This article was first published in The Economic Times (Corporate Counsel section), in India, on June 28, 2003.
The debate to allow meetings of the board of directors through teleconferencing or video conferencing in India has been ongoing since the advent of developments in technology and other legal systems permitting the same such as Mauritius, Canada and certain states in United States. Further, the Commerce Ministry had requested the Department of Company Affairs, to allow meetings of the board of directors of companies located in the Special Economic Zones (‘SEZs’) through teleconferencing or video conferencing.
Companies (Amendment) Bill, 2003
The Companies (Amendment) Bill, 2003 (‘the Bill’), which has been introduced in the Rajya Sabha on May 7, 2003 contains inter alia provisions amending certain provisions of the Companies Act, 1956 (‘the Act’) relating to board meetings and in particular, enables a company in India to hold meetings through teleconferencing or video conferencing. Some of the other amendments as proposed in the Bill relating to meetings of the board of directors are as follows:
- Meetings should be held so that not more than three months have elapsed between two consecutive meetings (Clause 132 of the Bill substituting Section 285 of the Act).
- Notice and agenda of meetings of public company are to be given to every director not less than seven days prior to the date of such meetings at the directors usual address in India (Clause 133 of the Bill substituting Section 286(1) of the Act).
The Bill has introduced Section 285(2), which provides that "any meeting of the board of directors may be held by participation of the directors of the board through teleconferencing or video conferencing and such meeting shall be valid if the minutes of such meeting has been approved and signed subsequently by all directors of the Board who participated in such meeting." (Emphasis supplied)
The proviso to the said Section 285(2) as proposed in the Bill stipulates that the Central Government may notify that certain powers may not be exercised in a meeting held through teleconferencing or video conferencing.
It therefore appears that if any director participating in a meeting held via teleconferencing or video conferencing fails to sign the minutes of such meetings for any reason whatsoever then such a meeting would be invalid and consequently all decisions taken or resolutions passed in such a meeting would also be invalid.
Signing of Board Minutes: Additional Rquirement
The Act contains various provisions regarding preparation and keeping of minutes, such as that the minutes have to be prepared before the expiry of 30 days from the date on which the meeting was held and the chairman has initialled every page of the minutes and affixed his/her signature on the last page. However, if the minutes are not prepared and kept in the manner prescribed under Section 193 then the following consequences would arise: (i) the said minutes would not be admissible in evidence (Section 194 of the Act); (ii) the benefit under Section 195 (which, inter alia provides that if the minutes are kept in accordance with the provisions of Section 193 of the Act, then until the contrary is proved, the meeting would be deemed have been duly called and held and all proceedings that have taken place in such a meeting would be valid) would not be available; and (iii) the company and every officer of the company who is in default is liable to pay a fine of upto Rs 500 (Section 193). However, it is to be noted that failure to comply with these provisions does not invalidate the meeting.
On the other hand, under the provisions of the Bill, the minutes of a meeting held via teleconferencing or video conferencing is required to be approved and signed by all the directors participating in the meeting, failing which such a meeting would be invalid.
Accordingly, under the provisions of the Act, a physical meeting of the board is valid, even though the minutes of such a meeting is not prepared or kept in accordance with the provisions of the Act. However, under the provisions of Section 285(2), as proposed a meeting held by teleconferencing or video conferencing is valid only if all the directors participating in such a meeting sign the minutes.
Therefore, the proposed new section 285(2) seeks to impose a substantive onus in addition to the provisions of Section 193 of the Act, which directly impacts the validity of meetings and the resolution passed thereat, irrespective of the compliance with the provisions of Section 193.
To illustrate the point, a situation could arise wherein a meeting of the board may be required to be convened on an urgent basis, for instance, to authorise a company to execute a document. Under the provisions of the Act, a resolution could be passed in a physical meeting or by circulation. In case of a physical meeting, once the directors pass a resolution, the company would be permitted to act on the said resolution even if the minutes are subsequently not kept and maintained in accordance with Section 193. Accordingly, a company could immediately upon completing the meeting, issue a certified extract of the requisite resolution and validly take action on such basis. However, convening such a physical meeting on an urgent basis may be time consuming for the company.
On the other hand under the provisions of Section 285(2), a company, in a similar situation may convene a meeting of the board via teleconferencing or video conferencing and resolutions to the effect may be passed. However, the company would not be able to act on the said resolution until and unless the directors attending such meetings sign the minutes of such meeting in accordance with Section 285(2). If the same is not complied with, such a meeting would be invalid. Consequently, the company would not be entitled to issue a certified extract of the requisite resolution immediately, to enable the urgent action, as required.
Consequently, it would appear that a resolution passed by circulation would possibly achieve the desired purpose of passing and implementing a resolution on an urgent basis.
It is further observed from the aforesaid provisions that the purpose of Section 285(2) of the Bill is to make it convenient for companies to organize and hold meeting of its board of directors. Further, it appears that the purpose of approval and signing of the minutes of a meeting of the board held through teleconferencing or video conferencing by all the directors participating in such meetings is to ensure that the proceedings of the meeting are recorded to enable implementation of the resolutions passed therein and prevent any potential misuse. However, in view of the foregoing, it would appear that holding meetings via teleconferencing or video conferencing would not effectively enable speedy action by the board but rather facilitate a director to attend such meetings without traveling to the place where the meeting would be held.
The views expressed in this article are those of the authors and do not represent the views of the firm. This article does not purport to be professional advice, nor a complete or comprehensive study on the subject. It is recommended that professional advice be sought before taking any action pursuant to any matter contained in this article.