Board meetings and secretarial standards

In this article, R. Anupam Pillai who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Board meetings and secretarial standards.

Introduction

Companies play an important role in growth and development of the economy. With upcoming increase in industrial growth there has been an exponential growth in number of companies setting up in every nook and corner of the company. At this juncture it is very necessary to understand the role of how companies manage their routine affairs. Thus, meetings play an important role to keep a note of managerial decisions and agendas proposed to attain respective goals set by the companies.

Generally, meetings under the corporate law regime are segregated in two manner, firstly, meetings held by shareholders or general meetings, which may be further classified as annual general meeting and extraordinary general meeting and secondly, meetings held by board of directors or also known as board meetings.  This paper shall give a brief overview about the board meetings, how it functions and what are the statutory prescriptions for holding the same. Further the paper shall explain the necessary implications of board meetings and provisions which need to be adhered under the secretarial standards.

Board Meetings under Companies Act, 2013

1. Board Meetings

Every company constitutes a board of directors who are instrumental in governing the affairs of the company. Articles of association of every company mentions the board meeting to be convened if it is not mentioned therein, then the meeting can be convened as per Table-A of Company Rules. Every company shall hold at least four board meetings every year, where there shall be a gap of 120 days between two meetings. First such board meeting shall be held within 30 days from the date of incorporation of the company. For small companies and one person company with more than one director shall have at least one board meeting for every half of the calendar year with a gap of 90 days between two consecutive board meetings.[1]

2. Notice

Notice for board meeting shall be served either by hand delivery, post or by electronic means, to registered address of the director before at least 7 days from the date of convening such meeting. For meeting at shorter notice, at least one independent director shall be called for the same and in case of his absence, the decision shall be circulated within the directors and at least one independent director shall ratify the same. Every person who shall be responsible to give notice under Section 173 if fails to do so, shall be liable to a penalty of twenty-five thousand rupees.

3. Quorum

The majority for a meeting is 1/3rd of aggregate number of directors, whichever is higher, unless articles change this necessity. Directors taking an interest through video conferencing are meant majority and furthermore the independent directors after divulgence of their interest. On the off chance that there is no majority, the meeting must be dismissed. Such suspended meeting must be held in the meantime, place and day in the following week. In the event that there is no majority at the dismissed meeting, it will stand drop. Facilitate, majority should be available all through the meeting. A director may disappear of non-attendance from a meeting yet inability to go to a solitary meeting in twelve months, despite allow of time away, is a ground for disqualification.[2]

If the there is any reduction in number of directors such that the quorum is low then the remaining directors may hold the meeting, to either increase the number or directors or else hold a general meeting instead.

In case of absence of quorum the meeting shall stand automatically adjourned for the same day at the same time for next week provided that such next date shall not be national holiday, further which the next date to such national holiday shall be considered for the board meeting.[3]

4.Meeting through Video Conferencing

With the advent of technology, there has been shift in holding meeting at conference halls to that of video conferences at a distant location. This has been made possible by including the role of electronic media as means for holding board meeting. Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014 describes the manner in which the meeting through audio video means can be convened.

The Company needs to make arrangements for video conferencing to be conducted. The Chairperson and the company secretary shall take due care to conduct the meeting via video conferencing. All the notices for the meeting shall be sent as per Section 173 of Companies Act, 2013. Further the option of attending meeting via video conferencing or other audio visual means shall be made available to the director.

Further the director shall intimate the chairman about the intention to participate in the board meeting via video conferencing. Attendance shall be given by directors and such attendance shall be referred by roll call by the Chairperson for participation of the director in such meeting. The director shall ensure that he has received all the necessary agenda and relevant material for the said meeting via audio-video means. All the minutes of the meeting and the proceedings shall be duly recorded.

As per Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 there are following matters which shall not be dealt through video conferencing or audio visual means;

  1. Approval of board’s report;
  2. Approval of the prospectus
  3. Approval of the matter relating to amalgamation, merger, demerger etc.
  4. Approval of annual financial statements.[4]

5. Agenda

Companies should prepare an annual timetable of Board and related Committee meetings, built around key events in the business cycle (including consideration of and approval of strategic plans, consideration and approval of detailed budgets, approval of annual report and accounts etc). It is important to design an agenda carefully and then closely facilitate to that agenda. The agenda should:

  1. List the topics to address in that meeting.
  2. Specify how each topic should be addressed in the meeting (for example, to make a decision or undertake further research etc.).
  3. Specify the time to address each topic. Adequate time and importance should be assigned to the most important topics. These timings should be adhered to and if further discussion is required on any topic, it should be handled separately. The agenda should take account of the issues and concerns of all Board members.

