This article is written by Shivani. A. This article provides a detailed analysis of the meaning of the term quorum in company law. This is an exhaustive article which covers all the important aspects related to quorum ranging from the importance and objective of a quorum in meetings to the situations in which a proper quorum is not required. It also deals with the various provisions pertaining to quorum in the Companies Act, 2013 and important case laws related to the topic.

This article has been published by Shashwat Kaushik.

Introduction 

The Companies Act, 2013 hereinafter referred to as ‘Act’ or ‘Companies Act’ mandates a company to conduct various kinds of meetings which includes general meetings and board meetings, periodically. These meetings need to be conducted to make important decisions pertaining to the working of a company. Thus, there arises various questions as to whether all the members of the company are required to attend all the meetings of a company or is there any minimum number of members which is required for a particular meeting to take place or whether the meetings can take place even in the absence of some members of the company etc. To ensure that there is maximum participation of members in the decision making process and also to prevent arbitrary decisions, the concept of ‘quorum’ has been established under the Act and an attempt has been made to explain the same through this article.

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Meaning of the term ‘quorum’ 

The general dictionary meaning of the word ‘quorum’ as per the Cambridge Dictionary is “the smallest number of people that must be present to officially conduct a meeting or to make any important decisions in a meeting”. The Black’s Law Dictionary defines “quorum” as “the minimum number of members who must be present for a deliberative assembly to legally transact business”.

In company law, the word ‘quorum’ means the minimum number of members who are required to attend a meeting and must be present at the meeting for a valid constitution of such meeting so that the business in the meeting can be transacted. The quorum should consist of a reasonable number of members. It should neither be too big nor too small.

A quorum is mandatory for a meeting to be considered as valid under the company law. It is generally mentioned in the bylaws of a company that all major decisions of the company should be made by a reasonable number of members and not by just a few individuals. If a meeting takes place without the required number of members, the decisions taken in such a meeting can be challenged for lack of quorum.

Objective and importance of quorum 

The objective of a quorum is to serve as a check against arbitrary decision-making. It ensures that the interests of all the stakeholders are taken into consideration before making any decisions. It also ensures democracy by ensuring that all the members present in the meeting have been given a chance to present their views and that the decisions attained at the end of the meeting are well-considered and reflective of a broader consensus.

The quorum is very important to ensure that the proceedings of a meeting are conducted as per the law. The quorum guarantees that the decisions are made through the collective wisdom of the members and only after consulting the diverse perspective of all the members present. It is also important as it promotes decision-making through adequate representation and collective insight. 

Provisions for quorum under Companies Law

Quorum of general meeting 

Even though the provisions related to quorum are present in the Articles of Association of a company, the Companies Act, 2013 also contains some provisions pertaining to quorum. Section 103 of the Act provides information on the quorum for general meetings. This section can be divided into three categories. It provides information about the quorum for a public company, private company and the consequences that occur when the required quorum is not fulfilled. However, the conditions mentioned in the provision must be consistent with those mentioned in the Articles of Association of the company. That is to say, the Articles may require a greater number of members to constitute a quorum and the same would be applicable.

Public company 

The quorum of a public company has been provided under Section 103(1)(a) of the Act. It states that for a public company, the quorum is as follows:

  • If the number of members of the company on the date of meeting are not more than one thousand, then, the quorum of the meeting is five members personally present in the meeting.
  • If the number of members is more than one thousand but less than five thousand, then, the quorum is fifteen members personally present in the meeting.
  • If the number of members is more than five thousand, then, the quorum of the meeting is thirty members personally present in the meeting.

Private company

As per Section 103(1)(b) of the Act, the quorum for a private company is two members physically present at the time of the meeting. However, private companies are allowed to set a higher quorum in their articles of association. Whenever there is an inconsistency in the quorum set by the articles of the company and the quorum specified in the Act, the company must adhere to the condition with higher requirement. It was held by the High Court in the case of Amruta Kaur Puri v. Kapurthala Flour Oil and General Mills Company Pvt Ltd. (1982) that where the articles provide a higher quorum, the same has to be adhered to.

