Chapter XII- Meeting of Board and its Powers
Ø Four board meetings are to be held in a year and the time gap between two meetings shall not be more than 120 days. No requirement to hold the meeting every quarter as provided under the Companies Act, 1956.
Ø Participation of directors at Board Meetings has been permitted through video-conferencing.
Ø At least seven days notice is required to be given for a Board meeting. However, a provision for shorter notice is there.
Ø Every listed company and such other company as may be prescribed to have an audit committee.
Ø The Audit committee shall consist of a minimum of three directors with independent directors forming a majority and majority of members of Audit committee including the Chairperson shall have financial knowledge.
Ø A vigil mechanism in the prescribed manner to be established by every listed company or such class or classes of companies, as may be prescribed.
Ø Besides the Audit Committee, the constitution of Nomination and Remuneration Committee has also been made mandatory in the case of listed companies and such other class or description of companies as may be prescribed.
Ø The Nomination and Remuneration Committee shall consist of at least three non-executive director(s) with at least one half shall be independent director. The Chairperson of the company (whether executive of non executive) may be appointed as member of nomination and remuneration committee but cannot chair nomination and remuneration Committee.
Ø Where the combined membership of the shareholders, debenture holders and other security holders is more than 1000 at any time during the financial year, the company shall constitute a Stakeholders' Relationship Committee. The Chairperson of the Committee shall be a non-executive director.
Ø Certain new matters that are required to be transacted by the board of directors at their meeting only.
Ø Certain powers which earlier can be exercised by the Board with the approval of general meeting by way of ordinary resolution under section 293 of the Companies Act 1956, shall now to be passed by special resolution.
Ø The limit of political contribution has been increased from 5% to 7.5% of the average net profits of the company during the three immediately preceding financial years.
Ø Like Public limited company, in case of a private limited company, an interested director cannot vote or take part in the discussion relating to any matter in which he is interested, whereas under the Companies Act, 1956, director of a private limited company can do so.
Ø The Companies Act, 1956 requirement of seeking permission of the central government for giving loan to director has been dispensed with.
Ø Companies are prohibited from making investment through more than 2 layers of investment companies subject to certain exemptions in case of foreign acquisitions and requirement of multi layered structure as per any law.
Ø The provisions related to inter-corporate loans and investments (section 372A of Companies Act, 1956) have been extended to include loans and investments to any person.
Ø Minimum rate of interest on inter corporate loans have to be prevailing rate of interest on dated government securities.
Ø No approval of the central government required for appointment of any director or any other person to any office or place of profit in the company or its subsidiary. Under the Companies Act, 1956 approval is required under section 297.
Ø A company shall not enter into any arrangement by which a director of the company or of its holding company or any person connected with him can acquire assets for the consideration other than cash from the company & vice versa without the approval of company in general meeting.
Ø Apart from the existing transactions, certain new related party transactions are also provided for which approval of board will be required.
Ø No approval of the central government required for entering into any related party transactions. Under the Companies Act, 1956 approval is required under section 297.
Ø One Person Company shall enter into a contract with the sole member of the company who is also its director, only in writing or else ensure that the terms of the contract are contained in a memorandum or are recorded in the minutes of the first Board meeting held after entering into the contract. The company shall inform the Registrar about every such contract.
Ø Directors and Key Managerial Personnel are now prohibited to enter into any forward dealings in company's securities. Under the Companies Act, 1956 there is no such provision.
Ø Specific provisions are introduced prohibiting insider trading of securities. Under the Companies Act, 1956 there is no such provision.
Ø The definition of price sensitive information has also been included.
