Meetings of Board and its Committees – Company Law Important Questions

Question 1.
State whether a board meeting of a company can be held at any place (June 2010) (4 marks)
Or
Board meetings of a company to be held at the registered office of the company during the working hours on a day that is not a public holiday. (December 2011) (4 marks)
Answer:

• In accordance with Section 96(2), an annual general meeting can be called during business hours, that is, between 9 am and 6 pm on any day that is not a National Holiday.
• No similar provision for holding a Board Meeting is in place.

Hence, the Meeting of the Board may be held at any place convenient to the directors even outside the business hours and even on a national holiday unless the articles provide otherwise.

Question 2.
Star Gen Ltd. held a meeting of its Board of Directors on 31st October 2010 at its registered office. Though the company has 12 directors on its board, only 5 directors were present at the commencement of the meeting. Thereafter, even while the meeting was in progress, 2 more directors left the meeting and the remaining directors carried on the proceedings of the meeting. Discuss the validity of decisions, if any, taken by the remaining three directors. (December 2012) (4 marks)
Answer:
1. Quorum for Meetings of Board [Section 174( 1)]:
One-third of total strength or two directors, whichever is higher, shall be the quorum for a meeting.

The articles of association of the company may provide for a higher Quorum.

2. Presence of Quorum throughout the meeting:
The quorum shall be present not only at the time of commencement of the Meeting but also while transacting business. A director shall not be reckoned for quorum in respect of an item in which he is interested and he shall not be present, whether physically or through electronic mode, during discussions and voting on such item.

The Act lays down only the minimum number to form a quorum, a company by its articles can provide for a higher number of quorum – AmritKaur Puri v. Kapurthala Flour, Oil & General Mills Co. (P.) Ltd. [1984] 56 Comp Cas 194 (P & H)

3. As per the given case, Star Gen Ltd. held a meeting of its Board of Directors on 31st October 2010 at its registered office. Though the company has 12 directors on its board, only 5 directors were present at the commencement of the meeting. Thereafter, even while the meeting was in progress, 2 more directors left the meeting and the remaining directors carried on the proceedings of the meeting.

Thus, the quorum falls below the required number after 2 more directors left the meeting. For subsequent business transacted without required Quorum is void.

Question 3.
Out of 9 directors in Rooftop Ltd., 5 are Indian Nationals, 3 are Foreign Residents and one is a person of Indian origin. The articles of the company stipulate that the quorum for a board meeting shall be 5 directors of which at least one director shall be a foreign resident. Referring to the provisions of the Companies Act, 2013, examine the validity of the above provisions in the articles. (December 2016) (4 marks)
Answer:
1. The quorum for Meetings of Board [Section 174(1)]:
One-third of total strength or two directors, whichever is higher, shall be the quorum for a meeting.
The articles of association of the company may provide for a higher Quorum.

2. Presence of Quorum throughout the meeting:
A quorum shall be present not only at the time of commencement of the Meeting but also while transacting business. A director shall not be reckoned for quorum in respect of an item in which he is interested and he shall not be present, whether physically or through electronic mode, during discussions and voting on such item.

The Act lays down only the minimum number to form a quorum, a company by its articles can provide for a higher number of quorum – AmritKaur Puri v. Kapurthala Flour, Oil & General Mills Co. (P.) Ltd. [1984] 56 Comp Cas 194 (P & H)

3. As per the given case, Out of 9 directors in Rooftop Ltd., 5 are Indian Nationals, 3 are Foreign Residents and one is a person of Indian origin. The articles of the company stipulate that the quorum for a board meeting shall be 5 directors of which at least one director shall be a foreign resident.

Hence, the provisions contained in the article of association of Rooftop Ltd. are valid as per the provisions of the Companies Act, 2013.

Question 4.
What do you understand by the expression ‘resolution by circulation? List out four matters which cannot be passed by the directors by resolution by circulation. (June 2013) (4 marks)
Answer:
1. Passing of Resolution by Circulation: Section 175 of the Companies Act, 2013:
A company may pass the resolutions through circulation. The resolution in the draft form together with the necessary papers may be circulated to all the directors or members of the committee at their address registered with the company in India by hand or by speed post or by courier or through electronic means which may include e-mail or fax.