Non-fulfilment of the required quorum

Section 103(2) of the Act provides for the consequences that can occur when the quorum is not fulfilled. It states that if a quorum of a general meeting is not present within half an hour from the time at which the meeting was scheduled to be conducted, the meeting will be adjourned. The meeting may get adjourned to the same day in the next week in the same location and at the same time. The board of directors can also decide an alternate day and time for conducting the board meeting. However, as per the Secretarial Standards, it should not be scheduled on a national holiday.

The term ‘Secretarial Standards’ refers to the standards issued by the Institute of Company Secretaries of India (ICSI) which is constituted under Section 3 of the Company Secretaries Act, 1980 and approved by the Central Government. Secretarial Standards 1(SS-1) deals with standards regarding board meetings. Secretarial Standard 1 on Meetings of the Board of the Board of Directors issued by ICSI and effective from 1st July, 2015, provides as to what days can be considered as national holidays. 

SS-1 states that a “National Holiday” includes: 

(i) Republic Day 

(ii) Independence Day 

(iii) Gandhi Jayanti and 

(iv) any other day which is declared as a national holiday by the Central Government.

Section 103(2)(b) of the Act states that, if the said meeting is called by requisitionists under Section 100 of the Act, it will be cancelled subject to the conditions mentioned in the proviso of this Section.

The proviso in Section 103(2) of the Act, the company has to mandatorily provide a notice to its members which is not less than three days if the meeting has been adjourned or the date, time or place of the meeting has been changed. This notice can be provided by the company either individually to all the members or by publishing an advertisement both in an English newspaper as well as a newspaper in vernacular language which is circulated near the company’s registered office. Section 103(3) of the Act further specifies that if the quorum is still not met even after half an hour of the adjourned meeting’s scheduled time, the present members for such adjourned meeting will constitute the quorum for valid conduct of the board meeting.

Secretarial Standard-2, in Para 15.4 states that the number of members in an adjourned meeting should not be less than two. If a decision is made in a meeting without a valid quorum, it can be challenged in court. However, the parties who are affected by these decisions may be protected by the doctrine of indoor management. This doctrine, also known as Turquand’s rule, seeks to protect the outsiders who have entered into some kind of transaction with the company. The Memorandum and Articles of Associations of a company are public documents and can be accessed by the outsiders before transacting with the company. However, whatever is happening internally in the company is not known to the public. Hence, if the outsiders follow the procedure mentioned in the articles of the company in good faith and without knowledge of the internal arrangements of the company, they will gain immunity by this doctrine. The outsiders are entitled to presume that all the internal procedures are catered by the company.

Quorum for a board meeting 

Section 174 of the Companies Act, 2013 provides information regarding quorum for constituting a valid board meeting. This provision is applicable to all the companies whether public, private or one person companies. However, this Section is not applicable to one person company having a sole director as mentioned in Section 173(5) of the Act.

Section 174(1) states that the quorum of a board meeting should be one-third of the total strength of directors or two directors, whichever is higher. This section also provides that it is not mandatory that the directors must be physically present to constitute a quorum, they can take part in a meeting virtually as well which means that the quorum should not be less than 2 members at any point of time. It should also be noted that the quorum of a board meeting is one-third of the total directors who are actually present virtually, physically or both in the company and does not include the positions of directors that are vacant.

Illustration: Suppose the articles of association of a company provide that the maximum number of directors that a company may have is 15. However, the number of directors that are actually present in the company is 6 and the rest of the 9 positions of directors is vacant. In such a scenario, the quorum of the meeting will be one-third of 6 directors, which is 2 directors.

Explanation 1 of this Section provides that if there is any fraction of the number of directors, then, such fraction shall be rounded off as one. In cases when there are even number of directors in a company, then, one-third of such an even number of directors will be a fraction and in such cases, it will be rounded off to one.

Illustration: Suppose a company has 8 directors. The quorum of the meeting will be one-third of 8 directors or 2 directors, whichever is higher. In this case, one-third of 8 is 2.67. Since it is not possible to have a quorum of 2.67 directors, the quorum will be considered to be 3 directors as per the explanation.