CHAPTER XII
MEETINGS OF BOARD AND ITS POWERS
| 173. | Meetings of Board, | 285 | Board to meet at least once in every three calendar months. |
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| 286 | Notice of meetings. |
| 174. | Quorum for meetings of Board. | 287 | Quorum for meetings. |
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| 288 | Procedure where meeting adjourned for want of quorum. |
| 175. | Passing of resolution by circulation. | 289 | Passing of resolutions by circulation. |
| 176 | Defects in appointment of directors not to invalidate actions taken. | 290 | Validity of acts of directors. |
| 177. | Audit committee. | 292A | Audit Committee, |
| 178. | Nomination and Remuneration Committee and stakeholders relationship committee | Sch. | Schedule |
| 179, | Powers of Board. | 291 | General powers of the Board. |
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| 292 | Certain powers to be exercised by Board only at meeting. |
| 180. | Restrictions on powers of Board. | 293 | Restrictions on powers of Board. |
| 181. | Company to contribute to bona fide and charitable funds, etc. | 293 | Restrictions on powers of Board. |
| 182. | Prohibitions and restrictions regarding political contributions, | 293A | Prohibitions and restrictions regarding political contributions. |
| 183. | Power of Board and other persons to make contributions to national defense fund, etc. | 293B | Power of Board and other persons to make contributions to National Defence Fund, etc. |
| 184. | Disclosure of interest by Directors | 299 | Disclosure of interests by Directors. |
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| 300 | Interested director not to participate or vote in Boards proceedings. |
| 185. | Loan to Directors, etc. | 295 | Loans to Directors, etc. |
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| 296 | Application of section 295 to book debts in certain cases. |
| 186. | Loan and investment by Company. | 372A | Inter-corporate loans and investments. |
| 187. | Investments of Company to be held in its own name, | 49 | Investments of Company to be held in its Own name. |
| 188. | Related Party Transactions | 314 | Director, etc, not to hold office or place of profit. |
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| 297 | Boards sanction to be required for certain contracts in which particular Directors are interested. |
| 189. | Register of contracts or arrangements in which Directors are interested. | 301 | Register of Contracts, Companies and |
| 190. | Contract of employment with managing or Whole-Time Directors. | 302 | Disclosure to members of director's interest in contract appointing manager, MD. |
| 191. | Payment to Director for loss of office, etc., in connection with transfer of undertaking, property or shares | 320 | Payment to director for loss of office, etc., in connection with transfer of shares. |
| 318 | Compensation for loss of office not permissible except to Managing or WTD or to directors who are managers. | ||
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| Payment to director, etc., 11w loss of office, etc, in connection with transfer of undertaking or property. | ||
| 192 | Restriction on non-cash transactions involving Directors |
| No provision exists |
| 193 | Contract by One Person Company |
| No provision exists |
| 194 | Prohibition on forward dealings in securities of company by a key Managerial Personnel |
| No provision exists |
| 195 | Prohibition on Insider Trading of securities |
| No provision exists |
CHAPTER XII - MEETINGS OF BOARD AND ITS POWERS
Comments - Sections 285-290 of the Companies Act, 1956 regarding meeting of board, notices, quorum etc has been re-organised in Sections 173-176 with many changes. BM through video conferencing has been allowed. 7 days notice of BM can also be sent by Email. However, provision for shorter notice is also there. Interested director can neither participate in board meeting nor in general meeting. Listed companies and prescribed class of companies have to establish a vigil mechanism & have to form a "Audit committee" & "Nomination and Remuneration Committee". Every company having more than 1000 security holders have to form a "Stakeholders Relationship Committee". Inter-corporate loans and investments, and investments through more than two layer investment subsidiaries are restricted. Limits of contributions by a company to political parties or for political activities have been increased to 7.5%. Forward trading in the shares of companies, its holding, subsidiary and associate companies by the directors is prohibited.