Further SS-1, requires that each business proposed to be passed by way of resolution by circulation shall be explained by a note setting out details of the proposal, relevant material facts that enable the directors to understand the meaning, scope, and implications of the proposal, the nature of concern or interest, if any, of any director in the proposal, which the director had earlier disclosed and the draft of the resolution proposed

2. Four matters which cannot be passed by the directors by resolution by circulation:

• To fill a casual vacancy that occurred in the Board. [Section 161(4)]
• Power to issue debentures. [Section 179(l)(c)]
• Power to make loans [Section 179(l)(f)]
• Power to invest the funds of the Company.[Section 179(l)(e)]

Question 5.
A director insists that his note of dissent be recorded in the minutes of the board meeting which he attended and did not agree to some of the points of the agenda. (December 2016) (5 marks)
Answer:
1. As per Section 118 of the Companies Act, 2013, In case of a meeting of Board of Directors or of a committee of Board, the minutes shall contain the name of the directors present and also the name of the dissenting director or a director who has not concurred with the resolution.

2. The chairman shall exercise his absolute discretion in respect of inclusion or non-inclusion of the matters which is regarded as defamatory of any person, irrelevant, or detrimental to the company’s interest in the minutes.

3. Minutes kept shall be evidence of the proceedings recorded in a meeting and containing a fair and correct summary of the proceeding thereat.

Thus, the contention of the director is correct, and noting of dissent must be recorded in the Minutes of the Board Meeting.

Question 6.
The board of directors of a company met thrice in the year 2015 and the fourth meeting was not held for want of quorum. As a Company Secretary, examine the provisions of the Companies Act, 2013 and decide with reasons whether the company has complied with the requirements of meetings to be held in a calendar year or violated the requirements thereof? (December 2013) (4 marks)
Answer:

1. In terms of the provisions of Section 173(1), every company shall hold a minimum of 4 meetings of its Board of directors every year.
2. The gap between the two board meetings should not be more than 120 days.
3. If the gap between 1st & 2nd, 3rd & 4th meetings is not more than 120 days in such case no default is there.
4. In the given case, the board of directors of a company met thrice in the year 2015 and the fourth meeting was not held for want of quorum.

Thus, the violation of the provisions of Section 173(1) of the Companies Act, 2013 in the given case.

Question 7.
The Board of directors of Ash Ltd. having its registered office in New Delhi decides to hold its next meeting in New York, the USA since all the directors of the company are going to attend a sales exhibition to be held in New York. Examining the provisions of the Companies Act, 2013, advise the board about the validity of its decision to hold the Board meeting in New York. (June 2016) (4 marks)
Answer:

1. In accordance with Section 96(2), an annual general meeting can be called during business hours, that is, between 9 am and 6 pm on any day that is not a National Holiday.
2. No similar provision for holding a Board Meeting is in place.
3. The meeting of the board of directors may be held at any place even abroad convenient to the directors outside business hours and even on a national holiday unless the articles provide otherwise.

Hence, the Meeting of the Board of Ash Ltd. may be held at any place convenient to the directors even outside India and even on a national holiday unless the articles provide otherwise.

Question 8.
A meeting of the Board of directors was scheduled to take place at the factory premises of a company and not at the registered office. At the scheduled date and time, the required quorum was not present. The chairman of the meeting announced that the meeting is dissolved. (December 2016) (5 marks)
Answer:
1. In accordance with Section 96(2), an annual general meeting can be called during business hours, that is, between 9 am and 6 pm on any day that is not a National Holiday.

2. No similar provision for holding a Board Meeting is in place.

3. The meeting of the board of directors may be held at any place even abroad convenient to the directors outside business hours and even on a national holiday unless the articles provide otherwise.

Thus, the meeting of the Board of directors can be held at factory prem¬ises and it is not necessary that it should be held at the registered office of the Company.

4. If the Quorum is not present: as per Section 174(4) of the Companies Act, 2013:
Where the 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.

