Notice, Quorum, Chairman and Proxy

Note the double test in (ii)(a): a majority in number of the voting members and ninety-five per cent in value. Both, not either.

The second proviso deals with members who may vote on some resolutions only: they are counted in respect of the resolutions they can vote on and not the others.

Section 101(2): what the notice must say. Every notice shall specify the place, date, day and the hour of the meeting and shall contain a statement of the business to be transacted.

Four particulars, and then the business. A notice that gives the date but not the hour, or the hour but not the place, is defective.

Section 101(3): who gets it. Notice shall be given to:

• (a) every member, the legal representative of any deceased member and the assignee of an insolvent member;
• (b) the auditor or auditors of the company; and
• (c) every director of the company.

The auditor and every director are entitled to notice of a members' meeting. Students routinely forget both.

Section 101(4): accidental omission. Any accidental omission to give notice to, or the non-receipt of notice by, any member or other person entitled to it shall not invalidate the proceedings of the meeting.

Two limits on that saving. The omission must be accidental, so a deliberate failure to notify an inconvenient member is not covered. And non-receipt is excused, so a notice properly sent but lost in the post does not invalidate anything.

The explanatory statement: section 102

Section 102(1). A statement setting out the following material facts concerning each item of special business shall be annexed to the notice:

• (a) the nature of concern or interest, financial or otherwise, if any, in respect of each item, of (i) every director and the manager, if any; (ii) every other key managerial personnel; and (iii) relatives of those persons; and
• (b) any other information and facts that may enable members to understand the meaning, scope and implications of the items of business and to take a decision on them.

Clause (a) is a disclosure of interest reaching directors, the manager, every other key managerial personnel and their relatives. Clause (b) is the general duty to explain.

Section 102(2): what is special.

• (a) at an annual general meeting, all business is deemed special except four items:
• (i) the consideration of financial statements and the reports of the Board of Directors and auditors;
• (ii) the declaration of any dividend;
• (iii) the appointment of directors in place of those retiring; and
• (iv) the appointment of, and the fixing of the remuneration of, the auditors;
• (b) at any other meeting, all business shall be deemed to be special.

Learn the four. They are the only ordinary business the Act recognises, and everything else, at an annual general meeting or anywhere else, needs an explanatory statement.

The proviso: the two per cent rule. Where an item of special business relates to or affects any other company, the extent of shareholding interest in that other company of every promoter, director, manager and every other key managerial personnel of the first company shall also be set out in the statement, if that shareholding is not less than two per cent of the paid-up share capital of that other company.

Section 102(3): documents. Where an item refers to a document to be considered at the meeting, the time and place where it can be inspected shall be specified in the statement.

Section 102(4): the trustee consequence. Where, as a result of non-disclosure or insufficient disclosure by a promoter, director, manager or other key managerial personnel, any benefit accrues to him or to his relatives, directly or indirectly, he shall hold that benefit in trust for the company and shall, without prejudice to any other action, be liable to compensate the company to the extent of the benefit received.

That is a powerful remedy and it is often asked: the defaulter does not merely face a penalty; he holds the benefit on trust and must account for it.

Section 102(5): the penalty. Without prejudice to sub-section (4), on default every promoter, director, manager or other key managerial personnel in default is liable to a penalty of fifty thousand rupees, or five times the amount of benefit accruing to him or any of his relatives, whichever is higher.

Quorum: section 103

Section 103(1). Unless the articles provide for a larger number:

• (a) in a public company:
• (i) five members personally present, if the number of members as on the date of the meeting is not more than one thousand;
• (ii) fifteen members personally present, if it is more than one thousand but up to five thousand;
• (iii) thirty members personally present, if it exceeds five thousand;
• (b) in a private company, two members personally present.

Two things to fix. The articles may require more, never fewer. And it is personally present, so a proxy does not count towards the quorum.

Section 103(2): no quorum within half an hour. If the quorum is not present within half an hour from the appointed time:

• (a) the meeting shall stand adjourned to the same day in the next week at the same time and place, or to such other date, time and place as the Board may determine; or
• (b) the meeting, if called by requisitionists under section 100, shall stand cancelled.

Clause (b) is the trap. A requisitioned meeting is not adjourned; it is cancelled outright. The members who requisitioned it must start again.

The proviso: notice of the adjournment. For an adjourned meeting, or a change of day, time or place under clause (a), the company shall give not less than three days' notice to the members either individually or by publishing an advertisement in the newspapers, one in English and one in a vernacular language, in circulation at the place where the registered office is situated.

Section 103(3): no quorum at the adjourned meeting either. If at the adjourned meeting a quorum is not present within half an hour, the members present shall be the quorum. So the second meeting cannot be defeated by absence.

Chairman: section 104

Section 104(1). Unless the articles otherwise provide, the members personally present shall elect one of themselves to be the Chairman on a show of hands.

Section 104(2). If a poll is demanded on the election of the Chairman, it shall be taken forthwith, and the Chairman elected on a show of hands shall continue to be Chairman until some other person is elected as a result of the poll, and that other person shall be Chairman for the rest of the meeting.

