Board meetings during Shutdown : How Companies may care less for video-conferencing rules

Vinod Kothari

corplaw@vinodkothari.com

We are in a shut-down mode, but companies still need to work, as business, and of course, life, has to move on. There are lots and lots of matters in the corporate world where board decisions are required. There are matters which mandatorily require board resolutions to be passed in a meeting of the board, and these matters may be quite frequent, for example, borrowing, lending, investing of funds, issue of securities, etc.. Additionally, there may be lots of other matters where approval of boards/ audit committee meetings or other committee meetings may be required.

If the matter requires board concurrence, not necessarily at a meeting, then resolution-by-circulation (RBC) is a good thought. But a bit of reflection may reveal that RBC is not a good solution in the age of technology. RBC is non-interactive. It is almost like sending postal letters for communicating with distant friends and relatives in the bygone age – we would send a letter, sealing in nicely into an envelope, and then drop it into a red box, and then wait. And then, we will receive an answer 15 days later, and eagerly open the envelope in reply. If technology permits today to communicate instantly with many at a time, why rely on the archaic RBC technique?

It is unfortunate that in an age where most business decisions are being taken momentarily using video and voice conferencing, and even major financial transactions are embracing blockchain technology which may replace currency as we know today, there must be a detailed set of rules for use of video conferencing in board meetings. The rules, in MCA’s Companies (Meeting of Board and its Powers) Rules, were actually drafted in the pre-2013 era,  by way of a so-called Green Initiatives of the MCA in 2011[1]. . Thereafter, the rules have been tweaked from time to time, but their stance still remains rather bureaucratically antiquated. Ironically, 2011 was the time for pagers and first generation cellphones. In 2020, in the age of smartphones and what not, the 2011 stance still continues to prevail.

For example, the thought that the chairman will take a roll call – even though the chairman can easily see face to face the persons who are connected on the video call! Or the fact that the proceedings of VC will be recorded. These antiquated rules have deterred companies from using the full potential of VC for board meetings. In fact, the requirement of recording itself is a major deterrent, as most boards do not want all the noise, side comments and off-the-record discussions in a board meeting to be formally recorded.

Right now, from 22nd March, 2020, the entire country is into a shut-down, at least for 3 weeks. Much before this, most companies had gone into a work-from-home mode. There is no option at all of a physical board meeting.

Hence, VC is the only way for board meetings.

In this scenario, we urge companies to come out of the traditional mindset of physical board meetings and allow board proceedings to embrace technology – this is hardly an option today; it is necessity.

There are several questions that arise in the mind of the compliance professional – most of these questions are the by-product of a thinking anchored into the days of physical board meetings. If compliance professionals were a little more avant-garde, we may have far smoother board proceedings through VC.

Some common questions

  1. Considering the crisis situation, if the Company intends to seek Board approval for matters including matters under Section 179, what are the options available?

In our view, the only option is to do board meeting by video conferencing. The old-fashioned way of doing a resolution by circulation, and later have the decision ratified in a proper meeting (as and when the same may be called) may also work, but as we mentioned above, if the entire world of business is working on VC mode, why not board meetings?

  1. In case of BM considered through VC, is there a need to have a physical quorum?

The thought of a “physical quorum” is completely weird in case of a board meeting by VC. Of course, every person who is participating in the board meeting from remote locations are all “physically” there. Quorum is the minimum number required for a collective decision-making in a board meeting. Every person hooked on to the VC participates in the collective decision-making, with their full sensibility. Neither is the attentivity, or no participation, any less in a VC meeting than in a board meeting.

In this regard Section 174 of the Act prescribes that the quorum in case of board meetings shall be 1/3rd of its total strength or 2 directors, whichever is higher, and the participation of the directors by VC or by other audio visual means shall also be counted for the purposes of quorum  However, in the present scenario, while we encourage companies to traverse the old mindset and go for board meetings entirely on VC mode , MCA has also provided relaxation vide its notification dated 19th March, 2020[2] on the requirement of the physical presence of the directors while reckoning the quorum on regular matters requiring board approval,.

  1. Whether all directors, including Chairman, participate through VC?

Of course. If the meeting is happening on VC mode, everyone, including the chairperson, is connected by VC.

  1. What will be the place of meeting?

As per SS, notice of the eeting shall clearly mention a venue, whether registered office or otherwise, to be the venue of the Meeting and all the recordings of the proceedings of the Meeting, if conducted through Electronic Mode, shall be deemed to be made at such place.

As we mentioned before, compliance professionals need to be a bit avant-garde. There is no question of a “place” of a board meeting in case of a meeting by VC. No one is meeting physically at any place. The cloud is the place.

However, if the meeting has to have a place, it is chairperson who is the anchor for the meeting – hence, the chairperson’s place will be the place.

However, to reiterate – the notice for such a meeting will not say – meeting shall be held at XYZ place. It wil say, meeting will take place on VC, and share log-in or call-ins, as it is commonly done in case of meetings on Webex, Zoom or other meeting facilitators.

  1. Whether prohibited items can also be done through VC?

 Yes, in view of exemption by MCA on 19th March, 2020[3], an amendment in the Companies (MBP) Rules has been made. It provides that a meeting on the restricted items specified in Rule 4, including certain items such as approval financials and board’s report etc. which require an immediate consideration in the present time, can be held through video-conferencing till the period ending on 30th June, 2020 and shall not require mandatory physical quorum.

