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

[2022] 143 taxmann.com 233 (Article)

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.

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.

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

3. Section 173(1) of the Companies Act, 2013

As per section 173(1) of the 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 a minimum of four board meetings in such a manner that not more than 120 days shall intervene between two consecutive meetings of the Board.”

4. Penal provision for any default/violation

As per the provisions of section 173 (4) of the Companies Act 2013, every officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty five thousand rupees.

5. Regulatory actions

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

6. The relevant case law on this matter

We shall go through a case relating to an adjudication order passed by the Registrar of Companies, Mumbai 19th July 2022, in the matter of M/s. Kris Packaging Systems Private Limited – Adjudication order No. ROC-(M) (RS) /ADJ-Order/191477 dated 19th July 2022 in the matter of Kris Packaging Systems Private Limited, for penalty under section 454 for violation of section 173(1) of the Companies Act 2013.

7. Details of the company

M/s. Kris Packaging Systems Private Limited, a company incorporated on 3rd April 2009 having its registered office at 65, Shanti Industrial Estate, Sarojini Naidu Road, Mulund West, Mumbai in the state of Maharashtra. The company falls under the jurisdiction of the Registrar of Companies of Maharashtra and the Registrar of Company is situated at Mumbai. The company is engaged in the manufacturing, supplying, exporters & solution providers of packaging products. The company is having two directors on its board.

8. Fact about the case

The following are the events which took place in this case.

(a) Pursuant to the provisions of section 173(1) of the Companies Act 2013, every company is required to hold the first meeting of the board of directors within thirty days of the date of its incorporation of the company and thereafter hold a minimum number of four meetings of its board of directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the board.

(b) As per the records available in the company, it is noticed that the company has failed to hold a minimum number of four meetings of its board of directors in the financial year 2019-20 in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the board during the financial year ended as on 31st March 2020 (i.e. during the financial year 2019-20).

(c) The board meeting for the previous quarter was subsequently held on 1st February 2019 and the next board meeting was required to be held on or before 1st June 2019. However, the board meeting was held on 21st June 2019 leading to a delay of 19 days.

(d) Further, the next board meeting was required to be held on or before 19th October 2019 but was held on 11th December 2019 with delay of 52 days.

(e) In both instances, the company has violated the provision of section 173 (1) of the Companies Act 2013, by not holding the board meeting within the prescribed time of limit of 120 days between the two board meetings.

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