Section 173: Meetings of Board (Similar to Section 285,286)
| Comment - This Section provides that a minimum of four board meetings are to be held in a year and the time gap between two meetings shall not be more than 120 days. There is no requirement to hold the meeting every quarter as provided under the Companies Act, 1956. Atleast 7 days notice of Board meeting shall be given to every director at his address registered with the company by post or by electronic means failing which officers shall be liable for penalty. However, a provision for shorter notice is there. Shorter notice in private limited companies may not be practically possible as these companies do not have independent director. Participation of directors at Board Meetings has been permitted through video-conferencing. In case of One Person Company, Small Company and Dormant Company, atleast 1 meeting of the Board of Directors must be held in each half of a calendar year and the gap between the 2 meetings shall be atleast 90 days. |
| TABLES | ||
| Number of BMs in a calendar year: | First BM | Within 30 days from the date of incorporation. |
| Minimum BMs | Atleast 4 BMs such that time gap between two BMs not more than 120 days. | |
| Maximum BMs | No Restriction. | |
| Length of Notice | 7 days Notice | However, for urgent necessity, provision of shorter notice is there |
| Agenda is not required | The Act does not prescribe the content of the notice | |
| Form of Notice | No form of notice has been specified by the Act | |
| To whom notice to be given? | Every director at his address registered with the company | |
| How to send notice? | By hand delivery or by post or by electronic means. | |
| Mode of Participation | Either in person or through audio visual means capable of recording the proceedings of such meetings along with date and time. | |
| When notice not required? | When Articles fixes date, time and place of all future BMs | |
| When Resolution fixing date, time and place of all future BMs has been passed and a copy of resolution has been sent to every director. | ||
| Consequences of omission to send notice to a director | Meeting Void. [Parmeshwari Prasad Gupta V Union of India (1974) 44 Comp Cas 1]. | |
Ø First Board Meeting, Interval between Board Meetings & Relaxation by the Central Government [Sec 173 (1)]:
v First Board Meeting - Every company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation
v Interval between Board Meetings - After the first meeting, the company shall hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board.
v Relaxation by the Central Government - The Central Government may, by notification, direct that the provisions of this subsection shall not apply in relation to any class or description of companies or shall apply subject to such exceptions, modifications or conditions as may be specified in the notification.
| Four Board Meetings Held – Whether Contravention of Section 173? Example: Does the company comply with the provisions of section 173(1) in the following cases? a. A company held its 1st, 2nd, 3rd and 4th Board meetings on 1st January, 30th June, 1st July and 31st December respectively. b. A company held its 1st, 2nd, 3rd and 4th Board meetings on 1st March, 30th May, 15th September and 31st December respectively. Answer a. The company has held four board meetings in a year. However, as the gap between 1st & 2nd meeting as well as 3rd & 4th meeting exceeds 120 days, the company has not complied with the provisions of Section 173(1). Answer b. The company has held four board meetings in a year. Also the gap between all meetings does not exceed 120 days; the company has complied with the provisions of Section 173(1). |
Ø Participation of Directors in Meeting through video conferencing also[Sec 173(2)]: The participation of directors in a meeting of the Board may be either in person or through video conferencing or other audio visual means, as may be prescribed, which are capable of recording and recognising the participation of the directors and of recording and storing the proceedings of such meetings along with date and time. The Central Government may, by notification, specify such matters which shall not be dealt with in a meeting through video conferencing or other audio visual means.
| Whether Participation by Video Conferencing in Board Meeting is Valid? Example: A private ltd co. has 12 directors out of which 7 directors stay abroad. Out of the remaining 5 directors, four directors are in New York presently. The company wants to hold a board meeting in which the 7 directors residing abroad and 5 directors went on a visit to New York will participate through video conferencing. Can the company hold a valid Board Meeting in which those directors will participate by means of video conferencing? Answer: Sec. 173(2) allows the participation of directors in Board Meeting through video conferencing or other audio visual means also. However, it should be capable of recording and recognising the participation of the directors and recording and storing the proceedings of such meetings along with date and time. Hence, the company can hold a valid board meeting. |
Ø Length of Notice, Shorter Notice [Sec 173(3)]:
v Length of Notice - A meeting of the Board shall be called by giving not less than seven days' notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means.
v Shorter Notice - A meeting of the Board may be called at shorter notice to transact urgent business subject to the condition that at least one independent director, if any, shall be present at the meeting. In case of absence of independent directors from such a meeting of the Board, decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director, if any.
