56 of 1980), and approved as such by the Central Government.
(11) If any default is formed in complying with the provisions of this section in respect of any meeting, the company shall be liable to a penalty of twenty-five thousand rupees and each officer of the company who is in default shall be liable to a penalty of 5 thousand rupees.
(12) 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 can reach two years and with fine which shall not be but twenty-five thousand rupees but which can reach one lakh rupees.
Filing resolution-
(1) a copy of each resolution or any agreement, in respect of matters laid out in sub-section (3) along side the explanatory statement under section 102, if any, annexed to the notice calling the meeting during which the resolution is proposed, shall be filed with the Registrar within thirty days of the passing or making thereof in such manner and with such fees as could also be prescribed within the time specified under section 403:
Provided that the copy of each resolution which has the effect of altering the articles and the copy of each agreement referred to in sub-section (3) shall be embodied in or annexed to each copy of the articles issued after passing of the resolution or making of the agreement.
(2) If a company fails to file the resolution or the agreement under sub-section (1) before the expiry of the period specified under section 403 with additional fees, the company shall be punishable with fine which shall not be but five lakh rupees but which can reach twenty-five lakh rupees and each officer of the company who is in default, including liquidator of the company, if any, shall be punishable with fine which shall not be but one lakh rupees but which can reach five lakh rupees.
(3) The provisions of this section shall apply to—
(a) special resolutions;
(b) resolutions which are agreed to by all the members of a company, but which, if not so agreed to, would not are 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 are agreed to by any class of members but which, if not so agreed to, wouldn't are effective for their purpose unless that they had been gone by a specified majority or otherwise in some particular manner; and every one resolutions or agreements which effectively bind such class of members though not agreed to by all those members;
(e) resolutions gone 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:
[Provided that no person shall be entitled under section 399 to inspect or obtain copies of
such resolutions; and]
(h) the other resolution or agreement as may be prescribed and placed within the public domain.
Virtual meeting-
Section 173(2) of Companies Act, 2013 (The Act) read with Rule 3 of the companies (Meetings of Board and its Powers) Rules, 2014 (The Rules), The participation of directors during a meeting of the Board could also be either in person or through video conferencing or other audio-visual means as could also 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 side date and time. for many of the previous century, quorum meant a Director physically present at the Meeting. Latest technologies and specifically the information Technology Act, 2000 made it possible for director to attend meeting via video conferencing. However, the precise provision in Companies Act, 2013 was inserted via Section 173, Section 174 and therefore the Rules brought clarity to the Video Conferencing provisions. However, it's not as simple as calling a member using Facetime or WhatsApp Call are going to be counted as a Video Conferencing under the Act. Major provisions concerning Video Conferencing and provisions a company got to comply to carry a board meeting via Video Conferencing is explained during this article.
What is Video-conferencing?
Rule 3 of the companies (Meetings of Board and its Powers) Rules, 2014 defines Video conferencing or other audio-visual means. As per definition "Video conferencing or other audio-visual means audio-visual electronic communication facility employed which enables all the persons participating during a meeting to speak concurrently with each other without an intermediary and to participate effectively within the meeting.” Who can hold meeting through Video Conferencing (VC) under the Act? As per Section 173(2) of Companies Act, 2013 (the Act) read with Rule 3 of the companies (Meetings of Board and its Powers) Rules, 2014 (the Rules), every Company can hold a board meeting through video conferencing or other audio-visual means, which are capable of recording and recognizing the participation of the directors and of recording and storing the proceedings of such meetings along side date and time.
The complete process for conducting of board meeting through video conferencing is prescribed under Rule 3 of the companies (Meetings of Board and its Powers) Rules, 2014 read with Secretarial Standard - 1 (SS-1).
Matters to not be dealt with during a meeting through vc –
a) the approval of the annual financial statements;
b) the approval of the Board's report; the approval of the prospectus;
c) the Audit Committee Meetings for consideration of financial statement including consolidated budget if any, to be approved by the board under sub-section (1) of section 134 of the Act; and
d) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
Who can participate in meeting through video conferencing or other audio-visual
1) Chairperson,
2) Directors,
3) Company Secretary;
4) Any other person whose presence is required by the Board
Procedure -
Notice of Board Meeting: The notice of the meeting shall be sent to all or any the directors 7 days in advance as per section 173 (3) of the Act and therefore the notice shall inform the directors regarding the option available to them to participate through video conferencing mode or other audio-visual means and shall provide all the required information to enable the directors to participate through video conferencing mode or other audio-visual means.
Important points to remember for notice of Board Meeting:
1) The notice of the meeting shall inform the directors regarding the choice available to them to participate through video conferencing mode.
2) The notice shall also contain all the required information to enable the directors to participate through video conferencing mode. Like: contact no. or e-mail address of the Chairman or the other person authorized by the Board, to whom the Director shall confirm during this regard.
3) Notice shall seek advance confirmation from the administrators on whether or not they will participate through Electronic Mode within the Meeting.
4) Director who intends to participate through video conferencing shall give prior intimation to Chairman of the company (In the absence of intimation it shall be assumed that Director will attend in person).
5) Notice shall clearly mention the venue of the Meeting and it shall be the place where all the recordings of the proceedings at the Meeting would be made.
References:
1) ‘Company Law’ by Brenda Hannigan.
2) ‘Elements of Company’ Law by N. D. Kapoor.