Also, it was held in the case of Amrit Kaur Puri v. Kapurthala Flour, Oil & General Mills Co (P) Ltd. (1982) that the Companies Act only specifies a minimum quorum and the company in its articles of association can specify a higher quorum.

Illustration: Suppose there is a company ABC Ltd. and the articles of the company provide for 5 directors as quorum and it has 12 directors on its board. In this case, the quorum for board meetings as per the Act will be either 2 directors or one-third of 12, which is 4 whichever is higher (in this case 4 directors). But, in this case, the quorum shall be 5 directors as the articles provided for a larger quorum than the quorum stipulated by the Act.

Section 174(2) provides for a situation in which the number of directors are lesser than the required quorum because of some extraordinary or exceptional circumstances. It states that in such cases, the continuing directors may act for two purposes:

  • To increase the number of directors so that the required quorum is reached.
  • Summon a general meeting of the company.

However, it is to be noted that the continuing directors cannot act for any other purposes.

Illustration: Suppose a company has 8 directors on its board and 7 directors die due to a plane crash. In this case, the  remaining 1 director has the power to either summon a general meeting or to increase the number of directors to meet the quorum. 

Section 174(3) of the Act states that an interested director will not be considered for the purpose of quorum and such a director will not have any voting right in respect of the subject matter in which he has interest and the director is not allowed to take part in the discussion pertaining to the same. 

Illustration: Suppose a company has 9 directors on its board, but only 7 directors present at the meeting, out of which 6 directors are interested directors. In this case, the 6 directors who have a personal interest in the subject matter of discussion will not be considered for quorum. Hence, only one director will be considered to be present in the meeting and hence, this one director cannot be considered as a valid quorum and the meeting cannot be held. 

It also provides for a situation in which the number of interested directors exceeds or is equal to two-thirds of the total number of directors. It states that in such a scenario, the number of directors who are not interested in the subject matter of the meeting, are present at the meeting and the number of directors are not less than two, shall be the quorum of the meeting.

Illustration: Suppose a company has 9 directors on its board out of which 7 directors are interested directors and all of them attended the board meeting.  In this case, the number of interested directors are more than two thirds of the total number of directors on the board. Hence, as per Section 174(3), the quorum is 2 directors. 

Section 174(4) of the Act states that when a meeting cannot be held due to lack of quorum, then, the meeting will be adjourned automatically unless the articles of the company provide otherwise. The adjourned meeting will be held on the same day and the same time in the next week or if that day is a national holiday, then it will be held on the next day which is not a national holiday. However, if the quorum is not present even in the adjourned meeting, then, the meeting will get dissolved. It should also be noted that the quorum should not only be present at the time of commencement of the meeting but also while discussion is taking place.

Illustration: Suppose a company has 7 directors on its board and all the directors participated in the meeting. However, after some time, 4 directors left. In this case, the  quorum was present at the beginning of the meeting and was also present while transacting the business but was gradually reduced. Hence, the meeting will not get adjourned as the quorum was present at the time of transaction of business.

Exceptions to  Section 174 of the Companies Act, 2013

The following are the exceptions to Section 174 of the Companies Act, 2013:

  • In case of Section 8 company, Section 174(1) shall be applicable with the exception that the quorum of board meeting shall be either 8 members of the company or 25 percent of the total  directors on the board, whichever is less.  
  • It was provided in the Notification released by the Ministry of Corporate Affairs, dated January 04, 2017 that, in case of a Specified IFSC Public Company as well as a Specified IFSC Private Company, Section 174(3) will be applicable with the exception that an interested director may participate in a meeting if he discloses about his interest prior or during the time of the meeting. 
  • As per the Notification dated 13th June, 2017, it was provided that in case of a private company, Section 174(3) of the Act will be applicable with the exception that the interested director may also be counted towards quorum in such meeting after disclosure of his interest pursuant to Section 184.

