India: Veto Rights Relating To Quorum And Voting On Resolutions - Whether Enforceable Under The Indian Companies Act, 1956?

Last Updated: 25 July 2003
Article by Padmanabhan Iyer


It is quite common to observe in most of the Joint Venture Agreements ('JVA') that certain special rights or (veto rights as these are commonly known) retained by the JV parties qua Board meetings and General meetings. These rights are invariably incorporated in the Articles of Association (the 'Articles') of the Joint Venture Company. Generally these rights provides for the presence and / or affirmative vote of the JV parties to pass a resolution or to take a decision. The basic fabric of the Indian Companies Act, 1956 ('the Act') is democracy. In Board meeting or General meeting the principles of corporate democracy is stressed by providing for simple majority votes in most of the cases and three fourth majority for certain cases which require special resolution. Though there is no special resolution in the case of Board meeting, there is no prohibition either to provide for the same in the articles.

The professional opinion on these special rights is equally divided. The contention of the pro-group is that the Act provides for the framing of its own Articles for a company and since these rights are associated with the management of the company there is no bar to have such provisions in the Articles. On the contrary, the anti-group contends that these special rights are not in consistent with the provisions of sections 9,28,86,87 and 287 of the Act. This article examines the validity and enforceability of such veto rights.

Veto Rights

In Latin"Veto" means "I forbid". The term, according to New Webster's Dictionary, means "power or right of forbidding; to withhold assent to; to reject". Thus, veto rights mean the right to forbid or withhold assent or to reject. In other words, it is a special right given to a person to reject a proposal. As anybody can agree to or reject any proposal, one may ask, what is special in veto. The importance or specialty of veto is that when exercised it rejects the proposal inspite of the proposal having majority assent.

Reverse Veto Rights in the Articles of Association

Generally in the case of joint Ventures the JV parties provide certain special rights such as mandatory presence to form a valid quorum, mandatory affirmative vote to pass a resolution etc to each of them or any one of them, in the articles of association of the Joint Venture company. These rights are provided for to protect the interests of the parties. Though commonly these special rights are termed as veto rights, in stricter sense they are not veto rights for these rights are purported to block the formation of quorum or passing of resolutions by not exercising the rights. Thus, in real sense, these rights are Reverse Veto Rights ('RVR').

What is quorum

The term "Quorum" means, according to New Webster's Dictionary "the number of members that must be present at a meeting to make its transaction valid". Thus quorum is the least number of members who are required to be present at a meeting of a body of persons so as to make it a valid meeting. If the quorum is not present no meeting can be held.

Statutory Quorum.

Section 287 of the Act stipulates that the quorum for a meeting of the Board of directors of a company shall be one-third of its total strength or two directors whichever is higher. What this section prescribes is a statutory minimum quorum for conducting a valid Board meeting. While calculating the one-third of the strength, any fraction therein has to be rounded of to one. Thus, for example one-third of 5 directors shall be 2; and one-third of 7 shall be 3 and so on.

Articles can provide for higher quorum

The quorum as stipulated by the Act is the minimum quorum required under the Act. There is no prohibition for a company to fix a higher quorum than the statutory quorum1. For example, say the articles may provide for one -half of the strength of the Board or 5 directors or all the directors as quorum. However, the quorum requirement, in any event, should not be lesser than the statutory minimum. Thus, in any case, at least two directors are required to form a valid quorum.

RVR in formation of Quorum

This is normally known as "mandatory presence". When this right is provided for in the Articles of a company, a quorum is said to have been present only when a particular person puts his presence. The quorum fails, in spite of having the minimum number of the quorum, if such a mandatory presence is not made.

Generally the clause providing for such mandatory presence right is worded in the following manner.

" The quorum for the meeting of the Board of directors shall be 3, out of which at least one nominee director of Group A and one nominee director of Group B shall be present at all the Board meetings of the company"

"The quorum necessary for any general meeting of the members of the company shall be 2 members, whether present in person or by proxy, provided however, presence of Group A shall be necessary for constituting a valid quorum".

Let us assume that there are 5 directors and the quorum fixed is 3 directors. Group "A" has three nominees and Group "B" has two nominees. If at a meeting all the nominees of A are present but nominees of B absent themselves (reasons could be anything), whether there is a valid quorum or not? Likewise, let us assume there are 5 members 3 representing Group A and 2 representing Group B. If at a general meeting when the two members representing Group B present and Group A absents themselves, whether there is a valid quorum?

The power of the articles to fix a higher quorum than that of the statutory quorum extends only to the number of persons to form a quorum and it does not extend to a particular person belonging to a particular group. The reason is that, quorum denotes a "minimum number" out of the total numbers and not a particular person. If at all any particular person's presence is required, as a sine qua non for constituting a quorum, the language of section 287 would have been totally different. The intention of the Act is to prescribe the minimum number of persons to form a quorum so that a meeting can be held and as long as the number of persons required to form a quorum is present.