| Whether Notice by Email is Valid? Example: A company wants to hold its Board Meeting on 15th September. The company wants to send the notice by email on 13th September. Examine Its Validity. Answer: Sec 173(3) allows the delivery of notice by electronic means. In case of urgent business, a notice shorter to 7 days is allowed provided atleast one independent director is either present at the meeting or ratify the transaction afterwards in the manner prescribed. |
| Date, Place & Time of Board Meeting – No Restriction Example: A company wants to hold its Board Meeting abroad on Sunday at 11 PM at night. Examine the validity. Answer: Unlike an AGM, the date, place & time of the board meeting has been left with the discretion of the directors and there is no restriction under the companies act, 2013 regarding the date, time and place of board meeting. Hence the Board Meeting is valid provided a proper notice for such Board meeting is given to all the directors at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means |
| Form or Content of Notice – Not Specified Example: In the above example, is it necessary that notice shall specify the nature of business to be transacted? Answer: No form or content has been prescribed by the act. Agenda is not required to be sent along with the notice unless the act requires specific notice to be moved for a resolution at a Board Meeting. |
| Notice by way of Telephonic Call due to urgent necessity - Invalid Example: A company called a meeting by a telephone call due to very urgent necessity. The meeting is attended by all directors and five items were transacted. None of the directors objected to the absence of notice. Examine validity. Answer: As per sec 173(3), A meeting of the Board shall be called by giving not less than seven days' notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means. As the notice has not been given in writing, such notice is not valid. Hence the meeting cannot be said to be properly called and will be invalid. |
| Notice to a foreign director present in India by courier at his hotel - Invalid Example: A company sent a notice of meeting to a foreign director (present in india) by courier at his hotel. Examine validity. Answer: As per sec 173(3), A meeting of the Board shall be called by giving not less than seven days' notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means. As the notice has not been given at his address registered with the company, such notice shall be invalid. |
| Notice is required to an Interested Director(s), Foreign Director(s), Alternate Director(s) as well as Original Director. Example: A company has 5 directors, A, B, C, D & E. A is a foreign director. X has been appointed as alternate director to B. C is an interested director for the purpose of proposed resolution. The Company does not want to send notice to A (as he is a foreign director and not likely to attend), B (on the grounds that he is out of state) & C (as he cannot vote in the meeting). Examine validity. Answer: As per sec 173(3), A meeting of the Board shall be called by giving not less than seven days' notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means. Hence the company is required to send notice to A, B & C also. |
| Resolution Fixing Board Meeting can be treated as Notice. Example: A company passed a resolution to hold a board meeting on 1st day of every month at 11:00 AM at its registered office. Examine validity. Answer: Sec 173(3) do not prescribe the form or mood of notice. A copy of resolution passed will be sufficient and can be treated as notice provided the resolution is served on every director. Merely passing of resolution is not sufficient. [A.L.A.R. Arunachalam Chettiar Firm V Kaleeswarar Mills Ltd AIR (1957) Mad 309] |
| Article Of Association Specifying The Date, Place And Time Of Board Meeting – No Separate Notice Required. Example: The AOA of the company fixes the date, time and place of Board meeting. Can this be treated as notice? Answer: A provision in the article is equivalent to the notice in writing. Hence no further notice is required. |
| No Further Notice Required for Adjourned Board Meeting. Example: A company adjourned its board meeting and do not want to give further notice. Examine validity Answer: Adjourned Board Meeting is a continuation of the original meeting. Hence no further notice is required except in the following cases: 1) Where the articles of the company provides for fresh notice for adjourned meeting. [Pramod Kr. Mittal V Southern Steel Ltd (1980) 50 Comp Cas 555] 2) Where a board meeting is adjourned for an indefinite time |
| Right to Receive Notice Cannot Be Waived. Example: Mr. Rohit, a director states that he will not be able to attend the board meetings for the next 1 month. Company does not want to send notice to Mr. Rohit. Examine Validity. Answer: Notice is to be sent to each director even if he waives his right to receive notice [Re, Portuguese Consolidated Copper Mines Ltd. (1889) 42 Ch D 160 (CA)] |
| Omission to give notice will make Meeting Invalid Example: A Ltd. failed to send notice to a director. Examine Validity. Answer: The provisions of Sec. 173(3) are mandatory and failure to send notice to even a single director will make the meeting and the resolution passed at the meeting null and void [Kuldip Singh Dhillon V Paragon Utility Finaciers Pvt Ltd. (1988) 60 Comp Cas 77]. Even an accidental omission to give notice to a director would make the meeting invalid. [Parmeshwari Prasad Gupta V Union of India (1974) 44 Comp Cas 1] |
Ø Penalty [Sec 173(4)]: Every officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty-five thousand rupees.
