CHAPTER-11 MEETINGS

After reading this lesson, you will be conversant with:

11.1 Procedure and Requisites of Valid Meeting

11.2 Kinds of Meetings

In this lesson, we shall discuss the provisions relating to meetings of the members, directors and creditors.

11.1 PROCEDURE AND REQUISITES OF VALID MEETING

Meeting Should be called by Proper Authority

Every company meeting has to be called by the directors except in the case when the meeting has, in the event of default by the directors, been called by the requisitionists or by the Central Government. The directors have to fix the date, time and place of the meeting. Notice of a meeting given by the Secretary without the sanction of the Board of Directors is invalid, but such a notice may be ratified by the directors before the meeting.

Shareholders are also empowered u/s 169 to requisition holding an extraordinary general meeting subject to compliance of the provisions of the said section.

Central Government is also empowered to call for a general meeting other than an annual general meeting.

Section 167 empowers the Central Government to call for an annual general meeting in case of default in holding the meeting in accordance with Section 166.

Proper and Adequate Notice

The second requirement of a valid meeting is that a proper notice should be given to every member of the company. Deliberate omission to give notice to a single member may invalidate the meeting. Accidental omissions can however, be ignored. It must follow the General Rules in relation to notice and rules as laid down in the Articles and the Companies Act.

The notice should be clear, explicit and unconditional, conveying to the person all the required information like the date, time and place of meeting; statement of business general and special business, that will enable the person to attend the meeting and take part in the deliberations.

For a general meeting of any kind (statutory, annual or extraordinary), at least 21 days notice must be given to members (Section 171). If the notice is for the annual general meeting, a shorter notice is allowed if all the eligible members (members who are entitled to vote and not merely present) give their consent to it. In case of any other meeting, a shorter notice will be valid if members holding at least 95 percent of the voting power give their consent to it [Section 171(2)].

The notice in writing shall be sent to the shareholders giving at least 21 clear days time excluding the day on which the notice is issued, 48 hours for postal transit and the day on which the meeting is to be held [Section 171 (1)].

Any resolution passed in the meeting called with shorter notice cannot be effective unless the latter is ratified by all the shareholders. A person who is present and who votes at the meeting, will not be entitled to challenge the resolution on the ground of any invalidity in notice.

For the companies covered under Section 25, a general meeting may be called by giving a notice in writing of less than 14 days.

Contents of the NoticeSection 172 lays down the contents and manner of service of notice and persons on whom it is to be served. Every notice of meeting of a company shall specify the place, the day and hour of the meeting, and shall contain a statement of the business to be transacted thereat. An interesting judgment was made in case of Rathnavelusami vs. Manickavelu Chettair (1951). On failure of the directors of a company to call a meeting on a requisition, the requisitionists themselves sent a notice to all the members for a meeting to be held at the registered office of the company. But the managing director locked the premises of the registered office. It was held that the resolutions passed thereat were valid.

If the notice is given by newspaper advertisement, the statement of material facts need not be annexed to, but it should be mentioned that the same has been forwarded to the members.

The notice should also state that a member is entitled to appoint a proxy who need not be a member [Section 176(2)].

The notice must contain a statement of business to be transacted at the meeting.

Meeting to be Legally Constituted

A legally constituted meeting has a proper quorum, a proper person in the chair and proper compliance with the relevant provision of the Articles of Association and the Act.

Chairman: The articles may provide that the Chairman of the Board of Directors shall also preside over the general meetings of the company. In the absence of such a provision, the members may on a show of hands elect a person to chair the meeting. Where a poll is demanded it shall be taken forthwith, with the Chairman elected on a show of hands exercising all the powers of a Chairman relating to conduct of poll.If no Chairman is designated beforehand or he is not present within fifteen minutes of the appointed time of the meeting or is unwilling to act as chairman of the meeting then the directors present shall elect one amongst themselves to be the chairman of the meeting. If this is not possible by reason that no director is willing to act as a chairman or if no director is present within 15 minutes after the appointed time, then the members present may elect one amongst themselves to be chairman of the meeting. A chairman is required to maintain order and decorum at a meeting, to give ruling on points of order, to decide priority of speakers, to maintain relevancy and order in debate, to adjourn a meeting, to exercise a casting vote in case of a tie and to ascertain the sense of meeting and declare the result of voting.

