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ERROR IN RECORDING OF MINUTES OF THE BOARD MEETING

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ERROR IN RECORDING OF MINUTES OF THE BOARD MEETING
By: Mr. M. GOVINDARAJAN
November 19, 2021
All Articles by: Mr. M. GOVINDARAJAN       View Profile
  • Contents

Board meetings

A board meeting is a formal periodic gathering of a Board of Directors. Most of the organizations, being public or private, profit or non-profit, are ultimately governed by a body commonly known as Board of Directors. The members of this body cyclically meet to discuss strategic matters.  The provisions of Companies Act, 2013 (‘Act’ for short) require a company to conduct at least four board meetings in a year. 

Minutes of Board meeting

Section 118 of the Act provides that every company shall cause minutes of the proceedings of every meeting of its Board of Directors or of every committee of the Board, to be prepared and signed in such manner as may be prescribed and kept within 30 days of the conclusion of every such meeting concerned, or passing of resolution by postal ballot in books kept for that purpose with their pages consecutively numbered.    The minutes of each meeting shall contain a fair and correct summary of the proceedings thereat.   There shall not be included in the minutes, any matter which, in the opinion of the Chairman of the meeting,-

  •  is or could reasonably be regarded as defamatory of any person; or
  • is irrelevant or immaterial to the proceedings; or
  •  is detrimental to the interests of the company.

The Chairman shall exercise absolute discretion in regard to the inclusion or non-inclusion of any matter in the minutes on the grounds specified above.    The minutes kept in accordance with the provisions of this section shall be evidence of the proceedings recorded therein.   Where the minutes have been kept in accordance with this section, then, until the contrary is proved, the meeting shall be deemed to have been duly called and held.    If a person is found guilty of tampering with the minutes of the proceedings of meeting, he shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than twenty-five thousand rupees but which may extend to ₹ 1 lakh.

The minutes of the Board meetings provide the official record of what matters discussed in the meeting and what decisions are made. 

Error in recording of minutes

It is the duty of the Company Secretary of the company to record the minutes properly and in accordance with the provisions of the Act and the rules made there under.  Before finalizing the minutes the draft minutes may be sent to all directors of the company for their vetting.  If one of them spots a factual error, the secretary can change it before the next meeting. They can then send out a revised draft or note the change in the next meeting's minutes. If the secretary does send out a revised draft, it's important to use file names that make it clear which is the amended version.

The Registrar of Companies is having power to inspect the documents of company including minutes of the Board meeting and other meeting.  If any error is found in recording the minutes then there may be a possibility to issue show cause notice against the company for such violations under  section 447/448 of the Act.

In USHA MARTIN TELEMATICS LTD. & ANR. VERSUS THE REGISTRAR OF COMPANIES, WEST BENGAL [2021 (9) TMI 817 - CALCUTTA HIGH COURT], the petitioner No. 1 is the company registered under Companies Act, 2013 (‘Act’ for short) and the petitioner No. 2 is the manager of the company.  The petitioner company applied to the Reserve Bank of India on 28.03.2014 for registration as Core Investment Company as per the Core Investment Companies (Reserve Bank) Directions, 2011.  The Reserve Bank sought for certain clarifications and documents from the petitioner company vide their letter dated 06.05.2021.  The Board of Directors of the company was held on 11.06.2014.  In the minutes of the Board meeting held on 11.06.2014 it was erroneously recorded in item No. 12 of the minutes that the company submitted application with Reserve Bank of India for its de-registration as NBFC and registration as Core Investment Company.  Actually the company was not registered as NBFC at that time.  Therefore there was no necessity to de-register NBFC.  The said error was detected by the petitioner company subsequently.  In the next Board meeting held on 09.09.2015 the same was discussed and the error was rectified by passing a resolution.

In the meanwhile the Reserve Bank of India vide their letter dated 30.06.2014 requested the company for resubmission of the application with further particulars and documents.  The petitioners complied with the same on 27.03.2015.

The Registrar of Companies visited the company during February, 2016 and inspected the books of account and other records of the company under section 206(5) of the Act.  At that time the Registrar of Companies detected the erroneously recording in the minutes of the meeting held on 11.06.2014.  The Registrar of Companies issued a show cause notice on 24.08.2018 to the petitioner company under sections 118(2) and (7) read with section 447/448 of the Act for violation of the said provisions of law by the company.  The petitioner company sent a detailed reply to the Registrar of Companies on 20.09.2018 explaining the mistake inadvertently done and the rectification done by the company subsequently.  The Registrar of Companies did not satisfy with the reply of the petitioner company and he lodged a complaint against the petitioners.  Against the said action the petitioner company filed the present writ petition before the High Court with a prayer to quash the proceedings of complaint before the Special Court, Kolkata for the offences punishable under section 118(2) and (7) read with section 447/448 of the Act.

The petitioner submitted the following before the High Court-

  • The error detected in item No. 12 of the minutes was a typographical mistake.
  • On finding out the said defect the company rectified the same suo motu.
  • The rectification was carried out on 09.09.2015 whereas the show cause notice was issued on 24.08.2018.
  • Though the company explained the said error in detail and also its rectification to the Registrar of Companies, the Registrar of Companies lodged the complaint before the Special Court.

It was submitted by the Registrar of Companies before the High Court as detailed below-

  • In making erroneous recording of the minutes of the Board Meeting, the petitioners have violated the provisions of section 118(2) and 118 (7) of the Act and therefore they are liable to be prosecuted under section 447/448 of the Act.
  • The remedy for the petitioners lies in approaching the trial court and presenting their case before the said Special Court.
  • The correction of the minutes was done by the petitioners only after issuing of show cause notice to them.
  • The present application is premature.

The High Court considered the submissions made on behalf of both the parties as well as the documents laid before the Court.  The High Court observed that section 482 of Criminal Procedure Code should be exercised with extreme care, caution and circumspection.  It should not be an instrument to axe down the legitimate prosecution.   The test is whether the uncontroverted allegations made in the complaint made out a prima facie case and whether allowing the proceedings to continue would amount to abuse of the process of the Court.

The High Court further observed that since the petitioner company is not a NBFC there is no need to de-register the same.  There could have been no mala fide on the part of the company on that point.

The key ingredient of the offence should be intent to deceive, gain under advantage or injure to the interest of the company or any person connected with the company.  The complaint lodged by the Registrar of Companies does not prima facie reflect such intent on the part of the petitioners. The inspection was carried out by the Registrar of Companies during February 2016 and the show cause notice was issued during August 2018.  The Ministry of Corporate Affairs gave instructions to launch prosecution for such violations were issued on 07.12.2017 i.e, before the issue of show cause notice. 

The High Court held that the typographical error/inadvertent error in recording minutes  rectified subsequently can under no stretch of imagination be termed as an offence, far less and offence under the provisions of the Act.  The petitioner company replied sufficiently and adequately and does not call for any prosecution.  The High Court, therefore, quashed the complaint.

Conclusion

The minutes of the Board meeting shall reflect the recordings of correct fact of resolutions passed in the Board meeting.  Error is inevitable.  If error is found before finalization of the minutes the same may be rectified.  If the error is found after the finalization of minutes, then steps shall be taken to rectify the same by passing resolution in the subsequent board meeting for correcting the error and shall  be corrected.

 

By: Mr. M. GOVINDARAJAN - November 19, 2021

 

 

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