Short Note on Chairman of the Company

INTRODUCTION

The term “Chairman/Chairperson” is not defined under the Companies Act, 1956. The Chairman is a necessary element of company meeting and is usually appointed by the articles of the company. Generally Chairman is higher post in the company, who represent the management of the affairs of the company. Until a Chairman is elected, the president of the company usually acts as de facto Chairman. By-laws are usually written so that the Chairman’s role is automatically filled by a high ranking officer, usually president and/or CEO, until a Chairman is elected and in the event of vacancies. The bylaws of a company will generally define any reserved rights or duties for the Chairman. Chairmen generally are elected by the Board of Directors and preside at Board meetings and at shareholders’ meetings. Chairmen frequently serve as officers of the company as well and in some cases are ex officio members of committees.

APPLICABLE LAW

The provisions of Chairman used under different laws, rules and regulations are given hereunder:

1. Section 175, Section 177, Section 178, Section 193, Section 215 and section 292A of the Companies Act, 1956;

2. Regulation 50, 51, 52, 53, 74  and 76 of Table A to Schedule I to the Companies Act, 1956;

3. Clause 49 of the Equity Listing Agreement;

4. Secretarial Standard issued by ICSI; and

5. Notifications and Circulars issued by Ministry of Corporate Affairs.

CHAIRMAN OF THE BOARD MEETING

The term “Chairman” is not defined in the Act though regulation 76 (1) of Table A to Schedule I to the Companies Act, 1956 provides that the Board May elect a chairman of its meeting and determine the period for which he is to hold office. Generally, the directors elect one of them to be the chairman of the Board who continues to be as such until he ceases to be a director or some other director is appointed as the chairman. In Board meeting the mandatory requirement to become a Chairman is, he should be a member of the Board.

Normally, a chairman is a director who is authorised to preside over the Board and general meeting. In some companies, it is a practice to appoint an Executive Director namely the Managing Director or Whole Time Director as Chairman/Chairperson of the Board Meeting or General meeting and there are other companies who elect a Non-Executive Director, i.e. the director who is not in whole time employment or managing director as the Chairman/Chairperson of the Board or General Meeting.

In India, we have Board, which are chaired by managing directors, who are known as chairman-cum managing director (CMD). Which have also board, which are chaired by directors, who are not whole time directors. A CMD is sometimes called a whole-time chairman whereas a director, who is not a CMD of the company, is called part- time chairman. 

Regulation 76 (2) provides that if no chairman  is elected or if at any meeting the chairman is not present within five (5) minutes after the time appointed for holding the meeting the directors present may choose one among them to be the chairman of the meeting. The Chairman appointed in that meeting will continue as a chairman only for that meeting and he has same rights and responsibilities as the original Chairman have, if he will present.

Clause 49 (I) (A) to the Listing Agreement deal with composition of the Board of the company. It says that where the Chairman of the Board is a non-executive director, at least one-third of the Board should comprise of independent directors and in case he is an executive director, at least half of the Board should comprise of independent directors.

Provided that where the non-executive Chairman is a promoter of the company or is related to any promoter or person occupying management positions at the Board level or at one level below the Board, at least one-half of the Board of the company shall consist of independent directors.

CHAIRMAN OF THE COMMITTEE MEETING

The Board, while constituting any Committee, should also appoint the Chairman of that Committee, unless such appointment is to be made in pursuance of any other applicable guidelines, Rules or Regulations.

With regard to the chairman of the meetings of the various committees of the Board of Directors, Regulation 78 of Table A provides that (1) A committee may elect a Chairman of its meetings, (2) If no such chairman is elected or if at any meeting the chairman is not present within 5 (five) minutes after the time appointed for holding the meeting, the members present may choose one of their number to be chairman of the meeting.

As a matter of convention, the chairman of the meeting of the Board of Directors is a member on all the Board committees and he presides over all the committee meeting. However, the above provision of Regulation 78 or any corresponding provision in the articles of any company shall govern the appointment of the committee chairman.

CHAIRMAN OF THE AUDIT COMMITTEE

Pursuant to section 292A of the Companies Act, 1956 and Clause 49 of the Listing Agreement, an Audit Committee is required to be constituted. The Board, while constituting any Audit Committee, should also appoint the Chairman of that Committee. Its Chairman may be a managing director or whole time director or any other director, whereas in pursuance of clause 49 of the Listing Agreement, the Chairman of the Audit Committee shall be an Independent director. The Chairman of the Audit Committee must have to attend annual general meeting to provide any clarification on matter relating to audit.

