[Case Study] Procedure of Conducting Board Meetings

Table of Contents

1. Board meeting

2. Provisions under the Companies Act 2013 for conducting board meetings

3. Section 173 of Companies Act, 2013 – Meetings of Board

3.1 Minimum Number of Board Meetings

3.2 Gist of section 173

4. Manner of Participation by Directors

5. Penal provision for any default/violation of section 173

5.1 Penal provision as per section 450 of Companies Act 2013

6. Regulatory actions

7. The relevant case law on this matter

8. Details of the company

9. Regulator’s inspection/checking procedure on compliance

10. Facts of the case

11. Show cause notice and personal hearing

12. The findings of the regulators on the submission made by PCS

13. The order passed by the Registrar of Companies

14. Conclusion

1. Board meeting

The board meeting in a company is a formal meeting of the directors of the company called to debate certain issues and problems and to make decisions to run the company smoothly in order to achieve the desired goals and objectives set. The meetings are held at definite times, at definite places. A board meeting is organized to solve some special issues, taking important decisions, or to make new policies, monitor the progress, taking note of the compliances and such other matters. No doubt planning a board meeting require a meticulous detailed preparation than the usual company / corporate events which are attended by the directors and at times, invites / experts called for the meeting for specific purposes.

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2. Provisions under the Companies Act 2013 for conducting board meetings

Since the companies are incorporated and registered under the framework of the Companies Act, the companies are mandatorily required to follow the laid down procedure of the provisions of the Companies Act, 2013. Relating to conducting of the board meeting in a company, the following are the laid down procedure / provisions under the Companies Act 2013.

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[Opinion] Consequences of failure to give notice for holding a board meeting under the Companies Act

3. Section 173 of Companies Act, 2013 – Meetings of Board

Following are the rules and conditions laid down by Companies Act 2013 which are mandatorily required to be followed and fulfilled by the companies and board of director of a company

3.1 Minimum Number of Board Meetings

As per section 173(1) of Companies Act 2013, “every company shall hold the first meeting of the board of directors within thirty days from the date of company incorporation and thereafter hold board meetings in such a manner that not more than 120 shall intervene between two consecutive meetings and should be a minimum number of four meetings every year.”

3.2 Gist of section 173

We can conclude the following from the above provision that:-

(i) Every company is required to hold the first meeting of the board of directors within 30 days of the date of company incorporation.
(ii) A minimum number of 4 meetings of its board of directors is required to be held every year in such a manner that not more than 120 days shall intervene between two consecutive meetings of the Board.
(iii) It is observed that the Central Government may by notification direct that the provisions of this subsection shall not apply to any class or description of companies.
(iv) The provisions related to a minimum number of board meetings apply to a company licensed under section 8 company only to the extent that the board of directors of such companies shall hold at least one meeting within every 6 calendar months.

4. Manner of Participation by Directors

As per sub-section (2) of section 173 of the Companies Act 2013, it says that “the participation of directors in a meeting of the board may be either in person or through video conferencing or other audiovisual means, as may be prescribed, which are capable of recording and recognizing the participation of the directors and recording and storing the proceedings of such meetings along with date and time: Provided that the Central Government may, by notification, specify such matters which shall not be dealt with in a meeting through video conferencing or other audiovisual means.”

5. Penal provision for any default/violation of section 173

Offences for default committed in section 173 of the Companies Act 2013, is not provided specifically in the Act. In such a case, the penalty will be imposable under section 450 of the Act as provided in that section. In this case also, the penalty would be levied for noncompliance as per section 450 of the Companies Act 2013.

5.1. Penal provision as per section 450 of Companies Act 2013

Section 450 of the Companies Act, 2013 spells out that if a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, Imitation or restriction subject to which any approval, condition, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be table to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.

6. Regulatory actions

To understand the regulatory action in cases of non-compliance relating to the conduct of board meeting, it would be worthwhile to go through a decided case law on this matter.

