The Companies Act of 2013 is a significant milestone in the legal framework governing all Indian-incorporated companies. This legislation extends its influence far and wide, impacting businesses nationwide. The Act adopts an outward-looking perspective and intends to align India’s corporate regulations with international standards. It is poised to serve as a blueprint for a more contemporary legal framework that fosters growth and opportunities in India’s corporate sector.
A core objective of the Act is to promote self-regulation, elevate corporate governance standards, simplify the business environment, enhance transparency, and safeguard the interests of investors, particularly those with modest holdings.
The Companies Act of 2013 became partially effective on September 12, 2013. It was passed by the LokSabha (the lower house of the parliament) on December 18, 2012, and by the RajyaSabha (the upper house of the parliament) on August 8, 2013. The President of India granted permission to it on August 29, 2013. Subsequently, on August 30, 2013, the “Ministry of Law and Justice” published the Companies Act 2013 in the official gazette.
This comprehensive legislation governs listed and unlisted companies in India, comprising 29 chapters, 470 sections, seven schedules, and 95 definitions. Additionally, the new law extensively incorporates subordinate legislation in the form of rules, notifications, and circulars, which are integral to its regulatory framework for companies in the country.
The primary objectives behind the enactment of the New Companies Act 2013 include:
- Introduction of the concept of One Person Company (OPC) to facilitate ease of doing business.
- Enhancement of penalties for regulatory compliance.
- Streamlining the Act to make it more concise, reducing its complexity with 470 sections, 29 chapters, and 7 schedules.
- Introduction of corporate governance principles to enhance director accountability and transparency.
- Establishment of a whistleblower mechanism to promote reporting of corporate wrongdoing.
Understanding the Meaning of “Quorum”
Quorum” is a vital concept in meetings and assemblies, representing the minimum number of participants required for the gathering to be considered valid and for its proceedings to have legal standing. It is crucial in ensuring that decisions and actions taken during a meeting are legitimate and binding.
In other words, “quorum” refers to the minimum number of members required for a meeting to be considered valid and for business transactions to be legally conducted. According to Secretarial Standard 2, it is the essential presence of members needed for a meeting to proceed. In its 9th Edition (Page 1370), Black’s Law Dictionary defines “quorum” as typically being a majority of all members required to be present in a deliberative assembly to lawfully conduct business.
In essence, the quorum represents the absolute minimum number of members who must be in attendance at a meeting for its proceedings to hold any legal weight. If the quorum is not met, the meeting’s actions and decisions would be considered null and void. It’s important to note that the quorum must be maintained throughout the entire meeting, as outlined in paragraph 3.1 of Secretarial Standard 2.
Legislative Context
The explanatory notes accompanying the Companies Bill of 2011 provide insights into Clause 103. This clause is akin to Section 174 of the Companies Act of 1956 and aims to establish quorum requirements for company meetings. Quorum, in this context, Quorum hinges on the number of members on record as of the meeting date. For public companies, the quorum is determined as follows:
- If the number of members is not more than one thousand, a minimum of five members must be physically present to constitute a quorum.
- If the member count ranges from more than one thousand to up to five thousand, the quorum requires the presence of fifteen members in person.
- If the member count exceeds five thousand, then thirty members must be present in person to meet the quorum requirement.
Private companies, on the other hand, have a quorum requirement of just two members being physically present at a meeting. Clause 103 also outlines that if the quorum is not met within half an hour of the scheduled time, the meeting will be adjourned to the same time and place the following week, or as decided by the Board. However, meetings called by requisitionists will be cancelled if a quorum is not attained.
In the case of an adjournment or a change in the meeting’s day, time, or place, the company must provide at least three days’ notice to its members. Should a quorum not be achieved in the adjourned meeting, the members present will constitute the quorum.
Quorum Requirements for Public Companies
Sub-section(1)(a) of Section 103 of the Companies Act outlines the quorum requirements for public companies, which are contingent on the total number of members. If, on the day of the meeting, the member count is:
- Up to one thousand, a quorum necessitates the physical presence of at least five members.
- Between one thousand and five thousand, a quorum requires the presence of fifteen members in person.
- Exceeding five thousand, a quorum mandates thirty members to be physically present.
