Meetings - Implications of procedural irregularity?

Various kind of meetings are conducted in a Company as required under the provisions of Companies Act, 1956 and other corporate regulations, and it is also not a difficult issue to deal with the various kinds of meetings too. A new Company may have to conduct a statutory meeting and every company may have conduct Board Meetings, Annual General Body Meeting and Extraordinary General Body Meeting. Besides these meetings as specifically referred to in the Companies Act, 1956, a Company may have to conduct meetings upon the orders of Company Law Board and the Company Court at times. 

Companies Act, 1956 and other corporate regulations as applicable, provides for a detailed procedure for conduct of meetings. The primary object of conduct of meetings is to provide information to the shareholders if it is an AGM and transact business by getting the required resolutions passed. As everybody knows, certain decisions in a Company can only be taken by the shareholders in their Annual General Body Meetings or Extraordinary General Body Meetings. Certain other decisions can be taken by Directors being the agents of the Company and as trustees of shareholders. There may also be a requirement of getting further permissions from the authorities like Central Government when a decision is taken by the Company or by the Board.

We have detailed regulations governing the issue of conduct of meetings in a Company and besides the regulations, ICSI prescribes Secretarial Standards and SS-1 and SS-2 specifically deal with meetings. There is no ambiguity when it comes to the procedure to conduct meetings in a Company. As I feel, the core secretarial practice is about assisting the Company or the Board in conducting the meetings and ensure compliance of all the requirements of Company Law.

I want to express my opinion on an issue as to what happens if there is a procedural irregularity in conducting a meeting and the implications thereon. 

The provisions of Companies Act, 1956 and other relevant corporate regulations provides for a penalty or fine for non-compliance of certain provisions while a Company conducts a meeting. The issues pertaining to conduct of meetings in a Company may appear simple, but, there are complicated and interesting issues like: 

As there is a provision for penalty for a procedural irregularity, does it mean that a Company can conduct a meeting without following the procedure and escape by paying fine or penalty? 

The answer is very clear that it is not so. The issue of imposing penalty on the ‘officers in default’ while conducting the meetings and the issue of validity of a meeting or a decision taken at the meeting, are two different things altogether.

Who are all interested and who normally questions the procedural irregularities in a Company while it conducts a meeting?

          Shareholders and the creditors are the interested parties besides the guards of shareholders’ interest like Trustees, the Registrar of Companies, Company Law Board, SEBI, Stock Exchanges etc. It is very very rare to see an authority in probing into the irregularities in a company and that to an irregularity in conducting a meeting. When it comes to Company Law Board and the Company Court, it may have to probe into all the connected issues in a Company when an issue is to be adjudicated upon. Besides the shareholders and the creditors, it is very difficult to conclude as to who are all interested in a Company and can question the irregularities though we can find lot of academic work on that.

Practically, a shareholder or a minority group will question the irregularities in a Company including a procedural irregularity by the Company while it conducts a meeting. We can see the shareholder participation and vigil more in a Company if it is a private limited company or closely held public company or an unlisted public company. When it comes to largely held listed public companies, substantial shareholders, institutional investors and creditors will keep a watch on the company and its business. It is so logical and based on the stakes or capital, or the market capitalization of a Company.

        Besides the directly interested parties as referred to, at times, even an outsider may question the irregularities in a Company in an indirect way and he may limit his challenge to a particular board meeting or a transaction at a meeting. For example, there is an agreement between the Company and a third party and when there comes a dispute between the Company and the third party as referred to, the third party may even question the manner in which the decision was taken by the Company etc. It’s a complicated dimension and it happens practically though we may not clearly link an outsider as an interested party to question the procedural irregularities in a Company while it conducts a meeting.

        Thus, in my opinion, it is very clear that shareholders, creditors, authorities, directors and at times, even a party to a particular transaction, can question the procedural irregularities in a Company while it conducts a meeting.

Can it be said that a meeting is illegal due to simple procedural lapse?

          The interesting issue is as to whether it can be said that a meeting is illegal due to a procedural lapse. Obviously, if there is a procedural lapse while conducting a meeting, then, the meeting is illegal and when the meeting itself is illegal, then, it can not be said that the business transacted in an illegal meeting as legal. If we think straight and apply the law, then, when there is procedural lapse or irregularity, the meeting and the business transacted at the meeting is illegal.

          But, the practical application of law is complicated and the issue is not simple. Equity often comes into play.  When it is very clear that the intention of the Board or the officers who conduct the meeting is good, the meeting can not be said as illegal due to simple procedural lapse. However, the officers in default may have to pay the fine or face the penalty for not complying with the law. But, when there is a serious dispute between the majority and minority in a Company, then, the issue of procedural lapse plays a very crucial role in ascertaining the reason behind the procedural lapse.  Again, when a party to a contractual transaction with the Company, harps on the simple procedural lapse on the part of the Company, he may not be encouraged.   

        Thus, the intention of the Company, Board of Directors and majority shareholders will be looked into while deciding as to whether a procedural lapse leads to declaring a meeting in a Company as “illegal” or not.

        Company Law is very very complicated and in order to avoid complications, it is advisable for the Companies not to neglect the procedural requirements while it conducts a meeting.

        Company Secretaries should play and plays a commendable role in ensuring good governance in a Company.  

Note: I have just expressed my opinion. I have given a small and simple brief at the issues touching the conduct of meetings in a Company and I am of the opinion and aware that every aspect of Company Law is very interesting, vast and complicated.