Ø Relaxation for OPC, Small Co. & Dormant Co. [Sec 173(5)]: A One Person Company, small company and dormant company shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days.
| Two Board Meetings Of OPC Held – Whether Contravention of Section 173? Example: Does the OPC comply with the provisions of section 173 in the following cases? a. A company held its 1st & 2nd Board meetings on 31st May and 16th August respectively. b. A company held its 1st & 2nd Board meetings on 11th April and 11th September respectively. Answer a. The OPC has held two board meetings in each half of a calendar year. However, as the gap between the two meetings does not exceed 90 days, the OPC has not complied with the provisions of Section 173. Answer b. The OPC has held two board meetings in each half of a calendar year. However, as the gap between the two meetings exceeds 90 days, the OPC has complied with the provisions of Section 173. |
Ø Exemption for OPC [Sec 173(5)]: Nothing contained in this sub-section and in section 174 shall apply to One Person Company in which there is only one director on its Board of Directors.
Section174: Quorum for meetings of Board (Similar to Section 287,288)
| Comment - This Section provides that the quorum for a meeting of the BOD of a company shall be 1/3 of its total strength or 2 directors, whichever is higher, and the directors participating by video conferencing or other audio visual means shall be counted for quorum. Where the number of interested directors exceeds, or is equal to, 2/3 of the total strength of the Board, the number of directors who are not interested and present at the meeting, being not less than 2, shall be the quorum. Now where due to removal / resignation etc. the number of Directors is reduced below the quorum, then the continuing Directors may act for the purpose of increasing the number of Directors to that required for the quorum, or for summoning a general meeting. The provisions that the frequency of the Board meeting shall not be deemed to be contravened merely by the reason that the meeting of the Board had been called in compliance with the Section could not be held for the want of quorum, has been dispensed with. |
| TABLES | ||
| Quorum | In case no. of interested director is ≥ 2/3 of total strength, quorum shall be | Remaining directors not less than 2 |
| In other case, Quorum shall be higher of | a) 1/3 of total strength or | |
| b) 2 directors | ||
| Quorum as per articles | Articles cannot reduce the quorum. However, it can increase. [Re, Sir Hormusji A. Wadia AIR (1921) Bom 372; (1921) 23 BOM LR 1104] | |
| Quorum required throughout meeting | Quorum is required at the time of transacting each and every business | |
| If strength of BOD falls below quorum, Continuing directors may act | If Strength of Board reduced below Quorum, Continuing Directors may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company and for no other purpose. | |
| Consequences when quorum not present | The Board Meeting is void [Firestone Tyres & Rubber Company V Synthetic & Chemicals Ltd. (1971) 41 Comp Cas 377 Bom, (1971) 41 ITR 377 Bom] | |
Ø Quorum for Board Meeting [Sec 174(1)]: 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, and the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum under this sub-section.
| Whether Participation by Video Conferencing Counted For Quorum? Example: A private ltd co. has 12 directors out of which 7 directors stay abroad. Out of the remaining 5 directors, 2 directors are in New York & 2 Director are in New Delhi at present. The company wants to hold a board meeting in which the 7 directors residing abroad and 4 directors in New York & New Delhi will participate through video conferencing. Can the participation by video conferencing be counted for the purpose of quorum? Answer: Sec. 174(1) states that the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum. Hence, such participation will be counted for the purpose of Quorum. |
| Position of Alternate Directors while computing Quorum and whether quorum has to be present throughout the meeting. Example: The board meeting of a company started at 01:00 PM where 7 directors were present, out of which 2 directors were alternate director. The total no. of directors was 10. The Board transacted 10 items. At 02:00 PM, after the completion of 4 items in the agenda, 4 directors left the meeting. Examine the validity of transaction. Answer: In the given case, quorum will be 1/3 of 10 directors i.e. 3.33 taken as 4 directors. Alternate directors shall also be included while computing quorum. Since 7 directors were present upto the completion of 4 items in the agenda, the Board meeting has been has been validly held. However, quorum has to be present at the time of transacting each and every business. As after transacting 4 items, 4 directors left, because of which the no. of directors present has fallen below the quorum, the remaining 6 items of the agenda cannot be validly discussed and voted upon. Therefore, resolutions passed in respect of 6 items are void and have no legal effect. |
Ø If Strength of Board reduced below Quorum, Continuing Directors may act [Sec 174(2)]: The continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company and for no other purpose.