So the meeting is never without a chairman: the show-of-hands chairman holds office until the poll displaces him.

Proxies: section 105

Section 105(1). Any member entitled to attend and vote at a meeting shall be entitled to appoint another person as a proxy to attend and vote on his behalf.

Four provisos, and each is examinable.

A proxy shall not have the right to speak at the meeting, and shall not be entitled to vote except on a poll. So a proxy is silent, and useless on a show of hands.

Unless the articles otherwise provide, the sub-section does not apply to a company not having a share capital. So there is no proxy right by default in a guarantee company without capital.

The Central Government may prescribe a class or classes of companies whose members shall not be entitled to appoint a proxy.

A person appointed as proxy shall act on behalf of such member or number of members not exceeding fifty, and such number of shares as may be prescribed. So one person may not hold more than fifty members' proxies.

Section 105(2): the notice must say so. In every notice calling a meeting of a company which has a share capital, or whose articles provide for voting by proxy, there shall appear with reasonable prominence a statement that a member entitled to attend and vote is entitled to appoint a proxy to attend and vote instead of himself, and that a proxy need not be a member.

Section 105(3). On default, every officer in default is liable to a penalty of five thousand rupees.

Section 105(4): the forty-eight hour rule. Any provision in the articles requiring an instrument of proxy to be deposited more than forty-eight hours before the meeting shall have effect as if forty-eight hours had been specified. So an article demanding seven days' deposit is read down to forty-eight hours.

Section 105(5): no company-funded proxy canvassing. If invitations to appoint as proxy a person, or one of a number of persons specified in the invitation, are issued at the company's expense to any member entitled to notice and to vote by proxy, every officer who issues the invitation or authorises or permits its issue is liable to a penalty of fifty thousand rupees.

The proviso protects the neutral company: an officer is not liable by reason only of issuing, at a member's written request, a form of appointment naming the proxy, or a list of persons willing to act as proxies, if the form or list is available on request in writing to every member entitled to vote by proxy.

Section 105(6): form. The instrument appointing a proxy shall (a) be in writing and (b) be signed by the appointer or his attorney duly authorised in writing, or, if the appointer is a body corporate, be under its seal or be signed by an officer or an attorney duly authorised by it.

Section 105(7). An instrument in the prescribed form shall not be questioned on the ground that it fails to comply with any special requirements specified by the articles.

A worked example

Nanded Alloys Limited, a public company with 1,400 members, calls its annual general meeting for 10 a.m. on Friday 18 August 2028.

Notice. It must give not less than clear twenty-one days' notice, in writing or electronically, excluding both the day of service and the day of the meeting. The notice must specify the place, date, day and hour and contain a statement of the business, and must go to every member, the legal representative of any deceased member, the assignee of any insolvent member, the auditors and every director.

Shorter notice. If it wanted to meet sooner, it would need consent in writing or electronically from not less than ninety-five per cent of the members entitled to vote, this being an annual general meeting.

Ordinary and special business. The agenda has five items: adoption of the financial statements and the Board's and auditors' reports; declaration of a dividend; reappointment of a retiring director; appointment of the auditors and fixing their remuneration; and approval of a contract with Nanded Realty Private Limited.

The first four are the four items of ordinary business in section 102(2)(a). The fifth is special business, so an explanatory statement must be annexed setting out the material facts, including the nature of the concern or interest, financial or otherwise, of every director, the manager, every other key managerial personnel and their relatives.

The two per cent rule. Because that item relates to another company, the statement must also disclose the shareholding of every promoter, director, manager and key managerial personnel of Nanded Alloys in Nanded Realty, if that holding is not less than two per cent of Nanded Realty's paid-up share capital.

A document. The draft contract will be considered at the meeting, so the statement must specify the time and place where it can be inspected: section 102(3).

Non-disclosure. Suppose a director fails to disclose that his brother owns Nanded Realty, and the contract enriches the brother. Under section 102(4) the director holds that benefit in trust for the company and must compensate the company to the extent of the benefit, and under section 102(5) he faces a penalty of fifty thousand rupees or five times the benefit, whichever is higher.

Quorum. The company has 1,400 members, which is more than one thousand but not more than five thousand, so the quorum is fifteen members personally present, unless the articles require more.

Nobody comes. At 10.30 a.m. only nine members are present. Because the quorum is not present within half an hour, the meeting stands adjourned to the same day in the next week at the same time and place, or to such other date, time and place as the Board determines, and the company must give not less than three days' notice, individually or by advertisement in one English and one vernacular newspaper circulating where the registered office is.

At the adjourned meeting only six members come. By section 103(3) the members present are the quorum, and the meeting proceeds.

Had this been a requisitioned meeting under section 100, the absence of a quorum would have cancelled it outright, not adjourned it: section 103(2)(b).

