The article is written by Abhishek Dubey, a law student from Indraprastha University. He is pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho.com. The article provides a greater analysis of all extraordinary general meetings and board meetings.
A company is a legal entity and it is run by the board of directors and the shareholders. Section 179 of the Companies Act gives authority to the board to exercise such power as the company is authorised to do. However, the activities are subject to the acts and the Articles of the Association of the companies. The approval of the board of directors or its committees and mode of obtaining approval is one of the most critical processes for taking a decision on the companies.
The board of the company approves any transaction through a democratic way with proper voting and along with that taking the assent of the director and the other. This has to be also approved by the audit committee and stakeholder committee and also the remuneration and the other types of committees.
The board and its committee may decide on any matters by circulating the resolution by the voted for and against and also through audio and video conferencing.
Cardinal rules for approval of the board meeting
The cardinal rule to discuss the matters with the board member is properly convened and constituted, where the board members are physically present and they are reviewing the documents, paper, and other things. The directors of the company need to act in good faith and in a good manner, the shareholders and the other committee members need to act in good faith with good skill and they should be independent for that.
The Companies Act makes the director as the only person liable for his actions or omissions which has been done through his knowledge, skill, and attributes. The participation of the director should be extra careful so that no liability should occur.
The circular resolution is defined in Section 175 of the Companies Act, 2013 which states as the passing of the resolution. This is an alternate method of obtaining approval from the board of directors for any transactions. This section also creates an exception that the board of directors of the company shall exercise the option only after obtaining the resolution in the meeting. If in the case that any matter which has to be approved by the board of directors consists of one-third of the members, then, the circular has to be put by the chairman itself. It cannot be approved by the circulation.
Any resolution which has to be approved by the circulation, it has to be drafted along with that it should contain the necessary papers to all the directors or the committee members and should be delivered to their address through fax or an email and other modes, etc. and it has to be approved by the member’s or directors who Have right to vote in the resolution.
What are the matters that are not part of the circulation can be only done through meeting
Section 179(3) of the Companies Act, 2013 states certain matters which have to be done through meeting not by the way of the circulation:
- To make calls on shareholders in respect of the money unpaid on the shares.
- To borrow money, investing the funds of the company, approval of the financial report and board report, to approve merger and amalgamation and reconstruction.
- To appoint and remove internal managerial personnel etc.
List of matters according to the secretarial standard 1 which has to be placed in board meetings but not by the way of circulation
- Notice of meeting with the audit committee and the other committee according to listing obligation and disclosure requirement notice of a meeting of the audit committee and the other committees according to Sebi regulation 17(7) of the listing obligation and the disclosure requirements.
- Approval of the financial statement and the board reports rule 8(4) of the companies rule.
- Appointment of the secretarial auditor and the internal auditors.
- The section states that approval of the related party transaction which is not in the ordinary course of the business.
- Section 196(4) of the Companies Act, 2013 states the appointment and approval of the whole time or the managing directors.
- Sale of a subsidiary company exemption is for the private company as the 5th June 2015 notification.
- Diversify or expand the business.
- The takeover of another company or the substantial acquisition of another company.
For listed companies as per SS 1
According to Sebi LODR 2015 regulation 17(7) schedule 2( corporate governance) has to be passed in the meeting, not in the circulation.
- Approving the annual operating plans and the budgets.
- Information regarding the payment of employees’ salaries.
- Any updates and also the matters of the capital budgets.
- A fatal or serious accident, dangerous occurrence.
- Details regarding the joint venture or any other collaboration agreement.
- Any material default in the financials of the company.
- Any development in the wage agreement or the voluntary retirement scheme.
- Also the delay in payment of dividends and the transfer of the share.
- A transaction that involves substantial payment towards goodwill, brand equity, etc.
Relaxation granted in the lockdown on 19th march 2020
The Ministry of Corporate Affairs had issued the notification on 19th March 2020 with relaxation regarding the approval of certain matters i.e contained in section 179 of the Companies Act 2013 along with the rule 8 of the companies 2014 which was earlier done through the physical meeting has to be deal with the video conferencing from 19th March to 30th June 2020.
- That the meaning of video conferencing or other audiovisual means is given in the rule of the companies 2014 where the term audio conferencing means that all members who are there are able to communicate effectively.
- And notice should provide all the details so that the director participates in the meeting through video conferencing.
- The company should make a necessary arrangement so that there is no failure on the part of the meeting.
- Minutes of the meeting shall contain the fair and correct proceeding of the meeting.
- This has to tend to ensure that no other person other than the director or the other person is attending the meeting.
- The duty of the chairman is to check that the required quorum is present.
Procedure to conduct the extraordinary general meeting through video conferencing
- The extraordinary general meeting can be conducted via video conferencing. Before scheduling the meeting the company needs to ensure that there is a facility for video conferencing and each person is comfortable with that.
- The notice of the meeting should contain the regulation or the framework under which the meeting is to be held and also the helpline number for the default in the meeting such as if any problem is happening in having the meeting the handler should be there as the video and audio handler.
- Instruction on how to access and participate in the meeting. The copy of the notice needs to be uploaded on the websites of the company and these need to be approved by the stock exchange in case of the listed companies.
- According to Section 112 and 113 of the Companies Act 2013, the member can appoint the representative in the meeting.
- The facility should allow 1000 participants to cum the first offer. 500 participants in case the companies have not opted for the e-voting.
- The persons like shareholders holding 2 percent of the share are allowed to attend without following first cum first serve rule and management person and the key professional can do this too.
- There should be one auditor and one director at the meeting.
- The meeting should be 15 minutes before the time of the meeting and 15 minutes after the time of the meeting.
- The company shall provide the e-voting in case the company has an e-voting system and should not if the company does not have e-voting.
- All resolutions have to be filed within 60 days from the date of holding a meeting with the registrar of the companies.
Due to the lockdown or COVID 19 companies are trying to deal with the new rules and the regulations. A lot of changes have been made but still, there are a lot of practical things which need to be seen.
There have been a lot of controversies in this regard like e-voting, we all know that the new companies act has given a lot of freedom to use the technology in conducting the meeting. Now notices and receipts can be received through notice and the other things electronically.
Section 173 of the companies act along with the rule of the companies 2014 has given the freedom to have the meeting through video conferencing or the audiovisuals. This has solved a lot of issues where the directors consist of foreigners.
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