Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
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.
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.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