CHAIRMAN OF THE REMUNERATION COMMITTEE

Pursuant to Explanation IV in Section II, to Part II of Schedule XIII of the Companies Act, 1956 and Clause 49 of the Listing Agreement, a Remuneration Committee is required to be constituted. The Board, while constituting any Remuneration Committee, should also appoint the Chairman of that Committee. In pursuance of clause 49 of the Listing Agreement, the Chairman of the Remuneration Committee shall be an Independent director whereas in pursuance of Schedule XIII the Chairman of the Remuneration Committee may be an non-executive Independent director including nominee directors, if any. The Chairman of the remuneration committee could be present at the Annual General Meeting, to answer the shareholder queries. However, it would be up to the Chairman to decide who should answer the queries.

CHAIRMAN OF THE GENERAL MEETING

Normally the chairman of the meeting of the Board of directors, if named in the articles of association or if appointed by the Board of Directors of a company for a specified period presides over all the general meetings of the company. In the absence of any provision in the articles of a company as regard to the election of a chairman of its general meeting, the common rule is that the candidate for the office of chairman should not preside over the election.  Any objection to the appointment of a chairman should be made immediately because otherwise any irregularity in the nomination may become cured by acquiescence.[Cornwall v. Woods, (1846) 4 Notes of Cases 555].

Section 175(1) states that unless the articles otherwise provide, the members present in person at a meeting shall elect on show of hand one of their members  to be the chairman. The articles of association of some companies contain provisions corresponding to the ones in Regulation 50, 51 and 52 of Table A about the appointment of chairman of the company’s general meetings. Otherwise, if regulations of Table A are not excluded, the said regulations apply.

Regulation 50 of Table A provides that Chairman, if any, of the Board shall preside as Chairman at every general meeting of the Company.

Regulation 51 of Table A says that, if there is no chairman or he is not present within 15 minutes after the appointed time of meeting or is unwilling to act as Chairman of the meeting, the directs present shall elect one among themselves to be the Chairman of the meeting.

Regulation 52 of Table A provides that if, at any meeting, no director is willing to act as Chairman or if no director is present within 15 minutes after the appointed time of meeting, the members present should choose one among themselves to be the chairman of the meeting.

So, it is clear that a member of the company can be a chairman of the general meeting, if he is elected by members as per Regulation 52 of Table A. If after the election of the chairman on a show of hands, poll is demanded, it must be taken forthwith and the chairman elected by show of hand will exercise the power of chairman till the poll is taken. [Section 175(2)] If a different person is elected as chairman on poll, then he will be the chairman for the rest of the meeting, if the articles are silent, the member can elect one among themselves as chairman of the meeting through a show of hands, unless the poll is demanded. Usually the permanent chairman is allowed a few minutes grace time, before another member is elected to the chair. Such a chairman appointed to chair the meeting the question gives way to the regular chairman upon the arrival of the latter, by vacating the chair.

A person who has been chosen to chair the meeting in the absence of the chairman may (but not necessarily) vacate if the chairman subsequently arrives. He can however be removed by the meeting by a motion of no confidence in the chair [Cornwall v. Woods, (1846) 4 Notes of Cases 555]. If such a resolution comes up, it is necessary for the person to step down from the chair, until the result of the voting is known.

ADJURNMENT OF MEETING BY CHAIRMAN

The chairman may adjourn meeting at his discretion when he feels that peaceful conduct of the meeting is not possible. While conducting meetings of the Board of Directors, the chairman has to give a sense of direction to the deliberations ensuring at the same time that he does not curb the freedom of expression of the directors to enable them to put forth their views on the business before the Board. There are some more point to be kept in mind with regard to the adjournment of meeting:

1. The chairman does not have the right to cancel or adjourn a meeting properly convened, except as provided by the articles and in accordance therewith.

2. The chairman has the right to adjourn a meeting when it is impossible to continue the   meeting, by reason of disorder or other like cause [John v. Ree, (1969) 2 All ER 274 at 290-291].

3. If the chairman attempts to adjourn improperly, the meeting may elect another chairman and proceed with business [National Dwelling Society Ltd. v. Skyes, (1894)].

