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Can interested director be counted for constituting quorum?

Snigdha Das (CS) (46 Points)

15 April 2016

As per Exemption Notification dated 05.06.2015 (Exemption to Private Companies), Interested Directors can participate and vote in the Board Meeting in which they are interested after disclosing their interest at the meeting but cannot be counted for the purpose of quorum.

Say in XYZ Pvt. Ltd. there are 3 Directors and all of them are interested, then how will the quorum be fulfilled???

According to my view, Section 174(3) provides that “Interested Director” means a director within the meaning of Section 184(2). Therefore, where Section 184(2) itself is exempted for Private Companies, then Interested Director should be counted for the purpose of quorum.

Please correct me if I am wrong.

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10 Replies

Mandar (Associate) (561 Points)
Replied 15 April 2016

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Snigdha Das (CS) (46 Points)
Replied 16 April 2016

Dear Mr. Mandar

Thanks for your reply.

But Please see the Notification dated 05.06.2015 Point No.13. It Exempts Section 184(2).

As per the Notification dated 05.06.2015, Interested Directors may participate in the Board Meeting in which they are interested after disclosing their interest at the meeting.

Further, the Directors are also shareholders in the Company but I do not see a problem in that since as per the Notification dated 05.06.2015, second proviso to sub-section (1) of section 188 shall not apply to Private Companies, i.e. a member of the company can vote on special resolution to approve any contract or arrangement which may be entered into by the company, if such member is a related party.

The Company is not willing to appoint any Additional Director.

I would like to stress on the point that Section 174(3) provides that “Interested Director” means a director within the meaning of Section 184(2). Therefore, where Section 184(2) itself is exempted for Private Companies, then Interested Director can be counted for the purpose of quorum.

1 Like

Mandar (Associate) (561 Points)
Replied 16 April 2016

Pratik Shah (Practising Company Secretary) (4432 Points)
Replied 16 April 2016

They can surely be counted for the Quorum. E.g. If two directors are there, and both are interested in specific contract, they can pass resolution for such contract after disclosing their interest.

Intention of giving exemption is to ensure that atleast closly held company (pvt co) will be able to pass resolutions, because Pvt Co usually have transactions with related parties.

3 Like

sunitashaw (Company Secretaries) (76 Points)
Replied 16 April 2016

Yes, i think Pratik is right.

I have one query

Interested Directors can disclose their interest in Form-MBP 1 ????

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Pratik Shah (Practising Company Secretary) (4432 Points)
Replied 16 April 2016

If they have already disclosed their interest as per Section 184 in Form MBP-1 at the first board meeting of Financial year, they do not need to again give MBP-1 again for this meeting. Such directors just need to intimate about their interest for such contract. So that, the Company will be able to take note of Directors' interest in the minutes of such meeting. However, it would be good if they give disclosure in MBP-1.

2 Like

Karan (Apprentice) (33 Points)
Replied 18 April 2016

A company having two directors A & B, and they are husbund and wife, now they want appoint their son on the Board of the Company. can they appoint in the Board meeting as an Additional Director?

Thanks

Pratik Shah (Practising Company Secretary) (4432 Points)
Replied 18 April 2016

Yes.100%. They can appoint their Son as Additional Director.

Karan (Apprentice) (33 Points)
Replied 18 April 2016

Thanks Pratik Shah

Geetha Gupta (Accountant) (325 Points)
Replied 03 March 2017

Hi everybody,

Ques 1.

Quoting

"A company having two directors A & B, and they are husbund and wife, now they want appoint their son on the Board of the Company."

Assume this is a private limited company.

So the ques is - In this situation, even if all the directors are interested parties, can they be the quorum in the board meeting because of the Notification dated 05.06.2015 Point No.13 which Exempts Section 184(2). Only that they need to mention their interest to the board ??

if so, what would the wordings be - to indicate the interest

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Ques 2. If the husband and/or wife want to transfer some shares to the son, again the husband and wife will be interested directors. Will they be quorum in the board meeting to approve the resolution for transfer of shares?

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Regards,

Geetha