Background
As members of the fraternity are aware, the Companies Act, 2013 (hereinafter "The Act") still considers that general Meetings are supposed to be "held" which implies that the meetings ought to be held at a particular place and that shareholders shall congregate at such meetings and discuss the matters forming the agenda for such meetings. For those who are not present physically at the meeting, they could avail of the facility of remote e-voting and those present at the meeting could vote physically at the venue of the Meeting with the company making necessary arrangements therefor.
COVID 19 and the nationwide lockdown which followed soon after upset the apple cart, in a manner of speaking, to the established and time tested practice of holding general meetings physically. The circumstances then prevailing made it impossible for over two years for companies to conduct physical general meetings. The issue became still more irksome given that the legislative machinery was also non-functioning for substantial periods, making it impossible to put through enabling amendments in the law so that company Boards could continue to discharge their statutory responsibility of holding Annual General meeting and Extra-ordinary general meetings as warranted under the Act.
The Ministry of Corporate Affairs(MCA) had perforce to resort to alternative measures urgently through issue of circulars so that companies could hold meetings through an alternate process and ensure compliance with the requirements of the law.
The framework was available already in the law for resorting to an alternate process in that, for the first time the Statute had been made compatible to meet the ever increasing requirement, caused by the dynamics of modern business, of permitting directors to attend meetings of the Board virtually through audiovisual means. It is pertinent to note that in advanced jurisdictions across the Globe, directors are permitted to participate in meetings through telephonic attendance which the present Act in India does not permit.
Section 173(2) of the Act read with the relevant Rules thereunder had already made it possible for directors to attend meetings of the Board and its Committees through Audiovisual means in line with the process specified in Rule 3 of the Companies (Meetings of Board and its Powers )Rule, 2014 it was considered appropriate to replicate to a large extent the same process for holding General meetings, holding of physical meetings having been rendered impossible due to the pandemic. The procedure for participation at meetings had to be tweaked in a manner required to allow participation of members virtually while at the same time dispensing with the requirements of proxies which are a conspicuous feature in meetings held physically.
MCA circulars for holding Meetings through VC or OAVM
The first of the circulars to enable companies to conduct firstly EGMs virtually was issued by MCA on April, 8,2020.(Circular No.14/2020).
Para (3)A of the above circular provided,inter alia, that EGMs where unavoidable, may be held through VC or OAVM(Other Audio Visual Means), andthe recorded transcript should be kept safely by the company. The circular further stated that where the public company had a website, the recorded transcript should be made available in the website as soon as possible.
The meeting through VC or OAVM facility had to be ensured by two-way teleconferencing or WebEx for the convenience of the members and members shall be allowed to raise questions concurrently or allowed to submit questions ahead of the meeting on the Company's website.
By circular No.20/2020 dated May, 5, 2020 it was made possible to hold AGMs though VC or OAVM, considering the continuance of the pandemic. In this circular it was clarified that the framework provided in the earlier circulars shall be applicable mutatis mutandis for conducting AGMs.
SEBI also proactively endorsed the views of MCA as regards holding of meetings through VC/OAVMso that the listed companies could feel comforted by the fact that the procedure made applicable by MCA would equally apply to them given that SEBI Listing Regulations carry greater precedence than the Act, where they were concerned.
The ICSI also from time to time issued guidance notes in respect of Secretarial standards 1 and 2 respectively as applicable to meetings of the Board and General meetings alluding to the MCA and SEBI circulars and directed companies to fall in line with the procedure to be adopted for holding meetings.
It is pertinent to note that Secretarial standard 1 and 2 as issued by the ICSI had already been notified by the Central Govt. under Section 118(10) of the Act and their observance had been made mandatory in application for companies which come within the ambit of their compliance.
ICSI had to only resort to the process of issuing Guidance Notes on the subject , considering the limitation that the Secretarial Standards notified already carried the force of law and these could not be amended unless the Act itself was suitably amended to facilitate virtual meetings.