| How can number of directors be increased if fallen below quorum? Example: The no. of directors of a Private Ltd. Co. has been reduced to 1. How can the co. appoint director to increase the no. of strength to that fixed for quorum? Answer: Sec. 174(2) empowers the continuing director(s) to act for the purpose of increasing no. of directors to that fixed for the quorum or for summoning a general meeting, if the no. has been reduced below the quorum. In such a case, the continuing director may appoint an additional director or may summon a general meeting for the purpose of appointment of director. |
Ø Quorum in case of Interested Directors [Sec 174(3)]: Where at any time the number of interested directors exceeds or is equal to two thirds of the total strength of the Board, the number of directors who are not interested directors and present at the meeting, being not less than two, shall be the quorum during such time. "Interested director" means a director within the meaning of sub-section (2) of section 184.
| Whether Quorum Is Present? Example (a) In a meeting, out of 11 directors only 7 directors were present of which only two directors were not interested in one of the transaction. How should the meeting deal with the matter? (b) Suppose, in the above example, 10 directors were present of which only two directors were not interested in one of the transaction. How should the meeting deal with the matter? Answer: In the given case, the required quorum comes to 4 directors (1/3 of total strength or 2; whichever is higher) but only 2 directors who are not interested in the transaction are present. 2/3 of the total strength comes to 8. (a) Since the no. of interested director is only 5, section 174 is not attracted. Thus the remaining 2 directors who are not interested do not constitute a quorum and hence the Board meeting cannot be validly convened. (b) Since the no. of interested director is 8, section 174 is attracted. Thus the remaining 2 directors who are not interested will constitute a quorum and hence the Board meeting shall be valid. |
Ø Adjournment of meeting due to want of Quorum [Sec 174(4)]: Where a meeting of the Board could not be held for want of quorum, then, unless the articles of the company otherwise provide, the meeting shall automatically stand adjourned to the same day at the same time and place in the next week or if that day is a national holiday, till the next succeeding day, which is not a national holiday, at the same time and place. Any fraction of a number shall be rounded off as one; & "Total strength" shall not include directors whose places are vacant.
| No quorum was present in adjourned meeting - Consequences? Example: At an adjourned Board meeting, quorum was not present. Meeting was held. Examine validity? Answer: Sec 174(4) is silent on such situation. In the absence of any specific statutory provision to validate such meeting, such meeting remains invalid. |
| Even if Board Meeting Not Held For Quorum, Sec. 174 Violated. Example: A meeting of board could not take place on 29/09/2030 for want of quorum and hence adjourned. As a result the company did not hold any board meeting for that quarter. Has the company violated the provisions of sec. 174? Answer: Sec 288 of the Companies Act, 1956 states that Sec. 285 shall not be deemed to be contravened if the board meeting could not be held for want of quorum. There is no corresponding provision in the Companies Act, 2013. Hence, the company has violated Sec. 174 . |
Section175: Passing of Resolution by Circulation (Similar to Section 289)
| Comment - Now resolution by circulation shall be approved, if it is consented by majority of Directors instead of earlier requirement of consent of all Directors present in India or by majority of them. Also, now all resolution passed by circulation shall have to be mandatorily noted in the next board meeting and should be made part of the minutes. Now where any resolution has been put to vote by circulation and not less than 1/3 of the total number of Directors requires that any resolution under circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at Board meeting and not by circulation. Now, the notice shall be sent in draft to all Directors or members of committee at their addresses registered with the Company in India by post or courier, or through electronic means. |
| TABLE | |
| Conditions | 1) Resolution circulated in draft together with necessary papers |
| 2) Circulation to all the directors or members of committee at their address registered with the co. | |
| 3) Delivery by hand or by post or by courier, or by prescribed electronic means. | |
| Approval by whom? | Approval by a majority of the directors or members entitled to vote on the resolution. |
| When resolution to be decided at a meeting? | When not less than 1/3 of the total no. of directors for the time being requires so. |
Ø Circulation in Draft with necessary papers [Sec 175(1)]: No resolution shall be deemed to have been duly passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the directors, or members of the committee, as the case may be, at their addresses registered with the company in India by hand delivery or by post or by courier, or through such electronic means as may be prescribed and has been approved by a majority of the directors or members, who are entitled to vote on the resolution; however, where not less than one-third of the total number of directors of the company for the time being require that any resolution under circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board.