Thus, the contention of the chairman that the meeting is dissolved due to the want of quorum is not correct. If a quorum is not present 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, till the next succeeding day which is not a national holiday at the same time and place.

Question 9.
As the Company Secretary of Joy Ltd., what step would you take in case the scheduled Board meeting could not complete the agenda slated thereat? The items of business left and un-transacted is of extreme importance for the company’s growth and the same cannot be deferred until the next Board meeting because of urgency. Advise the Board about the steps to be taken to get the un-transacted items passed. (December 2015) (4 marks)
Answer:
If the items of business left un-transacted in Board Meeting are of extreme importance for the company, then as Company secretary following actions can be taken:
1. The meeting can be adjourned by the Chairman and such adjourned meeting can be held on the next day or some other day to complete the items left un-transacted.

2. The company can also pass the resolution by circulation for the items left un-transacted if passing by circular resolution on a subject is not specifically prohibited under the Companies Act, 2013.

3. The Company can also avail the option of holding of board Meeting through video conferencing as provided under Section 173(2) of the Companies Act, 2013.

Question 10.
Articles of Reality Ltd. provides that directors participating through audio-visual means in its Board meetings shall always be counted for quorum. Examine the validity of this provision with reference to the Companies Act, 2013. (December 2018) (5 marks)
Answer:
1. In accordance with the provisions of Section 173(2) of the Companies Act, 2013:
The participation of directors in a meeting of the board may be either in person (personally present) or through video conferencing or other audio-visual means.

2. As per Section 174 of the Companies Act, 2013, provides that the participation of directors by video conferencing or by other audiovisual means shall also be counted for the purposes of quorum.

In accordance with provisions of sections 173 and 174 of the Companies Act, the 2013 provision contained in the article of the reality Limited is valid.

Question 11.
Logical Solutions Ltd., a listed company, is having a Corporate Social Responsibility (CSR) committee constituted with the following members: Rohan — Whole-time director & Chairman of CSR committee and Board Sohan — Non-executive director Mohan — Independent director
Can the company constitute a Nomination and Remuneration Committee consisting of the same three members of the CSR committee with the same composition? Discuss. (December 2018) (5 marks)
Answer:
1. As per Section 135(1) of the Companies Act, 2013:
Every company to home the provisions of CSR applicable shall constitute CSR committee of the board consisting of 3 or more directors out of which at least one director shall be an independent director.

2. As per Section 178 (1) of the Companies Act, 2013:
The board of directors of every listed public company and other pre-scribed classes of companies (as defined in relevant rules) shall constitute the nomination and remuneration committee consisting of 3 or more non-executive directors out of which not less than one half shall be independent directors.

3. The Chairperson of the company may be appointed as a member of the nomination and remuneration committee but shall not chair such committee.
As per the above-discussed provisions, the two committees requires different composition.

Hence, Logical Solutions Limited cannot constitute a Nomination & Remuneration Committee consisting of the same 3 members as of the Corporate Social Responsibility Committee with the same composition.

Question 12.
A Board meeting of a listed public company was called at shorter notice to transact an urgent business. None of the Independent directors could attend the meeting. Examine the validity of resolution(s) passed at the meeting referring to the provisions of the Companies Act, 2013 (December 2018) (4 marks)
Answer:
1. As per Section 173(3) of the Companies Act, 2013, 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.

2. However, in case of the absence of independent directors from such a meet¬ing 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

3. In the given case, A Board meeting of a listed public company was called at shorter notice to transact an urgent business. None of the Independent directors could attend the meeting.

Thus, decisions taken at such meetings shall be circulated to all directors and shall be final only on ratification thereof by at least one independent director of the Listed public company.

