Meetings of the Board and its Committees
Chapter Forty-Eight
Syllabus topic 2.3, labels: "Meetings of Board and its Committees", "Frequency, Convening and Proceedings of Board and Committee meetings", "Quorum; Resolution by Circulation"
Pages 312 to 318 of 830
In one line
A Board must meet within thirty days of incorporation and four times a year with no more than a hundred and twenty days between meetings, on seven days' notice, with a third of its strength or two directors present, and it may pass a resolution without meeting only by circulating it to everybody.
In exam wording: section 173 requires the first Board meeting within thirty days of incorporation and a minimum of four meetings every year, with not more than one hundred and twenty days between consecutive meetings, on not less than seven days' notice in writing; section 174 fixes the quorum at one-third of total strength or two directors, whichever is higher; and section 175 governs a resolution by circulation.
Why the law has this at all
The members meet once a year. The Board is what actually runs the company, and a Board that never meets is a company run by whoever happens to be in the office.
So the Act insists on a rhythm: four times a year, and never more than four months apart. That is not arbitrary. A company that met twice, in January and December, would satisfy a bare "twice a year" rule while leaving eleven months unsupervised. The one hundred and twenty day cap is what makes the frequency real.
Notice matters for a different reason. A meeting called at two hours' notice is a meeting of whoever is nearby, which in practice means the executive directors. Seven days' notice in writing to every director at his registered address is what gives the non-executive and independent directors a chance to attend, and the provisos to section 173(3) are carefully drawn so that urgency cannot be used to exclude them.
And section 175 exists because business does not wait. A resolution can be passed without a meeting, but only if every director gets the draft, and any one-third of them can insist on a proper meeting instead.
Some words this chapter uses
Total strength in section 174 means the total number of directors, excluding vacancies. An interested director is one concerned or interested in a contract or arrangement, as section 184(2) describes. Resolution by circulation is a resolution approved in writing without a meeting. A chairperson is the director who presides. Video conferencing or other audio visual means must be capable of recording and recognising participation and of storing the proceedings.
Frequency: section 173(1)
Every company shall hold:
- the first meeting of the Board within thirty days of the date of its incorporation; and
- thereafter a minimum number of four meetings of its Board every year, in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings.
Meetings of the Board and its Committees
Both limbs bind. Four meetings is not enough if two of them are five months apart.
The proviso lets the Central Government by notification direct that the sub-section shall not apply to any class or description of companies, or shall apply subject to exceptions, modifications or conditions.
Relaxation for small companies: section 173(5)
A One Person Company, small company and dormant company shall be deemed to have complied with the section if at least one meeting of the Board has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days.
Note the direction of the ninety days. It is a minimum gap, not a maximum. The point is to stop a company holding both its meetings in the same week and calling it two halves of a year.
The proviso: nothing in this sub-section and in section 174 applies to a One Person Company in which there is only one director. Read that with section 122(4), under which a sole director simply enters the resolution in the minutes book, signs and dates it.
Participation: section 173(2)
Directors may participate 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 with date and time.
The first proviso lets the Central Government specify matters which shall not be dealt with in a meeting through video conferencing or other audio visual means.
The second proviso softens that: where there is a quorum through the physical presence of directors, any other director may participate through video conferencing on any matter specified under the first proviso. So a restricted matter can still be taken if enough directors are physically present, and a director joining remotely is not shut out of the discussion.
Notice: section 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, sent by hand delivery or by post or by electronic means.
Three requirements: seven days, in writing, to every director at his registered address.
The first proviso: shorter notice. A meeting 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.
The second proviso: what if no independent director comes. In the absence of independent directors from such a meeting, decisions taken shall be circulated to all the directors and shall be final only on ratification by at least one independent director, if any.
Meetings of the Board and its Committees
Read the two together. Urgency does not dispense with independent oversight; it merely allows the oversight to come after the meeting rather than during it. The words "if any" in both provisos matter: a company with no independent directors is not blocked.
Section 173(4): the penalty. 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.
Note that the penalty falls on the officer whose duty it is, not on the company.
Quorum: section 174
Section 174(1). The quorum for a Board meeting shall be one-third of its total strength or two directors, whichever is higher, and participation by video conferencing or other audio visual means shall also be counted for the purposes of quorum.