| Whether resolution along with necessary papers can be sent through email? Example: A company wants to send resolution along with necessary papers by email to all directors. Examine validity. Answer: Sec 175(1) allows sending of resolution along with necessary papers by email. Hence valid. |
| Whether resolution validly passed? Example: A company has 9 directors out of which 3 directors are abroad. The company circulated the resolution along with draft papers to all the directors. 4 out of 6 directors approved the resolution. Examine validity. Answer: A resolution is said to be duly passed by circulation if it has been approved by a majority of the directors or members, who are entitled to vote on the resolution. However, in the above case only 4 directors had approved the resolution and hence invalid. However, where not less than 1/3 of the total number of directors of the company for the time being requires that any resolution under circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board. |
Ø Resolution to be considered as a part of minutes [Sec 175(2)]: A resolution under sub-section (1) shall be noted at a subsequent meeting of the Board or the committee thereof, as the case may be, and made part of the minutes of such meeting.
Section176: Defects in appointment of directors not to invalidate actions taken. (Similar to Section 290)
No act done by a person as a director shall be deemed to be invalid, notwithstanding that it was subsequently noticed that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles of the company. However, it will not validate any act done by the director after his appointment has been noticed by the company to be invalid or to have terminated.
Section177: Audit Committee (Similar to Section 292A)
| Comment - This Section provides that every listed company and such other company as may be prescribed to have an audit committee which shall consist of a minimum of 3 directors with independent directors forming a majority and majority of members must have ability to read and understand financial statement. The Section further provides the functions of audit committee. A vigil mechanism in the prescribed manner to be established by every listed company or such class or classes of companies, as may be prescribed. The establishment of such mechanism shall be disclosed at the website of the company and In the Board's report of the Company. |
| TABLE | |
| Applicability | Every listed company or prescribed companies. |
| Composition | minimum of three directors with independent directors forming a majority |
| Transition Provision | If committee exists, it shall be re-constituted within 1 year from commencement of the Act. |
| Vigil Mechanism | Every listed company or prescribed companies shall establish a vigil mechanism for directors and employees to report genuine concerns. |
Ø Applicability for listed & other prescribed companies [Sec 177(1)]: The Board of Directors of every listed company and such other class or classes of companies, as may be prescribed, shall constitute an Audit Committee.
Ø Majority shall be Independent directors [Sec 177(2)]: The Audit Committee shall consist of a minimum of three directors with independent directors forming a majority; however, majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand the financial statement.
Ø Reconstitution within one year [Sec 177(3)]: Every Audit Committee of a company existing immediately before the commencement of this Act shall, within one year of such commencement, be reconstituted in accordance with sub-section (2).
Ø Functions of Audit Committee [Sec 177(4)]: Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall inter alia, include,—
v the recommendation for appointment, remuneration and terms of appointment of auditors of the company;
v review and monitor the auditor's independence and performance, and effectiveness of audit process;
v examination of the financial statement and the auditors' report thereon;
v approval or any subsequent modification of transactions of the company with related parties;
v scrutiny of inter-corporate loans and investments;
v valuation of undertakings or assets of the company, wherever it is necessary;
v evaluation of internal financial controls and risk management systems;
v monitoring the end use of funds raised through public offers and related matters.
Ø Discussion with auditors [Sec 177(5)]: The Audit Committee may call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board and may also discuss any related issues with the internal and statutory auditors and the management of the company.
