BOARD PROCESS
The word ‘Board Process’ has been mentioned in several places in the Companies Act 2013 (‘The Act”), but it is important to identify and discuss this term in two sections, which is in section 149 that deals with immunization for independent directors and section 2(60) that defines an officer in default, both these provisions are of concern for directors. These provisions emphasize the need for every director to ensure an effective Board Process that will protect his interest.
The first provision is clause (vi) of sub- section (60) to section 2 of the Act which states “every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance” will be “officer who is in default”.
The other provision is sub- section (12) of section 149 of the Act which states “an independent director, a non-executive director not being promoter or key managerial personnel, shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.”
The term “Board Process” assumes importance based on these two provisions which every director or prospective director is required to understand, that a Board Process in simple terms is a process of calling, convening and conducting a valid board meeting. The Act clearly provides for the requirements for holding the Board Meeting and includes:
i) A minimum number of four Board meetings are to be held every year.
ii) Not more than 120 days shall intervene between two consecutive meetings of the Board
iii) Every company shall observe secretarial standards with respect to general and board meetings that are specified by Institute of Company Secretaries of India.
The term “Called for & duly Convened’” is used to denote the way the Board meeting is required to be intimated to the Directors.
Notice& Time frame to call for meeting
Notice is an announcement containing information about an event, such notice can be written or oral. A board meeting shall be called by giving not less than 7 days notice in writing to every director.
When & Where
The notice should specify the day, date, time and venue of the meeting and shall be sent by hand delivery or by post or by electronic means. Further, the notice of the meeting shall inform the directors regarding the option available to them to participate through video conferencing mode or other audio visual means, and shall provide all the necessary information to enable the directors to participate through video conferencing mode or other audio visual means.
Notice for Adjourned meeting
Notice need not be given of an adjourned meeting other than a meeting that has been adjourned “sine die”. However as per Secretarial Standards notice of the reconvened adjourned meeting should be given to those directors who did not attend the meeting, which had been adjourned.
Meetings at shorter notice
The Board 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. In case of absence of independent director from the Board Meeting, business transacted or decision taken at such meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director, if any.
Agenda
Agenda means items that are to be considered in the Board Meeting and it is also referred as ‘Board Pack’.Even though the Act does not mandate a company to give a detailed agenda of the board meeting to the directors, the Secretarial Standards provide for the same. As a good board practice the agenda, setting out the business to be transacted at the meeting and notes to the agendais required to be given.
Authority to call
Unless the Articles provide otherwise, any director of a company may and the manager or secretary on the requisition of a director should, at any time, summon a meeting of the board.
The term ‘properly constituted’ means the minimum requisites for ensuring that the board meeting takes place.
Quorum for the meeting
Quorum is the minimum number of members required to convene a meeting. Section 174 of the Act states that the quorum of the meeting shall be one- third of its total strength or two directors, whichever is higher. It is pertinent to note that participation of director by way of video conferencing or by other audio visual means shall also be counted for the purpose of quorum, unless he is to be excluded for any item/s of business under any provisions of the Act or Rules. If the quorum during the meeting is reduced below the limit, the continuing directors may act for the purpose of increasing the number of directors fixed for the quorum. Where the meeting cannot be held for want of quorum, the meeting will 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.
Chairman of the meeting:
The Chairman is the person who is instrumental for the conduct of the meetings, without whom a a company cannot convene and conduct a meeting. Directors present in the meeting shall appoint one among them as the Chairman of the meeting. A director intending to participate through video conferencing mode or other audio visual means shall communicate his intention in writing to the Chairman and/or the company secretary of the company and shall also furnish details of how he wishes to avail the connectivity. The director participating through video conferencing mode or other audio visual means shall send the confirmation at least three days prior to the scheduled date of the meeting unless waived-off by the Chairperson. In the absence of any such intimation from the director, it shall be assumed that the director will attend the meeting in person.
As the Chairman occupies the place of authority or control, he is entitled to certain powers during a meeting which include –
1. To ensure that meetings are run efficiently and to maintain decorum
2. To ensure that the proceedings are properly conducted in accordance with the provisions of the Act and the company's articles
3. To ensure that the sense of the meeting is properly and accurately ascertained
4. In the event of a dispute, the Chairman has the power to adjourn a meeting to facilitate its business.
The term ‘validly transacted’ would mean that a meeting is called for, convened and all the requisites to proceed with the conduct of the board meeting are in place to transact the items of business in the meeting.
Commencement of meeting
As per clause 22 of Table H of the Act if the chairman is not present within 5 minutes after the time appointed for holding the meeting, the directors may appoint a director among themselves to chair their meetings.
Leave of Absence
Leave of absence should be granted to a director only when a request for such leave has been communicated to the Secretary or to the Board or to the Chairman. If a director fails to seek leave of absence he shall be deemed to be absent. In case a director is absent himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board then he shall vacate his office as a director. It has also been made mandatory that every director of a company shall attend at least one board meeting in a financial year in person.
Participation in proceedings
In line with the provisions of section 2(60)(vi) every director has a right to speak at the meeting and raise objections if he finds any item is in contravention to any provisions of law. He also has a right to object any content in the minutes if it is different than what was discussed in the meeting or where he has dissented and it was not recorded. For easy understanding the meaning of some of the terms used in this Act are:
i) Consent refers to the provision of approval or agreement, particularly and especially after thoughtful consideration.
ii) Connivance refers to willingness to allow or be secretly involved in an immoral or illegal act.
iii) Dissent refers to the holding or expression of opinions at variance with those commonly or officially held.
iv) Omission refers to someone or something that has been left out or excluded.
v) Commission refers to a process or service provided to validate the completeness and accuracy of a document.
vi) Acting diligently would mean if he is not an expert he can engage the services of an outside agency to help him identify the risks attributable to that particular item.
Proceedings of the Meeting – Board Minutes
The video recording of the meeting shall form part of the secretarial records and be preserved by the company. The minutes of the board meeting shall contain a fair and correct summary of the proceedings theat. The Chairman shall exercise absolute discretion in regard to the inclusion or non-inclusion of any matter in the minutes. The Board minutes shall contain the names of directors present and in the case of each resolution passed at the meeting the names of the directors, if any, dissenting from, or not concurring with the resolution.
The draft minutes of the meeting shall be circulated to all the directors within seven days of the meeting either in writing or in electronic mode. Further every director who attended the meeting, whether personally or through video conferencing or other audio visual means, shall confirm or give his comments, about the accuracy of recording of the proceedings of that particular meeting in the draft minutes, within seven days after receipt of the draft minutes failing which his approval shall be presumed. After receiving comments the Chairman shall proceed to sign the minutes and take the minutes on record in the next Board Meeting.
These provisions relating to a Board Process are important requisites for a valid meeting of the Board of Directors. It is pertinent to note that the Board Minutes signed by the Chairman of the meeting is full and final evidence for any actions that may be initiated against a director invoking the provisions of section 2(60) and 149(12) or any other provisions of the Act in any court of law.
To sum up, best board practices can be made better by ensuring a good board process.
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