Quorum: Quorum is the minimum number of members who must be present at a meeting required by Law/Rules. The idea is to avoid situations where decisions taken by minority of people are imposed to the vast majority of members. A minimum of five members should be personally present at meeting of a public company and a minimum of two members in case of a private company. The members present as quorum should be those members who are eligible to vote in respect of business on the agenda of the meeting. The number may be higher as provided by the articles of the company. Where the total number of members of a company is reduced to below the quorum fixed by the articles, the rule as to quorum will be deemed to be satisfied if all the members of the company attend the meeting in person. If the quorum is not present within half an hour from the appointed time, (i) the meeting if called upon the requisition of members shall stand dissolved; (ii) in any other case, the meeting shall be adjourned to the same day in the next week at the same time and place or to such other day, time and place as the Board of Directors may determine. As the adjourned meeting is only a continuation of the original meeting, the requirement of issuing notices can be dispensed with. However, if the Board fixes any other date for the adjourned meeting, notices will have to be issued to every member in accordance with the provisions relating to issue of notice for general meetings. If at the adjourned meeting also, the quorum is not present within half an hour from the appointed time of the meeting, the members present will be the quorum. As far as directors are concerned, there should be a quorum of 1/3rd of the total strength of the Board or two directors, whichever is higher

In case of following circumstances only one member can be allowed to constitute a valid quorum:

i. if all the shares are held by one person, the single shareholder shall constitute a valid quorum in case of a general meeting;

ii. where the Company Law Board directs under Section 167 or Section 186 that one member present in person or by proxy shall constitute quorum.

Meeting to be Properly ConductedProper conduct of the meeting means that proper rules for ascertaining the sense of the meeting, the rules for discussion and order in debate as must be observed. Voting rights cannot be given to preference shareholders unless the resolution directly affects the rights attached to the preference shares held by them.

Proxy (Section 176): A member who is entitled to attend and vote at a meeting can appoint another person (whether a member or not) to vote on his behalf. A person so appointed is a proxy. A proxy has no right to participate in the discussions in the meeting. However, he may demand or join in a demand for a poll.Section 176(1) will not be applicable in the following cases except if the articles provide otherwise.

a. Members of a company having no share capital will not be able to attend and vote by proxy.

b. A member of a private company cannot appoint more than one proxy to attend the same meeting.

c. A proxy may vote only on a poll. This implies that he is not eligible to vote by show of hands

Resolutions: A proposal made at a meeting by any member is called as Motion. A motion when passed is called resolution. Motions may relate to closure of discussion or postponement of the discussion.

With respect to general body meetings, there are two kinds of resolutions-ordinary resolutions and special resolutions. As per Section 189 (1), a motion passed by simple majority of the members voting at a general meeting is said to have been passed by an ordinary resolution. An ordinary resolution is a simple majority resolution which requires that votes cast in favor of the resolution should be more than votes cast against the resolution. Also, the notice as per the provisions of the Companies Act must have been duly given specifying the intention to propose the resolution as a special resolution.

According to Section 189 (2), a resolution is a special resolution when

i. the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members;

ii. the notice required under the Act has been duly given of the general meeting; and

iii. the votes cast in favor of the resolution by members present (in person or in proxy either by poll or by show of hand, as applicable) are not less than three times the number of votes, if any, cast against the resolution. Abstentions, if any, are not to be taken into account.

11.2 KINDS OF MEETINGS

Meetings under Companies Act, 1956 may be classified as follows:

a. Shareholders Meetings:

Statutory meeting as per Section 165 of the Act;

Annual General Meeting (AGM) as per Section 166 of the Act;

Extraordinary General Meeting (EGM) (Section 169): Those convened by the Board of Directors to transact business of special importance that arises in between the two annual general meetings and justifies the convening and holding a meeting of the shareholders; and

Class Meetings of Shareholders.

a. Board Meetings.

b. Meetings of the Committees of Board.

c. Meetings with the Debenture holders.

d. Meetings of Creditors.

Each of the above meetings are elucidated below.

Statutory Meeting

Section 165 of the Companies Act, 1956 lays down:

Every company limited by shares, and every company limited by guarantee and having a share capital, shall, within a period of not less than one month nor more than six months from the date at which the company is entitled to commence business hold a general meeting of the members of the company, which shall be called statutory meeting. This is the first meeting of the shareholders of a public company and there would be only one such meeting in the lifetime of the company.

Exemptions: This section is not applicable to:

i. a private company, whether independent or subsidiary of a public company;

ii. a public company not having share capital;

iii. a public company having liability of its members unlimited;

iv. a public company having liability of its members limited by guarantee and not having share capital; and

v. a Government company, whether registered as a private company or a public company.

However, if a private company becomes or converts itself into a public company within a period of six months from the date of its incorporation, it will have to comply with the provision of this section. If a private company becomes public company after six months of its incorporation, it will not be required to hold the statutory meeting.