Chairman. The articles are silent, so the members personally present elect one of themselves on a show of hands. A poll is demanded on that election, so it is taken forthwith, and the show-of-hands chairman continues until the poll produces someone else, who is chairman for the rest of the meeting.

Proxies. A member in Dubai appoints a proxy. The proxy may attend and vote, but may not speak and may not vote except on a poll. The articles require proxies to be lodged seven days before the meeting; by section 105(4) that has effect as if forty-eight hours were specified. One person may hold proxies for not more than fifty members. The notice must state with reasonable prominence that a member may appoint a proxy and that a proxy need not be a member, failing which every officer in default pays five thousand rupees.

And a warning to the Board. If the company posts, at its own expense, invitations naming a particular director as proxy, every officer who issues or authorises them is liable to fifty thousand rupees, unless the form or list was supplied on a member's written request and is available on request to every member entitled to vote by proxy.

Distinctions that carry marks

What this does NOT mean

It does not mean twenty-one days is counted inclusively. It is clear days, excluding the day of service and the day of the meeting.

It does not mean any omission of notice invalidates a meeting. Only a deliberate one does; accidental omission and non-receipt are saved by section 101(4).

It does not mean a proxy is a substitute member. He cannot speak, cannot vote on a show of hands, and does not count towards the quorum.

It does not mean the articles can demand early deposit of proxies. Anything longer than forty-eight hours is read down to forty-eight.

Quick revision

• 101(1): clear twenty-one days' notice, writing or electronic. Shorter: ninety-five per cent of voting members for an AGM; for any other meeting, a majority in number of voting members and ninety-five per cent in value, or ninety-five per cent of total voting power where there is no share capital.
• 101(2): place, date, day, hour and a statement of the business. 101(3): every member, a deceased member's legal representative, an insolvent member's assignee, the auditors, and every director. 101(4): accidental omission or non-receipt does not invalidate.
• 102(1): explanatory statement for every item of special business: the interest of every director, the manager, every other KMP and their relatives, and information enabling members to understand and decide.
• 102(2): at an AGM only four items are ordinary: financial statements with the Board's and auditors' reports, dividend, appointment of directors in place of retiring ones, and appointment and remuneration of auditors. Everything else, and all business at any other meeting, is special.
• 102 proviso: if the item affects another company, disclose holdings of promoters, directors, manager and KMP in it, if not less than two per cent. 102(3): state where documents may be inspected.
• 102(4): a benefit from non-disclosure is held in trust for the company, with liability to compensate. 102(5): penalty fifty thousand rupees or five times the benefit, whichever is higher.
• 103(1): public company, five / fifteen / thirty members personally present for up to one thousand / one thousand to five thousand / above five thousand members; private company, two. Articles may require more.
• 103(2): no quorum in half an hour: adjourned to the same day next week, or as the Board determines, on three days' notice individually or by advertisement in one English and one vernacular newspaper; a requisitioned meeting stands cancelled. 103(3): at the adjourned meeting, members present are the quorum.
• 104: unless the articles otherwise provide, members personally present elect a chairman on a show of hands; on a poll, taken forthwith, the new chairman takes over for the rest of the meeting.
• 105: a proxy may not speak and may not vote except on a poll; not available by default in a company without share capital; not more than fifty members per proxy; notice must state the right with reasonable prominence and that a proxy need not be a member, penalty five thousand rupees; articles requiring deposit more than forty-eight hours before are read down; company-funded proxy invitations cost each responsible officer fifty thousand rupees; the instrument must be in writing and signed, and a prescribed form cannot be questioned for failing the articles' special requirements.

Test yourself

1. How much notice is needed for a general meeting, and how may it be shortened? Not less than clear twenty-one days' notice in writing or electronic mode. It may be shortened with consent in writing or by electronic mode of not less than ninety-five per cent of the members entitled to vote at an annual general meeting, and for any other meeting of a majority in number of the members entitled to vote who also hold not less than ninety-five per cent of the voting paid-up capital, or ninety-five per cent of the total voting power where there is no share capital.

2. What is ordinary business at an annual general meeting? Only four items: consideration of the financial statements and the reports of the Board and the auditors; declaration of any dividend; appointment of directors in place of those retiring; and appointment of, and fixing the remuneration of, the auditors: section 102(2)(a).

3. What happens if a director does not disclose his interest in an item of special business and gains by it? He holds the benefit in trust for the company and is liable to compensate the company to the extent of the benefit received, without prejudice to any other action: section 102(4). He is also liable to a penalty of fifty thousand rupees or five times the benefit, whichever is higher: section 102(5).

4. State the quorum for a public company with 6,000 members. Thirty members personally present, unless the articles provide for a larger number: section 103(1)(a)(iii).

5. A requisitioned meeting has no quorum after half an hour. What happens? It stands cancelled: section 103(2)(b). Unlike an ordinary meeting, it is not adjourned to the same day in the next week.

6. Can a proxy speak and vote at a meeting? A proxy may attend and vote but may not speak, and may not vote except on a poll: provisos to section 105(1). He does not count towards the quorum, which requires members personally present.