So the quorum is never fewer than two, and for a Board of ten it is four, one-third being three and one-third rounded to a whole number giving the higher figure of the two tests. And a director attending by video counts, unlike a proxy at a general meeting, because a director must act personally and cannot appoint a proxy at all.
Section 174(2): a Board below quorum. The continuing directors may act notwithstanding any vacancy in the Board; but if and so long as their number is reduced below the quorum, the continuing directors or director may act only for two purposes:
- increasing the number of directors to that fixed for the quorum; or
- summoning a general meeting of the company,
and for no other purpose.
That is a tightly drawn power, and it is regularly examined. A depleted Board can rebuild itself or call the members together. It cannot run the company.
Section 174(3): interested directors. Where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength, the number of directors who are not interested and are present at the meeting, being not less than two, shall be the quorum during such time.
The floor of two is absolute. If only one disinterested director is present, there is no quorum for that item however many interested directors are in the room.
Resolution by circulation: section 175
Section 175(1). No resolution shall be deemed to have been duly passed by the Board or by a committee 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,
- 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.
Meetings of the Board and its Committees
Every element is a condition. Circulation to most of the directors will not do; the draft must go to all of them, and to their registered addresses in India. And the majority required is of those entitled to vote, so an interested director who cannot vote is left out of the count.
The proviso: one-third can force a meeting. 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.
"Shall", so the chairperson has no discretion. This is the safeguard that stops circulation being used to avoid discussion of a contentious matter.
Section 175(2). A resolution passed by circulation shall be noted at a subsequent meeting of the Board or the committee and made part of the minutes of that meeting.
So a circulated resolution still reaches the minute book, and through section 118(4) the record will show who dissented.
A worked example
Osmanabad Ceramics Limited is incorporated on 5 April 2027 with a Board of nine directors, two of whom are independent.
The first meeting must be held within thirty days of incorporation, by 5 May 2027: section 173(1).
Frequency. Thereafter it must hold at least four Board meetings every year, with not more than one hundred and twenty days between consecutive meetings. Meetings in January, February, March and December would satisfy the count of four but breach the gap between March and December.
Notice. Each meeting is called on not less than seven days' notice in writing to every director at his registered address, by hand, post or electronic means. The officer whose duty it is to give notice and fails pays twenty-five thousand rupees: section 173(4).
An urgent meeting. A bank facility must be signed in three days. The company may call a meeting at shorter notice to transact urgent business, but at least one independent director must be present: first proviso to section 173(3). Neither independent director can attend, so the meeting proceeds and the decisions are circulated to all the directors and become final only on ratification by at least one independent director: second proviso.
Quorum. Total strength is nine, so one-third is three, and two directors is the alternative; the higher is three. Directors joining by video conferencing count towards it: section 174(1).
Meetings of the Board and its Committees
Resignations. Seven directors resign, leaving two. The Board is below quorum. Under section 174(2) the two continuing directors may act only to increase the number of directors to the quorum or to summon a general meeting, and for no other purpose. They cannot approve the bank facility.
An interested Board. The company proposes to buy land from a family that includes six of the nine directors. Six is two-thirds of nine, so section 174(3) applies: the quorum for that item is the disinterested directors present, being not less than two. Three disinterested directors are present, so there is a quorum of three for that item. Had only one been present, there would have been no quorum for it.
A resolution by circulation. Between meetings the Board wants to open a bank account. The draft resolution, with the necessary papers, is circulated to all nine directors at their registered addresses in India by electronic means, and is approved by a majority of those entitled to vote: section 175(1).
Three directors object. Three of nine is one-third of the total number of directors for the time being, so on their requirement the chairperson shall put the resolution to be decided at a meeting of the Board: proviso to section 175(1). Circulation is no longer available for that resolution.
Afterwards. Whatever is passed by circulation is noted at the next Board meeting and made part of its minutes: section 175(2), and by section 118(4) those minutes record the directors present and any dissent.
A smaller company. Beed Handlooms Private Limited is a small company. It is deemed to comply with section 173 if it holds one Board meeting in each half of the calendar year with a gap of not less than ninety days: section 173(5). And a One Person Company with a single director is outside sections 173(5) and 174 altogether, its business being done by an entry in the minutes book under section 122(4).
