Meeting of the Board of Directors

Introduction

‘Director’ is the term referred to the part of the collective body known as the Board of Directors (hereinafter referred as “Board”). It is responsible for the control, management, superintendence and direction of the affairs of the Company. Directors are given the status equivalent to that of the trustees of the Company, its property and money. They are the agents of the transactions entered on behalf of the Company. The law regulates the minimum number of Directors that a company is required to have is three in case of a public company, two in case of a private company and one in case of a one person company.  The Companies Act, 2013 (hereinafter referred to as “the Act”) also provides fifteen as the maximum number of Directors a company can have on its board. For any person to be appointed as the Director, he/she should have the relevant experience and expertise so laid down and, must not have been a promoter for the company or related to any promoters. He or any of his relatives should not hold any financial relationship with the company as well. Section 166[1] of the Act lays down the duties of the Directors in unequivocal terms. They are, to act, solely in accordance with the Articles of Association (hereinafter referred as “Articles”) of the Company, in good faith, in the best interest of the company, to exercise due and reasonable care, to avoid indirect conflicts with the Company, etc. A company is not an actual entity with a brain of its own. Therefore, it acts through its officers who are assigned for the job. The major decision making for a company is done through the Board which is an authoritative position in the company. They are the officers of the company. They are collectively responsible for the day to day management of the affairs of the company. They are also empowered to take all the major decisions for the company. Therefore, it becomes imperative that the meeting of the board be held at frequent intervals. The Act provides for detailed provisions for the same as are discussed hereunder.

Read about more Functions of the Board of Directors in a Company

Meeting of the Board and its powers

The meetings are an important component of a company. It is a statutory requirement to conduct meetings in periodical intervals. There are four kinds of meetings in a company defined by the type of attendees, i.e.

1. meetings of shareholders,
2. meetings of Board,
3. meetings of debenture holders; and
4. meetings of creditors.

Chapter XII provides for the Meetings of the Board and its powers. Section 173 of the Act provides for the meetings of a company which states that, every Company shall hold the first meeting of the Board within 30 days of the incorporation of the company. Thereafter, the company should hold a minimum of four meetings every year in a manner that there must not be a gap of one hundred and twenty days between two consecutive meetings of the Board. The Central Government may provide for the modification or exemption from this provision to any class of companies.  The Directors of a one-person company, small company and a dormant company shall meet twice in a year with a gap of not less than ninety days, except when the one-person company has only one director in its Board.

The previous Company law[2] provided for a Board meeting to be held every three months and four such meetings to be held in a year as per the Section 285 of the Act. If a meeting was called within the given time but was cancelled due to want of quorum, the provision of this Section would stand fulfilled[3].

Conditions for a valid meeting of the board

The meeting of the Board of a company is a meeting of the people at the highest level. It thus, is imperative that a proper procedure is followed in convening the meeting. The following conditions are provided for in the Act, for ensuring that the meetings are held with the knowledge of all the members and proper authority of law.

Notice (Section 173 of the Act)

The meeting should be called by a notice of not less than seven days, in writing, to every Director who is in India at that time, at the address registered with the company, by electronic or hand delivery medium. If the Directors are duly informed that in future the meetings shall be held on every Saturday, or when any specific interval is set for the meetings, it amounts to a sufficient compliance with the statute. There is no need to give a specific notice in that case[4].

Notice needs to specify only the time,place and agenda for the meeting[5]. The agenda may be set out as a matter of prudence, but it is not required, so to say.

If any urgent meeting is to be called at a shorter notice than this, at least one independent director shall be present at the meeting. If this condition cannot be obliged to, then the decision taken in that meeting will be final only after ratification by one independent director.

Before the Act, provision for notice wasn’t specifically provided for. Therefore, it was ruled out that even a few minutes’ notice would suffice as a notice for a valid meeting[6]. Even a chance meeting of the Directors may be resolved into a Board meeting. The case of Smith v. Paringa Mines Ltd[7] is an appropriate example of this. In this case, the meeting between Directors was held in a passage outside the office in a casual manner. It was held to be a valid meeting.

After the Act of 2013 coming into force, the provision for a proper notice has been accommodated. Therefore, such a meeting shall not be valid now.

Quorum (Section 174 of the Act)

The quorum for any meeting of the Board shall be one-third of its total strength or two directors, whichever is higher. Participation of the Directors in the meeting through video conferencing or such other forms shall be considered for the purpose of deciding the quorum. If the quorum cannot be reached at, because of the interested directors (when it is found that the director has some personal interest in the Company), then the quorum shall be the number of non-interested directors, subject to the minimum of two. In the case of North Eastern Insurance Co Ltd, Re[8] it was held that a meeting without the quorum being present shall be void.