  1. Suppose a Director did not indicate his intention to participate through VC at the beginning of the year, can a Company still send them notice to participate through VC?

As per SS, the director may intimate his intention of participation through Electronic Mode at the beginning of the Calendar Year also, which shall be valid for such Calendar Year.

In the present scenario, the intent of the director does not matter at all. It is a clear case of compulsion, rather than intent. Hence, irrespective of whether the director has intimated his intent of attending through VC or not, every director may hook on

  1. If the director in interested on any agenda item, and participating through VC, how should he abstain from participation?

Not participating does not necessarily mean getting blacked out.

However, if the other directors want to discuss something in incognito mode, that is, by excluding a particular interested director, every VC facility includes an option to disconnect a particular director. So the so-called interested director may be disconnected while discussing the impugned item.

  1. If all directors are participating through VC, how will minutes or other documents requiring signature of Chairman or Directors will be considered?

The minutes will be captured by the company secretary and circulated as usual.

Assuming that it is not possible to get the physical signatures of the chairperson within 30days as required, the minutes will be entered in the minute book and signed as and when possible. The present situation being a force majeure, there cannot be any breach of law for what is anyways an impossibility.

  1. How will the attendance register be maintained in case of directors participating through VC?
  • As per SS, the attendance register shall be deemed to have been signed by the Directors participating through Electronic Mode, if their attendance is recorded in the attendance register and authenticated by the Company Secretary or where there is no Company Secretary, by the Chairman or by any other Director present at the Meeting, if so authorised by the Chairman and the fact of such participation is also recorded in the Minutes.
  • In case of Directors participating through Electronic Mode, the Chairman shall confirm the attendance of such Directors. For this purpose, at the commencement of the Meeting, the Chairman shall take a roll call. Roll call is an antiquated, almost ridiculous requirement.

However, the company secretary may record attendance, which may later be entered into the attendance register. And most of the VC meeting software provide the option of recording as well.

  1. How will the documents required to be placed at the meeting considered in case of VC meetings?

Since there is no question of having physical documents in VC meetings, all such documents which require the approval or consideration of the board at its meeting may be circulated along with the agenda. As regards, the consideration of unsigned documents which require the initials of the CS or chairman, as per clause 7.3.3 of SS-1, the ‘sd/-’ signed copies of the same may suffice.

Further, as per the demand of the situation, BSE/NSE have sent one on one mails to the listed entities stating that ‘sd/-’ signed copies of the submissions to be made to the stock exchange shall be treated as sufficient compliance.

  1. The directors are required to place their disclosures at the first meeting of the board in every FY. How will the same be considered in VC meetings?

Form MBP-1 required to be obtained from each of the directors can be prepared by them and them and any changes therein may be announced during the meeting which will be recorded alongwith the other proceedings.

  1. How will the updation and signing of registers maintained physically, be done?

In the present scenario, where most of the registers of the companies are maintained in electronic mode, the udpation of those will not be an issue. However, in case of registers which were being physically placed before the meeting and signed by the board will now require the entries to be recorded in electronically, with a record of the date and time and can be entered in the physical registers and signed thereafter.

[1]  https://www.mca.gov.in/Ministry/pdf/Circular_28-2011_20may2011.pdf

[2] http://ebook.mca.gov.in/notificationdetail.aspx?acturl=6CoJDC4uKVUR7C9Fl4rZdatyDbeJTqg3L9EJ8UoBYN3JmTfp0IhEpBLz442oQa9O

[3] http://ebook.mca.gov.in/notificationdetail.aspx?acturl=6CoJDC4uKVUR7C9Fl4rZdatyDbeJTqg3L9EJ8UoBYN3JmTfp0IhEpBLz442oQa9O

8 replies
  1. Anurag
    Anurag says:

    What if situation arises where a Director because of network issues is not able to give his roll call, or although present in VC but is not able to actively participate in the meeting. Will his attendance still be considered as present?

    Reply
  2. Anurag
    Anurag says:

    In case of VC meeting, situation may arise where a Director because of any network issue is not able to participate in the whole proceedings or may not give his role call, but was present throughout the meeting. Will he still be considered Present?

    Reply
  3. Abhishek
    Abhishek says:

    whether it is necessary to take on record in the minutes of meeting held through video conferencing, the mode of participation of directors in the last three meetings. if yes under what provisions.

    Reply
    • Nitu Poddar
      Nitu Poddar says:

      That the meeting has been conducted through VC mode is required to be mentioned in the minutes. There is no requirement of mentioning the mode of meeting of the previous meetings.

      Reply
  4. sandip kumar chaubey
    sandip kumar chaubey says:

    How will we place annual disclosure from directors like in mbp-1 and disclosure from independent directors. Can we place

    Reply
    • Ambika Mehrotra
      Ambika Mehrotra says:

      Sir,
      You may please refer Question No. 11 above, in this regard. For annual disclosures sd/- copies may be sent to the CS/ the person calling the meeting and final signed copies could be collected once the situation normalises. The same may also be circulated or shared on cloud.

      Reply
    • Ambika Mehrotra
      Ambika Mehrotra says:

      Ma’am
      Any app or software that allows both audio as well as visual facility and can be recorded should be allowed. As far as we know, zoom app allows audio-visual interaction which can be recorded also, therefore, it can be used

      Reply

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