Whether MCA circulars carry the force of law
At this juncture it would be appropriate to examine whether circulars issued by the MCA carry the force of law,The above issue was contested in the Apex Court in Bhagawati Developers v Peerless General Finance and Investment Co.Ltd (2005 AIR SCW 4097) where the Court observed that circulars issued by the Department of Company Affairs as MCA was known at that point of time do not carry any mandatory force and that they are merely advisory in nature.
The moot question therefore was whether companies had to complycompulsorily with the alternative mechanism suggested by the MCA to hold General meetings through virtual means.
In International Trade and Exhibitions India P Ltd v Regional Director (2011)168 Comp Cas 359, the Delhi HC ruled that the Department's Guidelines on availability of names could not be contrary to statutory provisions and if they were , they were liable to be ignored.
In another interesting decision in P.S.Bedi v ROC(1986)(60 Comp Cas 1061) the Delhi HC articulated on the point whether reliance could be placed by companies on a policy decision which had been formulated by the Central Govt and the Department.The Court conceded that though the circular may not have statutory force in as much as it contained one of the policy decisions of the Central Govt and the CLB , it was binding and operative .
It is a settled principle that the performance of an impossible duty can be excused in accordance with the maxim that the law cannot compel the doing of impossible acts .(Cochin State Power and Light Corporation Limited v State of Kerala(AIR 1965)SC 1688).
Holding general meetings physically during the pandemic having been rendered impossible, the alternative mechanism of holding meetings virtually as devised by the MCA deserved to be respected, despite the fact the circulars had only persuasive value, they had the effect of ensuring substantial compliance with the law by companies through holding General Meetings virtually.
Rule 3 of the Companies (Meetings of Board and its Powers)Rules, 2014 makes safekeeping and marking tape recordings of Board meetings mandatory
As stated above, the present Act has made it possible to hold Board meetings virtually at which directors can attend meetings virtually from any part of the globe through video conferencing. Rule 3 of the above Rules lays down the procedure to be followed where directors attend virtually.
Rule 3(2)(b) of the above Rules ,specifies that there shall be safekeeping and marking the tape recordings or other electronic recording as part of the records of the company at least before the time of completion of audit of that particular year.
This requirement ensures that the video recordings are preserved for posterity at least till the completion of the audit for that year so that the auditors can also verify the conduct of such meetings.
The above requirement of recording and preserving the proceedings shall equally apply to virtual General meetings so that from the recordings of such meetings the Secretarial Auditors can glean whether the Meeting was conducted in consonance with the requirements of SS-2. Apart from this, shareholders who had attended the meeting virtually and seek, as per their rights a copy of the minutes of the proceedings from which they can make out whether the quintessence of what transpired at the meeting had been captured in the Minutes.
It is pertinent to note that the revised SS-2 was issued effective from 1.10.2017 and in as much as the law even on date contemplates holding of physical meetings of members, considering that SS-2 has mandatory force, no amendments with regard to holding of general meetings through VC could be put through unless the Act itself underwent a change. That is exactly why the ICSI had also as mentioned above,to perforce issue guidance notes from time to time during the pandemic so that the Standards would be in sync with the MCA circulars.
It is also important to note that the mandatory force which SS-1 and SS-2 carry has been recognized by Courts across the Country as also by the adjudicating authorities in the MCA leading to levy of hefty penalties on companies not complying with the requirements of the above standards.
To conclude recording the proceedings of General meetings held through VC is imperative although this is not expressly stated in the Act, given that the minutes of proceedings of such meetings are also to be constructed based on what transpired at the meeting basis the recording of the proceedings.
It is also pertinent to note that holding general meetings through VC has been made possible till September 30, 2024 and it is anticipated that the law would be suitably amended to make it possible to hold general meetings virtually or physically or in a hybrid manner depending upon the choice of the company. This is so on account of the fact that VC meetings have become the accepted norm for four years now.
It is also important to note that minutes of proceedings of meetings have evidentiary value in a court of law if there is enough evidence to support that the meeting was in fact held.The recordings of the proceedings of the entire general meeting would bear testimony to the fact that the Meeting was in fact held and business was transacted.
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