Purpose: The main purpose of this meeting is to enable the members to know at any early date the financial position and prospects of the company. Also, the statutory meeting provides an opportunity to the shareholders to discuss various aspects arising out of the promotion and formation of the company.

Annual General MeetingAn annual meeting known as an annual general meeting is required to be held by every company every year whether public or private, limited by shares or by guarantee, with or without share capital or an unlimited company. Every annual general meeting shall be held during business hours, not on a public holiday and at the registered office or at some place within the city, town or village in which the registered office is situated.

Purpose: The object of the meeting is to allow shareholders to periodically review the working of the company. It also provides a forum for the shareholders to exercise their discretion in electing/re-electing new or retiring directors/auditors, and in having a direct interaction with the members of the board regarding the progress made by the company, and on matters relating to accounts or affairs of the company.

Time frame: According to Section 166(1), the first annual general meeting of a company should be held within a period of 18 months from the date of its incorporation. The period of 18 months will not be extended in any case. When a meeting is so held, it will not be necessary for a company to hold any annual general meeting in the year of its incorporation or in the following year.

Thus, if a company is incorporated in December, 1994, it may hold its first annual general meeting in April, 1996 and that meeting will be deemed to be the annual general meeting for 1994, 1995 and 1996.

Further, in compliance with Section 210(3), it should be ensured that the first annual general meeting is held within 9 months of the close of the financial year.

Other than the first annual general meeting, every company shall in each calendar year hold an annual general meeting by giving due notice. The gap between two annual general meetings must not be more than 15 months and the meeting must be held within six months from the close of the financial year.

The annual general meeting should be held whether or not the annual accounts are ready.

Taking into consideration Section 166 and 210 it may be noted that an annual general meeting (other than the first) should be held on the earliest of the following dates:

a. fifteen months from the date of the last annual general meeting;

b. the last day of the calendar year;

c. 6 months from the close of the financial year.

Place and time of holding annual general meeting

According to Section 166(2)(a), a public or a private company which is a subsidiary of a public company may fix the time for its annual general meeting either through its articles, or it may also by passing a resolution in one annual general meeting fix the time for the subsequent annual general meeting.

A private company which is not a subsidiary of a public company, may in like manner and also by a resolution agreed to by all the members thereof, fix the time as well as the place for its annual general meeting.

An annual general meeting should be held at a time during the business hours and in the city, town or village in which the registered office is situated and not elsewhere.

Where an annual general meeting is adjourned, the board has the power to hold the adjourned meeting at any place other than the place where the annual general meeting was held. However, so far as possible, it should be ensured that the meeting is held at the same place as the original meeting and if that is not possible, the meeting should be held either at the registered office of the company or at a place within the city in which the registered office is located.

Default: The Company Law Board may on its own or on the application of any director of the company or of any member of the company entitled to vote at the meeting, call for a meeting. This is permitted only when there occurs a default in holding the annual general meeting or it is impracticable for the company to call, hold or conduct a general meeting other than an annual general meeting.

Extraordinary General Meetings

All the general meetings of the company with the exception of the Statutory Meeting and Annual General Meeting are Extraordinary General Meetings (EGM).

Object: The purpose of EGM is to transact special business defined in the previous which arises between two annual general meetings. The special business transacted at the EGM has to be urgent, which cannot be deferred to the next annual general meeting. For instance, a change in the objects or shift of registered office or alteration of capital or removal of a director/auditors require immediate attention which cannot be deferred till the next annual general meeting.

An Extraordinary General Meeting may be called by,

The board of directors on its own or on the requisition of a specified number of members entitled to vote.

By the requisitionists themselves in case of failure by the board to call for a meeting.

By the Company Law Board.

Class MeetingsClass meetings are those meetings which are held by holders of a particular class of shares, e.g. preference shares. Need for such meetings arises when it is proposed to vary the rights of a particular class of shares. Thus, for effecting such changes, it is necessary that a separate meeting of the holders of that particular class is held. The meeting is necessary only if the variation involves the curtailments of the rights of any classes of shareholders.

It was held in House of Fraser v. ACGEE Investments Ltd.(1987) that a cancellation of preference shares by repayment of the capital paid upon those shares and in accordance with rights attached to those shares does not involve any modification or variation of class rights so as to require a meeting of the preference shareholders.

Section 107gives a right to a minority group of shareholders belonging to a class, not being holders of less than ten percent of the issued shares of that class, to challenge the variation of the rights attached to the shares of that class. That is, a class meeting should be called if variation of the class of shares in question would unfairly prejudice the shareholders of that class.