Question 13.
Prepare an Agenda item for a Board Meeting with a minimum of eight items to be discussed. (June 2019) (5 marks)
Answer:
Agenda for Second Board Meeting of Financial Year 2018-2019 of the XYZ Ltd. to be held on Saturday, 08-06-2019 at 11 a.m. at Registered Office:

1. To grant leave of absence, if any, to the Director.
2. To take note of minutes of the preceding Board Meeting.
3. To take note of the resolution passed by circulation since the last meeting.
4. To approve draft annual accounts for the financial year ended 31st March 2019.
5. To approve auditors’ reports for the financial year ended 31st March 2019.
6. To approve directors’ reports for the financial year ended 31st March 2019.
7. The authorized directors, CFO, and Company Secretary of the Company to sign Annual Return of the Company for the financial year ended 31st March 2019.
8. To consider issuance of Notice for calling of Annual General Meeting the financial year ended 31st March 2019.
9. To consider other items, if any, with the permission of the Chairman.

Question 14.
State the situations under which a company is required to constitute the Audit Committee? (June 2019) (4 marks)
Answer:
1. Under section 177(1) of the Companies Act, 2013, the Board of Directors of every listed public company and such other class or classes of Companies, as may be prescribed, shall constitute an Audit Committee.

2. As per Rule 6 of the Companies (Meeting of Board & its Powers) Rules, 2014, the Board of directors of every listed public company and the following classes of Companies shall constitute an Audit Committee and a Nomination and Remuneration Committee of the Board:

• All public companies with a paid-up capital of Rs. 10 Crore or more;
• All public companies having a turnover of Rs. 100 Crore or more;
• All public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs. 50 Crore or more.

The Paid-up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account.

Question 15.
T Ltd. a listed company has INR 20 crore paid-up share capital and has nine directors on its Board. Advise T Ltd. on the following matters:
1. The number of independent directors it should appoint on its board.
Answer:
As per Rule 4 of the Companies (Appointment & Qualifications of Directors) Rules, 2014, following Class or Classes of Companies shall have at least 2 Directors as independent directors-

• All public companies with a paid-up capital of Rs. 10 Crore or More;
• All public companies having a turnover of Rs. 100 Crore or more;
• All public companies, having in aggregate, outstanding loans or borrowing or debentures or deposits exceeding Rs. 50 Crore or more.

The paid-up capital of T Ltd. is more than Rs. 10 Crore and hence it should appoint at least two directors as independent directors.

2. How many independent directors should be appointed by T Ltd. in case it is an “unlisted public company”?
Answer:
As per Rule 4 of the Companies (Appointment & Qualifications of Directors) Rules, 2014, use the word “all companies” and hence even an unlisted company is required to appoint independent directors in its Board. However, as per Rule 4(2), the following classes of an unlisted public company shall not be covered under Rule 4(1), namely:

• a joint venture;
• a wholly-owned subsidiary; and
• a dormant company as defined u/s 455 of the Act.

Thus, if T Ltd. belongs to a class of company as stated in Rule 4(2) of said rules, it is not required to appoint independent directors.

3. Can T Ltd. appoint an independent director for a second consecutive term of 6 years whose first term, as an independent director in T Ltd. was for 4 years?
Answer:
As per Section 149, an independent director shall hold office for a term up to 5 consecutive years on the Board of a Company. Such director shall be eligible for re-appointment on the passing of a special resolution by the company and disclosure of such appointment in the Board’s Report. No independent director shall hold office for more than 2 consecutive terms. An independent director shall be eligible for appointment after the expiration of three years of ceasing to become an independent director.

In the given case, T Ltd. appoints an independent director for a second consecutive term of 6 years whose first term, as an independent director in T Ltd. was for 4 years.

Thus, T Ltd. cannot appoint an independent director for a second consecutive term of 6 years. However, such a director can be appointed as an independent director for a second consecutive term of 5 years.

4. T Ltd. wants to appoint another independent director for a further period of 2 years. He has already completed 2 consecutive tenures of 4 years each as an independent director in T Ltd.? (June 2019) (4 marks)
Answer:
In the given case, T Ltd. wants to appoint another independent director for a further period of 2 years. He has already completed 2 consecutive tenures of 4 years each as an independent director in T Ltd.

In light of the provisions of Section 149 of the Companies Act, 2013, as discussed above in Point (iii), T Ltd. cannot appoint the same person as an independent director who has already hold office for more than two consecutive terms.

Thus, Ltd. cannot appoint further for Two Years.