If a meeting cannot be held for want of a quorum, it stands adjourned till the same day in the next week. A meeting attended by only one Director irrespective of the number of people present shall not be valid.[9]

Participation

All the Directors are encouraged to attend board meetings. This is so because participating in the meetings of the Board allows one to take cognizance of the matters and can be a part of important decisions which are taken in the board meetings. Since there has to be a facility for taking part in the meeting through video conferencing, it becomes all the more convenient for the Directors to attend the meeting.

Every Director is liable to attend at least one meeting of the Board every year. If he fails to comply, his office shall be deemed to have been vacated as per the provisions of Section 167 of the Act. Beyond that, there can be no penalty on him but it’s expected from them to attend meetings of the Board if possible.

Agenda

It is wise to set an agenda for any meeting.  The same is the case for the meetings of the Board of a Company. This assists them in pondering over the issues and jotting down their notes beforehand. Even though the Act does not provide a provision for it categorically, every board meeting must have a set agenda that should be followed. Agenda refers to the topic of discussion of the board meeting. Only the issues set in the agenda can be discussed in a meeting. Anything beyond the agenda cannot be discussed and voted upon. Any business transaction which is not mentioned in the agenda must not be discussed in the meeting or else the same shall be deemed invalid. Any resolution to that effect shall be void and ineffective.

Presiding Officer

The Board shall designate a representative to preside over the meetings of the Board. If any person is not so appointed, the Chairman of the Board shall be the appropriate presiding officer. A substitute person shall be appointed to preside over the meetings in case of his absence. Every meeting shall be held in the presence of the appropriate presiding officer.

Convening Authority

A board meeting must be held under the direction of a proper authority. Usually, the company secretary is given the authority to convene a board meeting. In case of his absence, the predetermined person authorised in this regard shall act as the authority to conduct the board meeting.

Place of meeting

There is no restriction in the Act with respect to the time and place for conducting a board meeting. However, the Articles may provide for any specific condition in this regards for a company. As per the law, a meeting is valid irrespective of the place where it is held. The meeting can be held even outside India.

Conducting the Meeting

There is no provision providing for the manner or procedure in which an item or business has to be conducted at a board meeting. All disputes and debates are resolved through majority of voters. If the consensus is not obtained and there is equal number of votes in favour and against of any motion, then the Chairman of the Board has the casting vote to decide the matter.

Other Formalities Related to the Meeting

To ensure that the outcome of the meeting is conveyed in a proper form to all concerned parties and to assure that no mala fide action was taken in the garb of these meetings, the following formalities are provided for in the Act.

Passing of Resolution by Circulation (Section 175 of the Act)

It is necessary for passing of any resolution to be circulated in a draft along with any necessary papers to all the directors or members of the company at their addresses. It shall be approved by a majority of Directors who are entitled to vote on that resolution. If one-third Directors are of the opinion that the resolution must be decided in a meeting of the Board, the Chairman must put it at a meeting of the Board.

Under the Companies Act, 1956, six powers were given to the Board, with regards to passing of resolution in a board meeting and not by circulation. They are

• To make calls on shareholders for the unpaid amount on their shares.
• Authorisation of the buy-back of shares
• Issue debentures
• Borrow money other than debentures
• Investing funds of the company
• Make loans

Therefore, the above-mentioned powers can be utilised by the Board to the best interests of the company.

Minutes of the Meeting (Section 118 of the Act)

The proceedings of every meeting of the Board shall be recorded in the Minutes’ Book of the company. In the case of Cawley & Co, Re[10], the purpose of recording the minutes was explained. It was stated that the minutes of the board meeting are kept in order so that the shareholders of the company may know exactly what their Directors have been doing, why it was done, and when it was done.

It shall contain the names of the Directors attending the meeting, resolutions taken up in the meeting, dissent or solution on any issue. It should provide for a fair and accurate summary of the meeting and contain evidence of every issue which was discussed in the meeting.

Register (Section 170 of the Act)

The company is required to maintain certain registers concerning the various activities and positions in the company. One such register is the ‘Register of Directors’. Every company shall keep a register mentioning the particulars of the Directors and other key personnel engaged in management of the company in the prescribed manner. It must include the details of securities held by each of them, in the company or in any other subsidiary company.