4. Where the article provide that the chairman may, with the consent of meeting, adjourn the meeting, he may in his discretion refuse to adjourn, even though meeting may resolve to do so, but if the articles provide that he shall adjourn, he has no discretion but must adjourn, if so resolved by the meeting. [Salisbury Gold Mining Co. v. Hathorn, (1897)].

5. When in an ordinary meeting a poll is demanded on a motion to adjourn and such poll cannot be taken forthwith, the chairman has power to suspend the meeting with a view to its continuance at a later date after the result of the poll is known. [Jackson v. Hamlyn, (1953)].

6. An adjourn meeting is a continuation of the original meeting, and no new notice need to be given except in cases provided by the articles, cited with approval by Delhi High Court in S.P. Arora v. Roshanra Club, (1992). At the adjourned meeting, only such business as is left incomplete at the original meeting, can be dealt with unless new notice is properly given as required by section 171, 172 and 173. Resolutions passed at adjourned meeting are, for all purposes, to be treated as passed on the date on which they were in fact passed.

POWER OF CHAIRMAN

The Chairman has the powers under common law; such as (1) the power to bring the discussion on any question to a close. (2) the power to adjourn a meeting, if it is necessary, in his opinion, under any circumstances.

The chairman cannot arbitrarily dissolve or adjourn a meeting, and if he prematurely closes a meeting or adjourn a meeting, and if he prematurely closes a meeting or adjourns it, his act will be considered irregular and it will be open to the meeting to select another chairman and proceed with business. Like any other member he has an ordinary vote. But as regards the use of second or casting vote, he cannot exercise such a right, unless the articles of the company specially confer it to him as per Regulation 74(2) of Table A of Schedule I.

The decision of chairman of any subject or as to the validity of vote at a meeting are final and binding on the chairman or his successors at later stage. [Narayanan Chettiar (S.RM.S.T.) v. Kaleswarar Mills Ltd. (1951) 21 Com Cases 351].

When at the meeting, voting takes place by show of hands, the Chairman’s declaration as to the result of voting is a conclusive evidence of the resolution being passed or not. But there are two exceptions:

(a)When a poll is demanded, and

(b)When the declaration is without taking into account of the numbers or proportion of the votes recorded in favour or against the resolution.

Further the formalities such as the showing of hands must be complied with even when the motion is unopposed.

Section 178 states that a declaration by the chairman, in pursuance of section 177 that a resolution has been carried is conclusive evidence of the fact without proof of the number or proportion of the vote cast for or against the resolution. But if on the face of the declaration that the resolution is passed, it is clear that the statutory majority had not voted in favour, the chairman’s decision, it seems will not be conclusive.

The court will not normally interfere with bona fide decisions of the chairman unless there is an evidence of fraud of injustice.

POSITION AND RESPONSIBILITY OF CHAIRMAN

The chairman is having authority to conduct the business of the meeting in terms of the notice. Accordingly, he has to carry out the following duties:

(i) With the permission of chairman, each item of business will be moved for the consideration of the members.

(ii) He will give enough time to members to discuss and express their opinion and views on each of the proposal under consideration.

(iii) He has powers to close the discussion if sufficient time has been spent.

(iv) He has the powers to admit or reject an amendment to a resolution.

(v) Where there is a serious disorder, he has an inherent power to adjourn the meeting. However, he cannot arbitrarily close or adjourn a meeting.

(vi) He shall arrange for voting on every resolution and declare the result.

(vii) If the Articles give authority to the chairman to exercise a casting vote, he can cast a second vote in case of a tie as he consider appropriate

REMOVAL OF THE CHAIRMAN

In order to remove a chairman, the usual procedure would be for a member to propose a vote of no confidence in the chair and this move should be seconded by another member. The chairman would have the right to make a representation against the removal. The matter should then be put to vote. If he loses the vote, he should relinquish the chair. Thus, a chairman who has been elected by the meeting can be removed by the meeting [Booth v. Arnold, (1895) 1QB 571]. But where the company’s articles appoint the chairman, the meeting cannot remove him unless it is due to bad faith, impartiality or abuse of authority.

The articles of a company may govern the point and may provide for challenge to be made to a ruling of the chairman. The chairman should vacate the chair while the challenge to his ruling is debated.

(NOTE: The above article is given for the limited purpose of bringing awareness about the subject matter for readers.)

Regards

CS Ajay Mishra

Email: ajaygkp@gmail.com csajaygkp@gmail.com