Introduction
1. With the lapse of time information technology continues to impact on day to day activities whether it is banking, communication, etc. Thus, it is impracticable for corporate world to remain untouched by it. With rapid change in business environment, it has become absolutely necessary for corporate world to keep pace with information technology or even advanced/modern technologies. In India, the business environment is also changing very fast and the intellectual persons around the world are joining the Indian Boards. Thus, it is necessary to have free accessibility to them through a legally recognised channel. And there lies the requirement of a video-conferencing and e-voting system.
Reference of Information Technology Act, 2008
2. The Information Technology Act 2008 (the Act’) was enacted to pave way for legal recognition of electronic data. Section 13 of the Act inter-alia provides time and place of dispatch of notices in electronic mode, which may be applicable for the purpose of notice period provided in the Companies Act, 1956 or in the article of association of the company. Thus, the Act aims to make it recognised under the Indian Penal Code, the Indian Evidence Act, the Bankers Book Evidence Act, the Reserve Bank of India Act etc. Therefore, the corporate world has become bound to align with other Acts.
Reference to Companies Act, 1956
3. The Companies Act, 1956 (‘the 1956 Act’) was centered either on the provision of passing resolution by circulation mode or passing of resolution by board meeting only. Still there were many items, which were required only to pass through duly convened Board meetings. Therefore, there was very limited scope to incorporate the applications related to use of video-conferencing, e-voting and other electronic data transmission, electronic data storage, etc. Thus, under the heading of ‘Green Initiative’, government tries to impose rules relating to video-conferencing. Therefore, in absence of clear guidelines relating to electronic data interface, it cannot be implemented on a large scale. The aim of introduction of video-conferencing system via ‘green initiative’ route was to provide larger participation and to curb the cost borne by the company and its shareholders to attend general meetings. Therefore, there was a great demand from the Companies Act, 2013 (‘2013 Act’) to appropriately put the provisions relating to electronic data interface including e-voting, video conferencing, etc.
Reference to Companies Act, 2013
4. Due to the several backdrops found in the 1956 Act, the 2013 Act provides a number of sections, rules, etc., on electronic data capturing and processing inter-alia including video conferencing facility and other audio-visual means. Sub-section (2) of section 173, of the 2013 Act specifically prescribes the provision relating to participation of directors in the Board meeting through video-conferencing or other audio-video means. Section 108 of the 2013 Act prescribes specific conditions for voting through electronic means. Under this section, certain class of companies is allowed to hold their general meeting and the members are required to be present either in person or by electronic means. Beside rules 3 and 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 prescribe a detailed method and allied matter relating to participation through video conferencing in Board meeting. The 2013 Act entails some of the important points to be considered while opting for video conferencing, e-votes, etc.
Responsibility to conduct Board meeting through video-conferencing
5. Responsibility to conduct Board meeting through video conferencing is directly related with the authority to call Board meeting. Sub-section (4) of section 173 of the 2013 Act, corresponding to sub-section (2) of section 286 of the 1956 Act, prescribes the authority to call Board meeting. Whereas the responsibility to call Board meeting is on chairman or company secretary, if authorised by the Board to issue notice, responsibility of smooth conduct of meeting through video-conferencing rests jointly on chairperson and company secretary. Both of them shall ensure that there is free and smooth conduct of Board meeting.
Express intimation of video-conferencing facility from convener to director(s) and vice-versa
6. It is an important pre-condition that there has to be prior intimation regarding availability of video-conferencing or any other audio-visual option. But one must note that the intimation has to be given to all the directors. It should not be restricted to any single director. The basic principle of corporate governance, i.e., transparency must be applied strictly. Equal opportunity has to be given to all the concerned directors and any non-compliance would invalidate the Board meeting. Further, to note that the director(s) who intends to participate through video-conferencing or any other audio visual means is required to intimate his/her decision either to the chairperson or the company secretary of the company. Therefore, it is presumed that the intimation/confirmation have to be from both sides.
Requirements as to effective participation and safekeeping of proceedings of meetings
7. The 2013 Act recognizes the use of information technology in day-to-day company affairs. Thus, video-conferencing or audio-visual means also got recognition as the data flowing through these systems can be stored. As per the provision of sub-section (1) of section 173, video-conferencing or other prescribed audio-visual means should be capable of recording and recognising the participation of the directors and of recording and storing the proceedings of such meetings along with date and time.