6. Decision and Action points

The chairman should summarize decisions and action points at the end of each matter–what has been decided, what has to be done, who will do it and when will it be done. The chairman should ensure that everyone present is aware and understands at the meeting. Votes at a board meeting are normally one for each director present, with the chairman having a casting vote in the event of a tie; unless the articles provide for anything different. A director with a personal interest in a matter that is subject to a vote will usually be excluded from voting; unless the articles provide for anything different. These action points should be clearly documented in the minutes of the meeting.

7. Power of Board of Directors exercised during Board meetings

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

However, the Board may, by a resolution passed at a meeting delegate to any committee of directors, the managing director, or the manager of the company or any other principal officer of the company or in the case of a branch office of the company, a principal officer of the branch office, the powers specified in clauses (c), (d) and (e), to the extent specified in the resolution and subject to such conditions as may be imposed.

Acceptance by a banking company in the ordinary course of its business of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise or the placing of moneys on deposit by a banking company with another banking company on such conditions as the Board may prescribe, shall not be deemed to be borrowing of moneys or making of loans by a banking company for the purpose of these provisions. These provisions also do not apply to borrowings by a banking company from other banking companies or from the Reserve Bank of India, the State Bank of India or any other banks.

In respect of dealings between a company and its bankers, the exercise by the company of its powers to borrow money otherwise than on debentures shall mean the arrangement made by the company with its bankers for the borrowing of money by way of overdraft or cash credit or otherwise and not the actual day-to-day operation of overdrafts, cash credit or other accounts.

Every resolution delegating the power referred to in clause (c) ( the power to borrow money otherwise than on debentures ) shall specify the total amount outstanding at any one time up to which money may be borrowed by the delegate.

Every resolution delegating the power referred to in clause (d) (the power to invest the funds of the company) shall specify the total amount up to which the funds may be invested, and the nature of the investments which may be made, by the delegate.

Every resolution delegating the power referred to in clause (e) (the power to make loans ) shall specify the total amount up to which loans may be made by the delegate, the purposes for which the loans may be made, and the maximum amount of loans which may be made for each such purpose in individual cases. The abovementioned powers shall not affect the right of the company in general meeting to impose restrictions and conditions on the exercise by the Board of any of the powers specified above.[5]

Upon understanding the essential provisions of Companies Act, 2013, it is important to know the secretarial standards that define the procedural aspects of board meetings.

Board meetings and secretarial standards

Section 118(10) of Companies Act, 2013 mentions the companies to follow secretarial standards as prescribed by ICSI constituted under Section 3 of Company Secretaries Act, 1980 and approved by Central Government.

Secretarial Standards on Meetings of Board of Directors (SS-1) has been notified vide ICSI Notification No. 1 (SS) of 2015 dated 23.04.2015. SS-1 is applicable for all kinds of companies except One Person Company where there is only one director on the Board. Following are the standards laid down in the SS-1:

  1. Convening a meeting

Any director may summon a Board Meeting at any time. Such meeting shall be bearing a serial number and also mention time and date of meeting. Notice to be given for conducting such meeting as required prior to 7 days before date of meeting. Further agenda/notes on agenda shall be given prior 7 days to the meeting unless the AOA prescribes longer duration.

In case of Unpublished Price Sensitive Information (UPSI) there shall be a shorter duration of serving notice than that of mentioned herein above. Quorum to be decided as discussed above wherein the majority for a meeting is 1/3rd of aggregate number of directors, whichever is higher, unless articles change this necessity.

  1. Frequency of Meeting

There shall be at least one board meeting in every quarter with a gap of 120 days between two consecutive board meetings. For independent directors to meet there shall be at least one board meeting in a calendar year.

  1. Role of Chairman

The Chairman heads the board and that in case of any company which doesn’t have a Chairman then in that case the directors have to elect a chairman amongst themselves. Further in case of any chairman being interested party in any agenda/matter then he shall appoint someone else for the specific matter.

  1. Attendance Register

The Act does not endorse the way of keeping up participation enlist. SS-1 commands upkeep of isolated enroll which ought to contain the serial number, date, put, time of meeting, names and marks of the directors, CS and invitees show. The pages must be serially numbered and bound occasionally relying upon its size, on the off chance that it is in free leaf frame. It ought to be confirmed and safeguarded for no less than eight monetary years by the CS or any approved director, if there is no CS. If there should arise an occurrence of participation of directors through video conferencing, insignificant taking note of their names in the registers expressing that they were available through video conferencing would be tantamount to their signatures.

  1. Passing Resolution by Circulation

The Act allows circulation resolutions which ought to be noted at the following board meeting. Be that as it may, if 1/3rd directors require any determination to be passed at a physical meeting then it can’t be passed by circulation. SS-1 has supplemented the arrangements for passing circulation resolutions in passage. The chairman or managing director (“MD”) or whole time director or some other director, other than an independent director ought to choose that a specific resolution will be passed by circulation or not. The draft resolution is to be flouted to all directors by hand, post or email with a note expressing the points of interest, nature of interest of the interested directors, strategy for giving assent and other material facts. On the off chance that the company sends it by post, it should essentially keep up receipt of dispatch. The company can settle any date as the last date for getting directors’ consent or dispute which can’t be past seven days from the date of circulation and independent directors can’t vote. The viable date of circulation would be the last date for giving assent or the date on which assent of two-third directors is given, whichever is prior.