According to Section 9 of the Act any provision in the articles contrary to the provisions contained in the Act, to such extent of repugnancy, is void. Even The provisions of Table A, if run against the provisions of the Act, shall be void. The Madras High Court2 held that if the provisions in the articles patterned on the regulations of Table A or even the very regulations of Table A are found to be repugnant to any express provision of the Act, the court will not hesitate to declare the articles or the regulations of Table A void. The court further observed that any article in the Articles of any company is couched in a wide language in this behalf it will be the duty of the court to read the said clause or article consistent with the statutory provisions. If such harmonious reading is not possible, the clause in table A or the relevant article contained in the Articles of a company will have to yield to the provisions contained in the statute.

Where the articles of the company provided for circulation of resolution without being required to circulate the draft resolution to the directors for passing a circular resolution was struck down as being repugnant to section 2893.

The freedom provided, under section 28 of the Act, to modify Table A and to have its own regulations, ipso facto, does not authorise any company to provide for regulations which give a "special right" to any particular group or person holding same kind of share capital. Rights are associated with shares and equal rights are ensured for every class of shareholders within their class. In this context it is pertinent to mention that the Supreme Court4 has held that one section of the Act could not have intended to prevent what another section on the same Act made legal.

In view of the above discussion the non- presence of the veto member will not invalidate the quorum of the meeting. The ideal way to ensure the compulsory presence of any particular person would be to fix the number of quorum at such a figure that without the presence of a particular person quorum could never be constituted. In the above example, the quorum could have been fixed at 4 directors so that the presence of the nominee of Group B is ensured without falling foul with the statutory provision. In the same manner instead of fixing the quorum for general meeting at 2, it could have been fixed at 3 which will ensure the mandatory presence of Group A.

RVR in voting.

This is normally known as "affirmative vote". When this right is provided for in the articles of association of a company, a resolution is said to have been passed only when a particular person casts his affirmative vote. The resolution fails, inspite of having majority of votes, if such an affirmative vote is not casted.

Generally the clause providing for such affirmative voting right is worded in the following manner.

"The decision pertaining to the following matters shall require an affirmative vote in favour of such decision by at least one member belonging to Group B"

Suppose Group A has 76% and group B has 24%. Group B rejects an ordinary resolution and a special resolution though the resolutions were supported by Group B. Whether the resolutions are said to have been passed or not?

The first question which arises is whether such affirmative voting rights can be provided under the Act? Section 87 of the Act confers with equal voting right on all shareholders belonging to the same class. Thus, in terms of the provisions of section 87 special voting rights cannot be provided to members of the same class.

However, section 86 of the Act, provides for the issue of equity shares with differential rights as to voting, dividend or otherwise. For this there ought to be two different classes of equity shares, one is the normal equity share with normal rights and the other is the special equity share with special voting rights. In view of this, special voting rights can be given to a particular class of shares and not to a particular group or a person belonging to the same class. Though different class of equity shares with different voting rights can be issued, the special right can be given by providing for graded votes, say Class A shares will have one vote and Class B shares will have two vote per share.

Nowhere the Act says that only with the affirmative vote of a particular person or group a resolution can be passed. Conversely, the Act nowhere stipulates that a resolution shall fail when a person, having affirmative vote, fails to cast the vote. Thus, in order to defeat a resolution the votes cast against it should be more than the votes cast for it in the event of ordinary resolution. Similarly in the case of special resolution the votes cast for the resolution should be three times the votes cast against it. In other words, in a meeting a resolution can be defeated only by casting votes against it and not by absenting or refraining from casting vote.

In view of this the affirmative voting right of Group B, will not stand in the way of passing resolutions by Group A, provided the requirements of the Act are satisfied. The only manner in which Group A can defeat a special resolution is by holding at least 26%; and an ordinary resolution can be defeated by only holding 50% shares.


Company law is based on the principles of shareholders democracy and as such the majority will always hold sway. Veto rights are measures intended to protect the interests of the minority group. Certain basic rights, which are the bedrock of corporate democracy, such as attending the meeting, voting thereat etc are not amenable to modification in contrary to the substantive legal provisions of the Act. Even if the Articles contain such clauses, the enforcement of the same through a court of law will not be possible. Hence, the better manner to protect the interests of the minority group or a JV partner is to ensure the same within the four walls of legally permitted methods.


1 Amrit Kaur Puri vs Kapurthala Flour Oil & General Mills Co Pvt Ltd, (1984) 56 Comp.Cases 194 (P&H)

2 Southern Roadways Ltd v CIT (1981) 51 Comp.Cases 513 (Mad) (FB).

3 Mazda Theaters Pvt Ltd vs New Bank of India Ltd, ILR (1975) 1 DEL 1.

4 Oriental Metal Pressing Works (P) Ltd vs Bhaskar Kashinath Thakur, (1961) 31 Comp.Cases 143 (SC)

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.


To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.