Compliances to be observed before starting of Board meeting through video-conferencing
8. Keeping in mind the sensitive nature of Board meetings conducted through video-conferencing, a brief stepwise procedural compliance is as follows :
i. A roll call system is mandatory for Board meetings via video-conferencing. Here most important role of chairman/company secretary lies. It will be a duty of chairman/secretary of Board meeting to call the name of each and every director, their location of participation, i.e., the name of the place from where the director participates through audio-visual means. At the time of roll call, the chairperson/company secretary should confirm from each and every director, regarding the receipt of notice, agenda and papers regarding Board meeting including notes on agenda, etc. Vice-versa the participator shall also confirm on their behalf that they have received all the required things and no other person is having access to the proceedings of Board meeting conducted through audio-visual means.
ii. Thereafter, the name of person, other than directors present at the meeting to assist the physically disabled directors, should be read out and subsequently should be taken into account after confirmation from the concerned authorised representative.
iii. The chairman /company secretary shall confirm that the required quorum is present throughout the proceedings of the meetings.
iv. Thereafter all the required statutory registers shall be placed at the scheduled venue only.
v. Agenda items shall be taken one by one.
vi. Before recording any statement on any particular agenda item, each director has to identify himself.
vii. At the end, the chairperson shall announce the summary of the Board meeting and the decision taken on such items, along with the name of directors, who had dissented from the decision taken in the Board meeting
Procedure for convening the Board meeting through video-conferencing or other audio-visual means
9. Keeping in mind, the nature of sensitiveness of Board meeting though video conferencing, a strict compliance and comprehensive manner is prescribed under the 2013 Act. As the person, intending to avail audio-visual means to attend Board meeting, shall have remote access to Board meeting connected through complex IT mechanism, it would be necessary to maintain the channel free from any kind of disruption. Any kind of disruption, illegal intervention would just invalidate the Board meeting and shall reduce the productivity of Board meetings. Some of the important points for smooth convening of Board meeting through video-conferencing are as follows:
i. Proper and sufficient infrastructure and mechanism should be in place, so that there should not be any failure of video or audio-visual connection during the Board meeting.
ii. Proper security and safeguard measures must be applied, so as no other person could infiltrate in the proceedings and proper mechanism shall apply for maintenance of security and integrity of Board meeting. Proper streaming/telecast infrastructure should be there, so that everyone at the Board meeting whether present in person or present through videoconferencing could identify each other.
iii. Ensuring effective participation by directors or other authorised persons shall be primarily a sole responsibility of chairman of the meeting and where there is a company secretary, then it shall constitute a joint responsibility of chairman of the meeting and the company secretary.
iv. There should be proper recording of proceedings and minutes should be prepared accordingly.
v. Apart from the preparation of minutes, the tape recordings or other audio-video recordings should be kept safely. The recordings should be marked according to the date of the Board meeting. The recordings should be kept safely as long as possible but not to be damaged before completion of audit of that year.
vi. It will be an important pre-condition that the transmission of proceedings should be free of any kind of outsider/unauthorized access. Unauthorized access would simply make Board meeting an invalid one.
vii. The voice as well as picture quality of transmission should be of good quality so that one can recognize other as well as understand the voice of other participant members.
Attending of Board meeting other than by director
10. It is a basic and most important principle that only directors and company secretary are eligible to participate in Board meeting and no outsiders should have any direct or indirect access in the Board meeting, whether in person or conducted through video conferencing. Only one exception lies in the relevant rules of Companies Act and that applies for differently able. In that case the concerned person or director may make a request to the Board of directors to allow only one person to accompany him/her. But this rule does not bind the final decision of Board. And it is a prerogative power of Board to allow or not to allow a person other than the director.
Annual declaration by director to participate through electronic means only
11. This facility has solved the problem of directors residing abroad or the person who is not physically fit and is not able to attend the Board meeting in person. A director residing at foreign location(s) or any other director who wish to participate through video-conferencing or other audio-visual means may intimate his/her decision in the form of a declaration at the beginning of the calendar year and such declaration shall be valid for one calendar year. In the absence of any intimation, it will be presumed that the director shall attend the meeting in person.
Matters exclusively not to be dealt in a meeting through video-conferencing or audio visual means
12. Some of the crucial matters that require detailed and elaborate discussion and even also the clarification on various aspects are expressly excluded from the matters to be dealt in a meeting through video-conferencing or audio visual means. The negative list is as follows :
- The approval of the annual financial statements
- The approval of the Board’s report
- The approval of the prospectus
- Meetings of audit committee for consideration of accounts
- The approval of the matter relating to the amalgamation, merger, demerger acquisitions and takeovers.
Other uses of information technology to include e-voting mode
13. In the era of information technology uses of IT have gone to an incredible level and they apply on various new formats. According to rule 20(1) of the Companies (Management and Administration) Rules, 2014, companies are mandatorily required to adopt e-voting methodology: every listed company and every company having not less than one thousand shareholders. However, there is no such limit or restriction on use of video-conferencing for meetings. But extensive precautions need to be taken while applying these technologies.
Conclusion
14. Being an advantageous option granted by the 2013 Act, it should be applied with meticulous secrecy. The option is set to be a productive concept, since it will help to smooth functioning of Board of directors.
Courtesy:claonline
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