2025 (5) TMI 1924 - AT - Companies Law

Calculation of the quorum for the meetings of the Equity Shareholders - Appellant argues the learned NCLT has no jurisdiction to fix the number of shareholders to form a quorum - HELD THAT - The Appellant has already given an undertaking to the learned NCLT to convene the meeting as per Section 103 of the Companies Act. In the circumstances the direction contained in sub-para (i) of para 17 of the impugned Order needs to the set aside and the quorum for the aforesaid meeting of shareholders shall be as prescribed under Section 103 of the Companies Act and will include the shareholders present through video conferencing and other audio video means. In case the required quorum as stated above is not present the meeting shall be adjourned per Section 103 of the Act. The voters shall also be kept guided by MCA General Circular No.14/2020 dated 8th April 2020. The directions contained in sub-para (i) of Para 17 of the impugned order is set aside. Appeal is disposed of.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the direction in the impugned order mandating that the quorum for the meeting of equity shareholders shall be 51% in number or value of equity share capital is legally valid and enforceable.
• Whether proxies should be excluded from the quorum calculation for such meetings.
• Whether the Tribunal has jurisdiction to fix the quorum of shareholders beyond what is prescribed under the Companies Act, 2013.
• The applicability of Section 103 of the Companies Act, 2013 regarding quorum requirements for meetings of public companies with large numbers of shareholders.
• The validity and applicability of precedents and principles regarding quorum and meeting procedures, including the use of video conferencing or other audio-visual means to constitute quorum.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the direction fixing quorum at 51% of equity shareholders by number or value

Relevant legal framework and precedents: Section 103 of the Companies Act, 2013 prescribes quorum requirements for meetings of companies. For public companies with more than 5,000 members, the quorum is 30 members personally present unless the Articles provide otherwise. The section also provides for adjournment procedures if quorum is not present. Section 105 allows for proxies, and Section 230(6) recognizes voting in person or by proxy or postal ballot for meetings convened under the Act.

Precedents cited include the scheme of demerger of GHCL Ltd., where the quorum was held to be as prescribed under Section 103 and included shareholders present via video conferencing or other audio-visual means. Also, in Minda I Connect Pvt. Ltd. vs. Minda Industries Ltd., the Tribunal set aside a direction fixing quorum at 10% of shareholders and held that meetings should be conducted as per statutory provisions.

Court's interpretation and reasoning: The Tribunal noted that the impugned order's direction requiring 51% quorum in number or value was contrary to the settled law under Section 103. The Tribunal emphasized the impracticality of physically convening meetings with such large numbers of shareholders (ranging from 64,000 to 183,000 shareholders). It underscored that the statutory quorum is fixed by the legislature and cannot be overridden by the Tribunal's directions.

Key evidence and findings: The appellant submitted that the number of shareholders in the companies involved was very large, making the impugned direction unfeasible. The appellant also undertook to convene meetings as per Section 103.

Application of law to facts: The Tribunal applied Section 103 strictly, holding that the quorum must be as prescribed therein and that the impugned direction exceeded the Tribunal's jurisdiction. The Tribunal also relied on the principle that proxies are allowed for quorum calculation under the Companies Act and relevant sections.

Treatment of competing arguments: The Tribunal considered the appellant's submissions and precedents that supported adherence to statutory quorum rules rather than imposing a higher quorum. The absence of respondent's representation meant no counter-arguments were presented.

Conclusion: The Tribunal set aside the direction fixing quorum at 51% and held that quorum shall be as per Section 103 of the Companies Act, including shareholders present via video conferencing or other audio-visual means.

Issue 2: Exclusion of proxies from quorum calculation

Relevant legal framework and precedents: Section 105 of the Companies Act allows proxies to be counted for quorum. Section 230(6) also contemplates voting by proxy or postal ballot. The impugned order excluded proxies from quorum calculation.

Court's interpretation and reasoning: The Tribunal held that excluding proxies from quorum calculation was contrary to the express provisions of the Companies Act. The statutory scheme permits proxies to be counted, and the Tribunal cannot direct otherwise.

Key evidence and findings: The statutory provisions themselves were the primary source of authority. No evidence was needed beyond the text of the law.

Application of law to facts: The impugned order's direction was inconsistent with statutory provisions and thus set aside.

Treatment of competing arguments: The appellant argued the statutory position, which was accepted. No opposing arguments were presented.

Conclusion: Proxies must be counted for quorum calculation as per the Companies Act, and the impugned direction excluding proxies was invalid.

Issue 3: Adjournment procedure and use of video conferencing for quorum

Relevant legal framework and precedents: Section 103(2) and (3) prescribe adjournment procedures if quorum is not present within half an hour. MCA General Circular No.14/2020 dated 8th April 2020 permits use of video conferencing and other audio-visual means for meetings.

Court's interpretation and reasoning: The Tribunal held that the meeting should be adjourned as per Section 103 if quorum is not present and that shareholders present through video conferencing or other audio-visual means shall be counted for quorum. This aligns with the statutory provisions and the MCA circular.

Key evidence and findings: The MCA circular and prior judgments supported the use of virtual means for meetings and quorum.

Application of law to facts: The Tribunal applied these principles to hold that the quorum includes shareholders attending via permitted virtual means and that adjournment procedures must follow the Companies Act.

Treatment of competing arguments: The appellant supported this approach. No opposition was recorded.

Conclusion: Quorum includes shareholders attending via video conferencing or other audio-visual means, and adjournment procedures under Section 103 apply.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The direction contained in sub-para (i) of para 17 of the impugned Order needs to be set aside and we hold the quorum for the aforesaid meeting of shareholders shall be as prescribed under Section 103 of the Companies Act and will include the shareholders present through video conferencing and other audio video means. In case the required quorum as stated above is not present, the meeting shall be adjourned per Section 103 of the Act."

Core principles established include:

• The quorum for meetings of public companies must be as prescribed under Section 103 of the Companies Act, 2013, and cannot be altered by the Tribunal's directions.
• Proxies must be counted for quorum calculation as per Sections 105 and 230(6) of the Companies Act.
• Shareholders attending through video conferencing or other audio-visual means shall be counted for quorum.
• If quorum is not present within half an hour, the meeting shall be adjourned in accordance with Section 103.
• The Tribunal has no jurisdiction to fix quorum requirements beyond those prescribed by the Companies Act.

Final determinations on each issue:

• The impugned order's direction fixing quorum at 51% of shareholders by number or value was set aside.
• Proxies shall be counted for quorum calculation.
• The statutory quorum under Section 103 applies, including virtual attendance.
• Adjournment procedures under Section 103 must be followed.