30 March 2018

BOARD MEETINGS THROUGH VIDEO CONFERENCING

The National Company Law Appellate Tribunal (NCLAT) in its order in Achintya Kumar Barua vs Ranjit Borthakur, 2018 recently clarified the ambivalence regarding the binding nature of the option of a Director on a Company to participate in a Board meeting through video conferencing or other audio visual means. This update briefly summarises the position of law after the judgement.

BRIEF FACTS:

1. Respondent No. 1, a director of W.G. Resorts Assam Private Limited (Company), had moved an application before the National Company Law Tribunal (NCLT) seeking the facility of attending Board meetings of the Company through video conferencing.
2. NCLT allowed the application filed by Respondent No. 1 directing that a video conferencing facility should be made available pursuant to Section 173(2) of the Companies Act, 2013 (New Act).
3. Appellants Nos. 1 and 3 are other Directors of the Company and the Appellants had filed this appeal on behalf of the Company.

CONTENTIONS:

1. It was the Appellants’ contention that if a director participates in the meetings through video conferencing, it would not be possible for the Chairman to ensure confidentiality with regards to the contents of the meeting as there could be some more people around who can observe the said Board meeting
2. It was also contended by the Appellants that the Secretarial Standards on Meetings of the Board of Directors had considered this aspect therein which prescribes that the option of video conferencing or other audio visual facilities should be resorted to only “if the Company provides such facility” and accordingly it did not seem to be mandatory to all the companies.
3. They also contended that the use of the word “may” in the above Section 173(2) of the New Act makes it clear that the provision is directory and not mandatory.

DECISION:

1. NCLAT denied the Appellants contentions on confidentiality and stated that it is the responsibility of the director to ensure the privacy of the said Board meeting.
2. NCLAT finds that these provisions have been introduced under the New Act and following these provisions would be in the interest of any company and its directors.
3. NCLT had come to the conclusion that the provisions of Section 173 (2) of the New Act are mandatory and companies cannot be permitted to deviate therefrom.
4. NCLAT found no reason to interfere with the NCLT decision and dismissed the appeal reiterating that provisions of Section 173 (2) of the New Act are mandatory.

NCLAT also brought attention to matters that specifically cannot be permitted to be conducted by Board meetings through video conferencing or other audio visual facilities, which are as follows:

• approval of annual financial statement;

• approval of the Board’s report;

• approval of the prospectus;

• audit Committee Meetings for consideration of accounts; and

• approval of matters relating to amalgamation, merger, demerger, acquisition and takeover.

In light of the aforesaid, companies have no choice but to provide their directors with video conferencing or other audio visual facilities for participation in a Board meeting in case they request for participation through such modes.

Also according to the Companies (Amendment) Act, 2017, a proviso, although not notified yet, has been added to Section 173 (2) of the New Act whereby even if the quorum is met through physical presence of directors, any other director can avail of his option to participate through video conferencing or other audio visual means and the company will have to arrange for the same. 

MHCO COMMENT:

The judgement has come in order to facilitate more participation of directors and resolve the issues arising out of wrong recordings of Board meetings.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance