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BOARD MEETING THROUGH VIDEO CONFERENCING – MANDATORY?

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BOARD MEETING THROUGH VIDEO CONFERENCING – MANDATORY?
By: Mr. M. GOVINDARAJAN
April 12, 2018
  • Contents

Section 173 of Companies Act, 2013 (‘Act’ for short) provides the procedure for the conduct of Board meeting of a min a company.   Section 173 (2) provides that the participation of directors in  a meeting of the Board may either in person or through video conferencing or other audio visual means, as may be prescribed, which are capable of recording and recognizing the participation of the directors and of recording and storing the proceeding 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.  The Central Government, vide Notification No. GSR 240(E), dated 31.03.2014 published the rules.  Rule 4 provides for the matters not to be dealt with in a meeting through video conferencing or audio visual means.  According to the said rule the following matters shall not be dealt with in any meeting through video conferencing-

  • the approval of the annual financial statement;
  • the approval of the Board’s report;
  • the approval of the prospectus;
  • the Audit Committee Meetings for consideration of accounts; and
  • the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.

Rule 3 prescribes the procedure for convening and conducting the Board meetings through video conferencing or other audio visual means as detailed below-

  • Every company shall make necessary arrangements to avoid failure of video or audio visual means;
  • The Chairperson of the meeting and the Company Secretary, if any, shall take due and reasonable care-
  • to safeguard the integrity of the meeting by ensuring sufficient security and identification procedures;
  • to ensure availability of proper video conferencing or other audio visual equipment or facilities for providing transmission of the communications for effective participation of the directors and other authorized participants at the Board meeting;
  • to record proceedings and prepare the minutes of the meetings;
  • to store for safekeeping and marking the tape recording(s) or other electronic recording mechanism as part of the records of the company at least before the time of completion of audit of that particular year;
  • to ensure that no person other than concerned director are attending or have access to the proceedings of the meeting through video conferencing mode or other audio-visual means; and
  • to ensure that participants attending the meeting through audio-visual means are able to hear and see the other participants clearly during the course of the meetings;
  • The disabled person may make request the Board to allow a person to accompany him;
  • The notice of the meeting shall be sent to all the directors in accordance with the provisions of section 173(3) of the Act.
  • The notice of the meeting shall inform the directors regarding the option available to them to participate through video conferencing mode or other video means and shall provide all the necessary information to enable the directors to participate through video conferencing mode or other audio-visual means.
  • A director intending to participate through video conferencing or audio visual means shall communicate his intention to the Chairperson or the Company Secretary of the company.
  • If the director intends to participate through video conferencing or other audio-visual means, he shall give prior intimation to that effect sufficiently in advance so that the company is able to make suitable arrangements in this behalf.
  • The director, who desires, to participate may intimate his intention of participation through the electronic mode at the beginning of the calendar year and such declaration shall be valid for one calendar year.
  • In the absence of any intimation, it shall be assumed that the director shall attend the meeting in person.
  • At the commencement of the meeting, a roll call shall be taken by the chairperson when every director participating through video conferencing or other audio-visual means, shall state, for the records, the following-
  • name
  • the location from where he is participating;
  • that he has received the agenda and all the relevant material for the meeting; and
  • that no one other than the concerned director is attending or having access to the proceedings of the meeting at the location mentioned.

In ‘Achintya Kumar Barua @ Manju Baruah V. Ranjit Barthkur’ – 2018 (3) TMI 868 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI the Appellate Tribunal discussed whether Board meeting through video conferencing is mandatory or not.  The facts of the case run as follows-

The respondent in this case claimed right to participate in the Board meeting through video conferencing under section 173(2) of the Act.  The NCLT came to the conclusion that the provisions of section 173(2) of the Act are mandatory and the companies cannot be permitted to make any deviation there from.  The NCLT directed to provide the facilities as per section 173(2) of the Act subject to the fulfilling the requirements of Rule 3(3)(e).  Aggrieved against this order the appellant filed the present appeal before the Appellate Tribunal.  The appellants submitted the following-

  • The appellant Nos. 1 and 3 are other directors of the company and the appellants have filed this appeal on behalf of the company.
  • The appellants have apprehension that when the original petitioner participates in the meetings through video conferencing, it would not be possible to ensure that nobody else is present from where the original petitioner would be participating.
  • The Secretarial Standards on Meetings of the Board of Directors have considered this aspect and have prescribed that such option should be restored to only when the facilities are provided by the company to its directors.
  • Section 173(2) of the Act is not a mandatory provision and it is not compulsory for the company to provide such facility.
  • The use of the word ‘may’ makes it clear that the provision is directory and not mandatory to be followed.
  • The responsibility has been put on the chairperson of the meeting to ensure that no person other than the concerned director is attending or having access to the proceedings of the meeting through video conferencing mode.
  • When a director resorts to availing facility of video conferencing it would not be possible for the chairperson to ensure that the director is along when participating from wherever the video call is made as the chairperson would have no means to know as to who else is sitting in the room or place concerned.

The Appellate Tribunal analyzed the provisions of section 173 and the rules relating to it.  The Appellate Tribunal found that the provisions of section 173 have been introduced under the Act and the said provisions would be in the interest of the companies as well as the directors. Earlier there was no such facility provided in the erstwhile Act. It would not be appropriate to shut out these provisions on mere apprehensions.   The Appellate Tribunal further found that the Central Government has issued notifications regarding the non applicability of agenda that could be dealt with in a meeting through video conferencing. 

The Appellate Tribunal held that the word ‘may’ which has been used in section 173(2) only gives an option to the director to choose whether he would be participating in person or the other option which he can choose is participation through video conferencing or other audio visual means.  This word ‘may’ does not give option to the company to deny this right given to the directors for participation through video conferencing or other audio visual means, if they so desire.  Further Rule 3 requires that the company shall comply with the procedure prescribed for convening and conducting the Board meetings through video conferencing or other audio visual means.  The Tribunal held that Rule 3 is a complete scheme.  The Chairperson and the Director who participates the meeting through video conference have to comply with the procedure enumerated in Rule 3

The Appellate Tribunal held that the guidelines in Secretarial Standards cannot override the provisions under the Rules.  The mandate of section 173(2) read with rules cannot be avoided by the companies.  The Appellate Tribunal further observed that the NCLT took note of the fact that the company in this matter had all the necessary infrastructure available.    The Appellate Tribunal held that they did not find any reason to interfere with the impugned order.  The Appellate Tribunal dismissed the appeal.

 

By: Mr. M. GOVINDARAJAN - April 12, 2018

 

 

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