7. The relevant case law on this matter

We shall go through a case relating an adjudication order passed by the Registrar of Companies, Gujarat, Dadra & Nagar Haveli on 13th April 2020, in the matter of M/s. D J. Shah Investment Finance Private Limited of Gandhinagar, Gujarat, under section 454(3) of the companies act 2013 read with rule 3 of the companies (adjudication of penalties) rules, 2014 for violation of section 173(1) of the Companies Act, 2013.

8. Details of the company

D.J Shah Investment Finance Private Limited is a company incorporated on 1st June 1984 having its registered office at 619, Yash Kamal Building, Sayajigunj Vadodara Gujarat. The company falls under the jurisdiction of Registrar of Companies, Ahmedabad and the Registrar of Company is situated at Ahmedabad. The company operates in the securities, commodity contracts and other financial investments and related activities sector. The company had three directors on its board (being a private company)

9. Regulator’s inspection/checking procedure on compliance

As per sub-section (5) of section 206 of the Companies Act 2013, the Central Government carry out the inspection of the books of accounts of the company and after going through the records / documents of the company, the inspecting officer would take note of any non-compliance committed by the company. Such non-compliances would be reported by the inspector to the Registrar of Companies by way of submitting an inspection report.

Even if the inspection is not taking place, the Registrar of Companies (RoC) could go through the documents submitted (i.e. financial statements along with the Board report) by the company via e-filing done by the company at the MCA Portal and information could be gathered and where required the RoC could call for further information from the company in order to ascertain the facts.

10. Facts of the case

In this case, the regulators during their procedural scrutiny observed from the documents filed by D.J Shah Investment Finance Private Limited at the MCA portal – from the annual report submitted by the company in form MGT-7, that the company’s board meetings were held as listed below during the financial year 2017-18 (financial year ending as on 31/3/2018)

11. Show cause notice and personal hearing

12. The findings of the regulators on the submission made by PCS

After the hearing and the oral submissions made by the Learned PCS, the Registrar of Companies has observed from the transfer list of shares attached with MGT-7 filed under the Ministry of Corporate Affair portal vide SRN No. H25987967 dated 24-10-2019 approved through STP mode that date of board resolution i.e. 7.11.2017 as claimed by Learned PCS is not mentioned anywhere in the share transfer form attached with the annual return in form MGT-7 for the financial year 2017-18.

The Registrar of Companies further noted that the date of execution of transfer of shares as 07.11.2017 is mentioned therein, which may not assume board’s resolution date. It was also further felt by the proceeding officer hat this type of activity should be avoided since it revealed that company / directors have not performed their duly as prescribed under the companies Act 2013 and such ignorance of law should not be excused

The conclusions reached by the Registrar of Companies who is an Adjudicating officer
The following are the conclusions reached by the Registrar of Companies before he passed the order on this matter.

(a) Under the above circumstances of the case, the Registrar of Companies has reasonable cause to believe that the company and its officers have violated the provisions of the Act, 2013.
(b) The company has not complied with the provisions of section 173(1) of the Companies Act 2013 for which company and directors are liable to be penalized under section 450 of the companies Act, 2013 read with Rules made thereunder.

While adjudicating the quantum of penalty under section 450 of the Companies Act 2013, the adjudicating officer has taken into consideration the following factors with due regards – namely: -.

(i) The amount of disproportionate gain or unfair advantage whenever quantifiable made as a result of default.
(ii) The amount of loss caused to an investor or group of investors as a result of the default.
(iii) The repetitive nature of default,

The Presenting officer also, further submitted that with regard to the above factors to be considered while determining the quantum of penalty, it is noticed that the disproportionate gain or unfair advantage made by the company and its directors or loss caused to the investor as a result of the delay on the part of the company to redress the investor grievance are not available on the record.

Further to this, the Presenting officer also added that it is difficult to quantify the unfair advantage made by the company and its directors for the loss caused to the investors in a default of this nature.

The Presenting Officer further submitted that it is observed from the balance sheet of the company that as at 31.03.2021 that the paid-up capital if the company is Rs 8,50 lacs and the turnover is Rs. 93.76 lacs.