Board Meetings

The meetings of the Board of the Directors for the purpose of collectively taking decisions for smooth functioning of the company are referred as Board Meetings.

Object: To formulate management policies, take decisions of importance pertaining to running of the company, review of progress made by the company among other matters related to the company.

Section 291 lays down that the Board can exercise all the powers which the company is authorized to exercise.

However, where it is specifically provided that a power or act should be exercised by the company in a general meeting, the board shall not exercise such power.

Moreover, the board shall not exercise any power or do any act which is inconsistent with the provisions of the Act, or the Memorandum or the Articles of the company.

Section 291(2) provides that a regulation passed by the company in a general meeting shall not invalidate any prior act of the board which would have been valid if that regulation had not been made.

The power delegated to the Board of Directors will have to be exercised at properly convened board meeting unless the articles provide otherwise.

Powers: Section 292 lays down that the following decisions have to be taken only at the meeting of the board of directors:

i. make calls on shareholders in respect of unpaid money on their shares;

ii. to issue debentures;

iii. to borrow moneys otherwise than on debentures;

iv. to invest the funds of the company; and

v. to make loans.

It has to be noted that the meeting does not require any agenda for the meeting of the directors. Any business whatsoever, thus can be transacted at a board meeting. Frequency of Board Meetings: Section 285 provides that a board meeting should be held at least once in every 3 calendar months. There should be at least four such meetings in every year. This provision is applicable to every company except where the Central Government notifies otherwise.

So long as the four board meetings are held in a calendar year, one in each quarter, the interval between two meetings may be more than three months.

The Act does not make it compulsory for a director to attend all the board meetings. However, the director can be held liable for any losses incurred by the company which could have been avoided/prevented by his presence at the board meeting.

Place and Time of Board Meetings: There is no restriction as to the place at which the board meeting should be held. Thus a board meeting need not be held at the registered office of the company. It can be held at any place according to the convenience of the board. It may also be held in a foreign country if circumstances warrant.

A board meeting may be held on any day (even a public holiday) or outside business hours. However, according to Section 288, a board meeting adjourned for want of quorum should be held on a day which is not a public holiday.

Notice of Meeting: A written notice of the board meeting should be sent to every director for the time being in India and to his usual address in case of every other director. The notice should be issued under the authority of the company.

An officer who fails to give such a notice will be punishable with fine which may extend to rupees one thousand.

Any such failure to give notice will render the proceedings of the meeting invalid.

Quorum: The quorum for a board meeting shall be 1/3 of its total strength (any fraction contained in that 1/3 being rounded off as one) or 2 directors whichever is higher.

Where the number of interested directors equals or exceeds 2/3 of the total strength, then the remaining non-interested directors present at the meeting and being not less than 2 in number will be the quorum during such time.

At a board meeting, presence of quorum is required at each and every stage of the meeting.

In a situation, where all the directors are interested, it is advised to increase the number of directors who are not interested or appoint additional directors not interested in the contract, if authorized by the articles.

If this is not practicable, the proposed contract should be placed before the general meeting for consent.

Meetings of Committee of DirectorsAny meeting by the committee consisting of individuals who have been delegated the powers as permitted by Section 292 is referred to as Meeting of Committee of Directors. Section 292 allows the power to borrow money otherwise than on securitites, power to invest funds of the company and power to make loans to be delegated subject to the limits and terms and conditions as resolved by the Board of Directors. The committee so formed cannot delegate its powers further.

The provisions relating to the meetings of a committee of directors and provisions relating to directors meetings are by and large same as those of board meetings.

The minutes of the proceedings of a committee of directors is not open for inspection to general public.

Meeting of Debenture Holders

As in the case of Class Meetings, if any variation is proposed to be made in terms of security or to alter the rights of debentureholders in certain circumstances, then a Meeting of Debenture holders is called. All the matters connected with the holding, conduct and proceedings of the meetings of the debenture holders are given in the Debenture Trust Deed. The decisions arrived at such meetings with the requisite majority, are valid and binding upon the minority.

Meeting of CreditorsMeeting of creditors for certain arrangements with the company either in case of a running concern or in the event of winding-up is referred to as Meeting of Creditors. These kind of meetings are not company meetings in the real sense.

Section 391 to Section 393 authorize the company to enter into arrangements with the creditors with the sanction of the Court. The court, on application, may order the holding of a creditors meeting. If the scheme of arrangement is agreeable to, by majority of creditors in number holding debts to the value of three-fourths majority, the courts may sanction the scheme.

When a company goes into liquidation, a meeting of creditors and of contributors is held to ascertain the total amount due by the company to its creditors and also to appoint a liquidator to wind-up the affairs of the company.