The Act particularly disallows around 13 matters which can’t be passed by round determination and should essentially be passed at a physical meeting. Among others, these incorporate profiting on shares; approving purchase back; issuing securities incorporating debentures in or outside India; acquiring monies and so forth. SS-1 has enlarged this rundown by including seven more items which incorporate considering the consistence endorsement to guarantee consistence with every single pertinent law; supporting compensation of managing director, whole time director, director; concurring endorsement for related gathering exchanges outside the common course of business or not on an arm’s-length manner and so on.

  1. Minutes

Companies are required to keep up minute books. SS-1 has included certain timetables for conclusion of minutes. It is presently required to course draft minutes (by hand, post or electronically) to all directors for their remarks within fifteen days from conclusion of the meeting. The directors must convey their remarks within seven days from the date of meeting. Chairman ought to sign the minutes once they are concluded. The CS or any person authorized by Chairman, if there is no CS, must ensure to sign the minutes and circulate it to all directors within fifteen days of signature. The director of a similar meeting or the following meeting needs to give introductory for each page and sign the last page of the minutes. The minutes ought to be entered in the minutes book inside thirty days of the meeting and no change is permitted from there on.

SS-1 has supplemented some more arrangements for support of minutes, for example, (i) meetings, resolutions and minute sheets ought to be serially numbered; (ii) loose leaf minute sheets ought to be bound and kept in the protected guardianship of CS at the registered office or at whatever other place with boards’ approval; (iii) minutes must contain company’s name, serial number, type, day, date, venue and time toward the start and end of the meeting; (iv) director’s name will start things out took after by the names of different directors in sequential request; (v) unambiguous language and reasonable and remedy wrong notings and resolutions passed.

The auditors, directors, CS shall access the minutes as well as extracts of minutes to be given only once it is duly entered in the minutes book. Later on once the certified copies of the resolution is passed at a meeting then such resolution replaces the minutes of the meeting.

Minutes of all the meetings shall be preserved permanently in physical or in electronic form with timestamp and the office copies of all the notices, agenda, notes on agenda and all other papers shall be duly preserved in good condition.

  1. Disclosure

Annual report and Annual return of the company shall disclose the number and dates of meetings of board and committees held during the financial year.

Role of SS-1 in Board Meetings

SS-1 applies to board and panel gatherings of all companies independent of their size, sort and posting status unless particularly rejected. Inability to conform to SS-1 will prompt a punishment of INR 25,000 on the organization and each officer-in-default might be subject to a punishment of INR 5,000. In the event that a specific standard or any part thereof ends up plainly conflicting with the Act because of any changes, the arrangements of the Act might win. SS-1 does not try to substitute any arrangements of the Act be that as it may, means to supplement it.

It is clear from the over that the methodology for board meetings has turned out to be more stringent and awkward. There is no adaptability for even firmly held privately owned businesses and unlisted companies with respect to the way of directing the meetings. Then again, despite the fact that, the procedure is made long and arduous, it will ideally prompt better divulgences, more procedural clarity, openness in board procedures and responsibility of the organization employees. It has evacuated numerous ambiguities; for instance, assembling meeting at a shorter notice with assent of larger part directors, arrangements as to the minutes and so forth. This thus will improve corporate administration gauges and speculators’ certainty. Despite many arrangements were deliberately honed by a few organizations, SS-1 has explicitly commanded them for all organizations now.

Conclusion

Board meetings are essential for better governance of the Company. The provisions concerning meetings enabled companies to follow varied and diverse secretarial practices. With introduction of SS-1, a uniform guide for companies to conduct meetings and maintaining corresponding records is put in place. Understanding the facets of board meetings comes with the role of director and CS who shall be pro-active while dealing with the routine affairs of the company.

Most intriguing question arises as to whether non-compliance with SS-1 will nullify board decisions taken in such meetings. It shall be kept in mind that the resolutions passed at such meeting as invalidated while a wide interpretation may vest the company with the power to ratify decisions taken in such a meeting. Since the fundamental objective is to put in place a uniform process, it will be necessary to adhere to the process supplemented by SS-1. Hence it is important to manage all the actors to be on the same footing while managing such routine affairs of the Company.

[1] Section 173Companies Act, 2013

[2] Section 174, Companies Act, 2013

[3] Section 174(3), Companies Act, 2013

[4] Rule 4, Companies (Meetings of Board and its Powers) Rules, 2014

[5] Section 179, Companies  Act, 2013

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