It is also observed that the company D.J Shah Investment Finance Private Limited is a subsidiary of Premier Solution Private Limited. Hence, the company does not fall under the ambit of a “small company”. In view of the above facts, the provisions of imposing lesser penalty as per the provisions of section 446B of the companies Act, 2013 do not apply to the company.

13. The order passed by the Registrar of Companies

Having considered the facts and circumstances of the case and submissions made by the Presenting officer and reply submitted by the company and its directors, vide letter dated 01-01-2022 along with oral submission made by the Learned practicing company secretary during the hearing and after taking into accounts the factors above, the Registrar of Companies imposed a penalty on company and its directors as per the table below for violation of section 450 of the Companies Act2013 by passing the adjudication order. The order also stated that the ROC is of the opinion that penalty is commensurate with the foresaid failure committed by the company and its directors.

1. Non-compliance reg. gap between Board Meetings more than 120 days during the financial year 2017-18.

(Penalty calculated for reg. gap between Board Meetings more than 120 days during FY 2017-18 between two Boards’ Meeting viz. 15-07-2017 & 12.12.2017)

2. The company and directors shall have to make the payment of penalty individually for the company and by its directors (out of their own pocket) by way of e-payment (available on Ministry website – www.mcs.gov.in) under “pay miscellaneous fees” category in MCA fee and payment services within 90 [ninety] days of this order and the challan/SRN generated after payment of penalty through online mode shall be required to be filed in INC-28 to the office of the RoC.

3. The order also stated that appeal if any against this order may be filed in writing with the Regional Director, North western Region, Ministry of Corporate Affairs, ROC Bhavan, Opp. Rupal Park, NR. Ankur Bus Stand, Namnapura, Ahmedabad, Gujarat, within a period of sixty days from the date of receipt of this order in Form ADJ setting forth the grounds of appeal and shall be accompanied by the certified copy of this order. [section 454 of the companies Act 2013 read the Companies (Adjudicating of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019.)

4. The order also stated the concerned parties may take note that as per the provisions of section 454(8) (i) of the Cornpones Act, 2013, where company does not pay the penalty imposed by the Adjudicating Officer or the Regional Director within a period of Ninety days (90 days) from the date of the receipt of the copy of order, the company shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to five lakhs rupees. Further as per of Section 454(8) (ii) of the Companies Act, 2013,where an officer of a company who in default does not pay the penalty within a period of Ninety days (90 days) from the date of receipt of the copy of the order, such officer shall be punishable with imprisonment which may extend to six months or with fine, which shall not be less than twenty five thousand rupees but which may extend to one lakh rupees or with both.

5. The order also further drawn the attention with respect to section 454[8) of the Companies Act, 2013 that in the event of noncompliance of this order, which provides that in case of default in payment of penalty, prosecution will be filed under section 454(8) (ii) the Companies Act, 2013 at the cost of the company and its officers without any further notice.

6. Finally the order ended with a note that the adjudication notice stand disposed of with this order.

14. Conclusion

From the above decided case, one can come to an conclusion, even though the a minimum number of 4 meetings of the company is conducted every year, it is mandatory that the meetings are to be conducted in such a manner that not more than 120 days shall intervene between two consecutive meetings of the board as required under the provisions of the Companies Act 2013.

It again goes to say that the company and its directors are to be very careful and ensure the absolute compliance called for under the provisions of the Companies Act 2013, failing which the regulators could take action against the company attracting fine and penalty and also spending considerable time on the matter to be resolved.

References:-
1. Companies Act 2013
2. Companies (Meeting of Board and its powers) Rules 2014
3. Companies ( Management and Administration) Amendments Rules 2021
4. Companies (Adjudication of Penalties) Rules 2014
5. Adjudication order dated 13th April 2022 passed by the Registrar of Companies, Gujarat, Dadra & Nagar Haveli in the matter of M/s. D J. Shah Investment Finance Private Limited of Gandhinagar, Gujarat, under section 454 (3) of the companies act 2013 read with rule 3 of the companies (adjudication of penalties) rules, 2014 for violation of section 173(1) of the Companies Act, 2013.