Quorum of one person

As already stated in this article, a quorum is very essential for a valid meeting. However, in the following circumstances, a meeting can take place even if the desired quorum is not present:

  • As previously stated in the article, Section 103(3) states that if a meeting is adjourned for want of a quorum, any number of members who are present in the meeting will form the quorum.
  • It was held in the case of East v. Bennett Brothers Ltd. (1911), that if the meeting is held for the purpose of variation of rights of a particular class of shares and only one person holds all the shares of that particular class, then he alone shall make the quorum. 

Secretarial standards on quorum

As per Section 118(10) of the Companies Act 2013, every company should observe secretarial standards with respect to general meetings and board meetings. The Secretarial Standard-1 (SS-1) on meeting of the board of directors also spells out that quorum for a board meeting must be 1/3rd of the total number of directors or 2 directors whichever is the higher number.

Also, Clause 3.1 of SS-1 states that the quorum should be present throughout the meeting. This means that the quorum should be present not only during the commencement of a meeting but also while the discussion takes place during the meeting. It also states that the directors who take part in the meeting through electronic mode will also be counted for the purpose of quorum unless they are excluded by any provisions of the Companies Act or any other law. 

The provisions pertaining to quorum of general meeting are provided in Secretarial Standards 2 (SS-2) and have already been mentioned in this article above.

Important case laws

Re. Opera Photographic Ltd (1989)

Facts of the case

In this case, there was a two-member company in which both the members were also appointed as directors. A professional rivalry had occured between the two because of which the appellant wanted to remove the respondent from the position of director but the respondent refused to attend the meeting because of which the resolution could not be passed due to lack of quorum. The applicant thus applied before the court to constitute a one member quorum.

Issue in the case

Whether the applicant is entitled to remove the respondent from the post of director by constituting a one member quorum?

Judgement of the case

It was held by the Chancery division that as the applicant was a 51% shareholder and had a statutory right to remove the other director, the respondent should not be able to misuse the provisions related to quorum to override the statutory rights of the applicant and as a result, the applicant was permitted to constitute a quorum of one member. 

Rajan Naginds Doshi v. British Burma Petroleum Co. Ltd. (1971)

In this case, it was held by the Bombay High Court that, when in a company, the election of all the directors is invalid except one, then, the only director present cannot form the quorum for a meeting. The way available with the company to resolve the matter is to call a general meeting and get the approval of the members to the matter in question. Another way is to appoint more directors on the board.

Conclusion 

Hence, it can be concluded that a quorum is very essential for conducting a meeting in a company. This can be inferred by referring to Section 103 and Section 174 of the Companies Act. However, despite the presence of provisions related to quorum in the Companies Act, 2013, the companies can fix a higher quorum in their articles of association than the quorum mentioned in the Act. In such circumstances, the companies must adhere to the quorum mentioned in the articles. However, the articles can only provide for stringent mechanisms but not lenient provision to what is provided by the law. Lastly, a meeting can take place even if the required quorum is not met in certain exceptional circumstances as mentioned in this article.

Frequently Asked Questions (FAQs)

What are the matters because of which a director will not be considered for a quorum?

A director will not be considered for the quorum when he is interested in the subject matter of the agenda which is discussed in the meeting. In such a case, the director will not be considered for the quorum whether present physically or through electronic mode. A director will be considered as an interested director when the discussion in the meeting is related to an agreement which the director wants the company to enter into:

  • With the director himself or his relatives.
  • With any body corporate, that director or the director and other directors hold more than 2 percent of the share capital, or if he is the promoter, manager or chief executive of that body corporate.
  • With any firm or any other entity, if the director or any of his relatives is an owner, partner or member of that firm or the entity.

Is it mandatory for the members to be physically present as per Section 103 to constitute a quorum even in cases where electronic voting is mandated?

Section 103 specifies that a certain number of members must be personally present to constitute a valid quorum for a general meeting. Hence, even though the resolutions have been put to vote by electronic means, personal presence of a certain number of members is mandatory. However, the members who have voted by electronic means will also be counted for the purpose of quorum.

Reference 

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