A return shall be filed for such particulars and documents as provided with the registrar of companies within 30 days from appointment of every Director. The register shall remain open for inspection to the members during business hours[11]. The members are also entitled to take any extracts from the register. It shall be made available during every general meeting of the company so that the members can inspect it.

The company and every officer of the company who is in default shall be punishable with fine not less than Rs 50,000 extending up to Rs 5, 00,000[12].

Defects in Appointment Not to Invalidate Actions (Section 176 of the Act)

An act done by a person as a Director is not to be deemed as invalid even if it subsequently comes to the notice that his appointment was invalid by the reason of any defect or disqualification attracted by him.

Managing Director

Section 197 of the Act provides for a managing or a whole time director or manager. The term is defined in Section 2(54) of the Act to mean a person who is entrusted with substantial powers of management which would not otherwise be exercisable by him. Such powers may be conferred by the virtue of an agreement with the company or by the Board through a resolution of the company or the Board by virtue of a memorandum and articles. It includes a director occupying the position of Managing Director by whatever name he may be. The company shall not employ more than one Managing Director at a time. A person shall not be appointed in this position for more than five years at a time. The reappointment shall not be made earlier than one year before the expiry of his term. The person shall not be of less than twenty years of age or has attained the age of seventy years. The must not be an undischarged insolvent. He must not have been convicted by a court of an offence and sentenced for a period of more than six months. The remuneration payable to the Managing Director shall be approved by a resolution at the general meeting of the company. A return in the prescribed form shall be filed within sixty days of such appointment with the registrar. His position is important in many regards in the meetings. Therefore, it is important to know about this position when meetings of the Board are under discussion.

Importance of the Meetings

In any organisation where more than one person is involved in the management, it becomes necessary to have meetings because it provides an opportunity for dialogue and proper communication. A meeting is of any help and will be productive if it is properly planned, organised and controlled. With an effective meeting, the following objectives are fulfilled-

• Resolve conflicts- If there is any conflict or any issue in which a majority opinion is required, a meeting is a good resort. Both the opinions get actually discussed and eventually, with the passing of the resolution, the law in that regard is established in the company. It is a democratic manner of resolving a dispute and is beneficial for holistic development of the company.
• Consensus in decisions- When the entire Board sits together and decides on one thing, the opinion will hold more value as it is reached at with the consensus of all concerned parties.
• Saves time and efforts- Through a meeting, it’s easier to find the will of all involved parties in one go. Everyone gives their opinion in one time. It saves on a lot of time vis a vis any other mode where the resolution is taken to concerned people individually and then decided upon. In this case, there is no scope for discussion as well. Therefore, a meeting is a better form of association when any decision is to be taken.
• Proper implementation- The decisions are made faster and effective implementation can be ensured as the resolution passed in the meeting is brought in writing and put in the records of the company. It ensures that the resolution is put to effect properly.

Purpose of a Meeting

The purpose of a meeting is closely similar to the agenda. The meeting must have a well-defined purpose for which it is sitting. It ensures that the topics which are beyond the set purpose must not be discussed. The following are the general purposes for which the meetings are held:

• To sort out any conflict that has arisen regarding the day to day working of the company.
• To negotiate a contract or agreement on behalf of the company, or any related matter.
• To deal with any problem that is arising in the organisation.
• To receive a report or a review for any assessment of the company.
• To supply any information to the members, present in the meeting on any particular matter at hand.

Conclusion

Company is an organisation which has a legal personality independent of its members. It is given the rights and duties of a person as per the law. But, since it is a fictional personality and has no brain of its own, it works through other persons who are its officers. Hence, it is necessary to ensure that any individual is not taking any undue advantage of this status of the company and all actions are being taken for the best interests of the company. Meetings are an effective form to ensure the same. Therefore, the Act makes it a statutory liability for a company to have periodical meetings. This is beneficial both ways and helps in effective management of the company.

[1]Companies Act, 1956.

[2] Companies Act, 1956.

[3] Section 288 of the Companies Act, 1956.

[4] A Chettiar v. Kaleeswarar Mills, AIR 1957 Mad 309.

[5] La Compagnie de Mayville v. Whitley, (1896) 1 Ch 788.

[6] Brown v. La Trinidad, (1887) 37 Ch. D. 1.

[7] (1906) 2 Ch 193.

[8] (1919) 1 Ch 198.

[9] Hood Sailmakers Ltd v. Axford, (1997) 1 BCLC 721 (QBD).

[10] (1889) LR 42 Ch D 209.

[11] Section 171 of Companies Act, 2013.

[12] Section 172 of the Companies Act, 2013.