Ø Powers of Audit Committee in regards to Investigation [Sec 177(6)]: The Audit Committee shall have authority to investigate into any matter in relation to the items specified in sub-section (4) or referred to it by the Board and for this purpose shall have power to obtain professional advice from external sources and have full access to information contained in the records of the company.
Ø Persons having right to be heard but not to vote [Sec 177(7)]: The auditors of a company and the key managerial personnel shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor's report but shall not have the right to vote.
Ø Disclosure of composition of Audit Committee [Sec 177(8)]: The Board's report under sub-section (3) of section 134 shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons therefore.
Ø Establishment of vigil mechanism [Sec 177(9)]: Every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed.
Ø Adequate safeguards against victimization of persons [Sec 177(10)]: The vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimization of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases. The details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board's report.
Section178: Nomination and Remuneration Committee (NRC) and Stakeholders Relationship Committee (SRC) (New Provision)
| Comment - This new Section provides the mandatory constitution of NRC in the case of listed companies & other prescribed companies which shall consist of at least 3 non-executive director(s) with at least one half shall be independent director. The Chairperson may be appointed as member of NRC but cannot chair NRC. Such NRC shall determine the company's policies relating to the nomination and evaluation of every directors performance. It shall also determine company's policies relating to remuneration of the directors, KMP and other employees. Where the combined membership of the shareholders, debenture holders and other security holders is more than 1000 at any time during the financial year, the company shall constitute a SRC which shall consider and resolve the grievances of securities holders. The Chairperson of the Committee shall be a non-executive director. |
| TABLES | ||
| Nomination & Remuneration Committee (NRC) | Applicability | Every listed company or prescribed companies. |
| Composition | Minimum of 3 non-executive directors out of which not less than 1/2 shall be independent directors. | |
| Functions | To identify persons qualified to become directors & in senior management, recommend to the Board their appointment and removal & carry out evaluation of every director's performance, formulating the criteria for determining qualification, remuneration of directors, KMP etc. | |
| Stakeholders Relationship Committee (SRC) | Applicability | Every company with more than 1,000 security holders at any time during a FY. |
| Composition | A chairperson who shall be a non-executive director and such other members as may be decided by the Board. | |
| Functions | To consider and resolve the grievances of security holders of the company etc. | |
| Penalty | Company | Penalty Rs. 1 Lakh to Rs. 5 Lakhs |
| Officer in default | Imprisonment upto 1 year or fine Rs. 25000 to Rs. 1 Lakh or both | |
Ø Constitution of Nomination & Remuneration Committee (NRC) [Sec 178(1)]: The Board of Directors of every listed company and such other class or classes of companies, as may be prescribed shall constitute the NRC consisting of three or more non-executive directors out of which not less than one half shall be independent directors; however, the chairperson of the company (whether executive or non-executive) may be appointed as a member of the NRC but shall not chair such Committee.
Ø Functions of NRC [Sec 178(2)]: The NRC shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every director's performance.
Ø Formulating the criteria for determining qualification, remuneration, etc by NRC [Sec 178(3)]: The NRC shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, KMP and other employees.
Ø Points to be considered by NRC while formulating the policy [Sec 178(4)]: The NRC shall, while formulating the policy under sub-section (3) ensure that—
v the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;
v relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
v remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long term performance objectives appropriate to the working of the company and its goals:
Provided that such policy shall be disclosed in the Board's report.
Ø Constitution of Stakeholders Relationship Committee [Sec 178(5)]: The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board.
Ø Duties of Stakeholders Relationship Committee [Sec 178(6)]: The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the company.
Ø Chairperson or Authorized member to attend general meeting [Sec 178(7)]: The chairperson of each of the committees constituted under this section or, in his absence, any other member of the committee authorised by him in this behalf shall attend the general meetings of the company.
Ø Penalty [Sec 178(8)]: In case of any contravention of the provisions of section 177 and this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both; however, non-consideration of resolution of any grievance by the Stakeholders Relationship Committee in good faith shall not constitute a contravention of this section.
"Senior Management" means personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive directors, including the functional heads.
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