Distinctions that carry marks
| General meeting | Board meeting | |
|---|---|---|
| Notice | Clear twenty-one days, section 101 | Seven days in writing, section 173(3) |
| Shorter notice | Consent of ninety-five per cent of voting members | Urgent business, with at least one independent director present, else ratification afterwards |
| Quorum | 5, 15 or 30 members, or 2 in a private company, personally present, section 103 | One-third of total strength or two directors, whichever is higher, section 174 |
| Proxy | Permitted, section 105 | Not permitted; a director must act personally |
| Remote participation | Electronic voting, section 108 | Video conferencing counts towards quorum, section 174(1) |
| Decision without a meeting | Postal ballot, section 110 | Resolution by circulation, section 175 |
| Frequency | At least one AGM a year | Four a year, not more than 120 days apart |
Meetings of the Board and its Committees
| Situation | Quorum |
|---|---|
| Board of 9, no one interested | 3, being one-third; higher than two |
| Board of 4, no one interested | 2, one-third being less than two |
| Board of 9, six interested | The disinterested directors present, not less than two, section 174(3) |
| Board reduced below quorum | May act only to make up the quorum or summon a general meeting, section 174(2) |
What this does NOT mean
It does not mean four meetings a year is enough. The gap between consecutive meetings must also be not more than one hundred and twenty days.
It does not mean urgent business can exclude independent directors. At least one must be present, and if none is, the decisions are final only on ratification by one.
It does not mean a director may send a proxy. He may attend by video conferencing, which counts towards the quorum, but he cannot be represented.
It does not mean circulation avoids discussion. Any one-third of the directors may require the resolution to be decided at a meeting, and the chairperson shall put it to one.
Quick revision
- 173(1): first meeting within thirty days of incorporation; then at least four a year, with not more than one hundred and twenty days between consecutive meetings. Central Government may exempt classes.
- 173(2): participation in person or by video conferencing or other audio visual means capable of recording and recognising participation and storing the proceedings with date and time. Central Government may bar certain matters from video; but where there is a physical quorum, other directors may still join by video on those matters.
- 173(3): seven days' notice in writing to every director at his registered address, by hand, post or electronic means. Shorter notice for urgent business if at least one independent director is present; if none is, decisions are circulated to all directors and final only on ratification by one independent director.
- 173(4): the officer whose duty it is to give notice and fails, twenty-five thousand rupees.
- 173(5): OPC, small and dormant companies: one meeting in each half of the calendar year, gap not less than ninety days. Sole-director OPC outside this and section 174.
- 174(1): quorum one-third of total strength or two directors, whichever is higher; video participation counts.
- 174(2): below quorum, the continuing directors may act only to increase the number to the quorum or to summon a general meeting.
- 174(3): where interested directors are two-thirds or more of total strength, the quorum is the disinterested directors present, not less than two.
- 175(1): circulation in draft with the necessary papers to all directors at their registered addresses in India, approved by a majority of those entitled to vote. Proviso: one-third of the directors may require a meeting, and the chairperson shall put it to one.
- 175(2): the resolution is noted at the next meeting and made part of its minutes.
Meetings of the Board and its Committees
Test yourself
1. How often must a Board meet? The first meeting within thirty days of incorporation, and thereafter a minimum of four meetings every year, so arranged that not more than one hundred and twenty days intervene between two consecutive meetings: section 173(1).
2. What notice is required, and when may it be shorter? Not less than seven days' notice in writing to every director at his address registered with the company, by hand delivery, post or electronic means. A meeting may be called at shorter notice to transact urgent business if at least one independent director, if any, is present; in the absence of independent directors, the decisions must be circulated to all directors and are final only on ratification by at least one independent director: section 173(3).
3. State the quorum for a Board meeting. One-third of its total strength or two directors, whichever is higher, participation by video conferencing or other audio visual means being counted: section 174(1).
4. What may a Board do when it falls below the quorum? The continuing directors or director may act only for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting, and for no other purpose: section 174(2).
5. What is the quorum where most of the directors are interested? Where the number of interested directors exceeds or equals two-thirds of the total strength, the quorum during that time is the number of directors who are not interested and are present, being not less than two: section 174(3).
6. What are the conditions for a resolution by circulation, and how can it be stopped? The draft, with the necessary papers, must be circulated to all the directors or committee members at their addresses registered with the company in India, by hand, post, courier or prescribed electronic means, and approved by a majority of those entitled to vote. Where not less than one-third of the total number of directors require it to be decided at a meeting, the chairperson shall put it to a meeting of the Board: section 175(1) and its proviso.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.