It’s important to note that the articles of a public company have the flexibility to establish a higher quorum requirement than what the Act mandates. In such instances, the company must adhere to the quorum specifications outlined in its articles.
Quorum Requirements for Private Companies
For private companies, the quorum is established at a minimum of two members who must be physically present, as stipulated in subsection (1)(b) of Section 103 of the Companies Act. Private company articles are allowed to set a higher quorum requirement than what is mandated by the Act. In such situations, the company must adhere to the quorum specifications outlined in its articles.
Importantly, it’s essential to have the quorum at the commencement of the meeting and maintain it throughout the entire duration of the meeting while conducting business.
Inclusion of Individuals in Meeting Quorum
To establish the quorum, a physically present member is counted as part of it. Proxies, however, are not considered when determining the quorum. Section 112, subsection (2), and Section 113, subsection (2) clarify that duly authorised representatives of the President of India or the Governor of a State and representatives of a body corporate are deemed to be members personally present.
In terms of joint shareholders, they are collectively counted as one for quorum purposes. Under the provisions of the articles, any one of the joint holders present at a meeting has the right to exercise voting power and is counted towards the quorum. However, only one among the multiple joint holders will be entitled to exercise voting power. Regulation 52 of Table F in Schedule I specifies that the senior holder, determined by the order of names in the register of members, has the exclusive right to exercise voting rights, excluding other joint holders.
Consequences of Insufficient Quorum
In the event that the required quorum is not present at a general meeting (excluding requisitioned meetings under section 100), the meeting will be adjourned. The adjourned meeting is typically scheduled for the same day or in the following week at the same time and location. Alternatively, the board may decide on an alternative day and time for the adjourned meeting, provided it is not a national holiday.
However, the meeting will be cancelled for meetings called by requisitionists if the quorum is not met within half an hour of the scheduled start time.
Sub-section (3) of Section 103 of the Companies Act further specifies that if the quorum is still not met within half an hour of the adjourned meeting’s scheduled time, the present members will constitute the quorum. Additionally, Secretarial Standard-2, in Para 15.4, emphasises that at an adjourned meeting, the number of members must not be less than two.
It’s important to note that only the pending business from the original meeting is considered at an adjourned meeting. The Department’s standpoint is that a single individual cannot form a quorum at the adjourned annual general meeting, as per Letter No. 8/16(1)/61-PR dated 19/5/1961. If resolutions are passed in the absence of a valid quorum, such resolutions may be subject to challenge in court. However, parties who acted based on these resolutions may be protected under the doctrine of indoor management.
Notice for Adjourned Meetings
According to the proviso in sub-section (2) of section 103 of the Companies Act, if the board of directors decides to adjourn the meeting to a date, time, or location different from what’s specified in clause (a) of sub-section (2) of section 103, the company is obligated to provide a minimum of three days’ notice to its members. This notice can be delivered individually or through publication in newspapers (one in English and one in the vernacular language) that circulate near the company’s registered office.
Penalties and Compoundability
In the event of non-compliance with the provisions of sub-section (2) of Section 103 of the Companies Act, which relates to the statement to be included in the notice, any officer of the company found at fault can face a fine, the maximum of which is five thousand rupees.
Similarly, suppose an officer of the company knowingly issues or willfully authorises or permits the issuance of such invitations, as mentioned in subsection (5). In that case, they can be penalised with a fine that can extend to one lakh rupees.
It’s important to note that these offenses in both sub-sections, which are only punishable by fines, are eligible for compounding under section 441 of the Act.
Conclusion
To sum up, Section 103 of the Companies Act addresses the vital aspect of quorum requirements for company meetings, be it public or private companies. It establishes clear guidelines for determining the minimum number of members needed for a meeting to proceed legally and efficiently. The section also outlines the consequences of failing to meet the quorum and the procedures for adjourned meetings.
Additionally, it provides provisions for notifying members about changes in meeting schedules and locations, ensuring transparency and compliance with legal obligations. Furthermore, Section 103 of the Companies Act specifies penalties for non-compliance, which can be compounded under certain circumstances.
Overall, Section 103 of the Companies Act plays a crucial role in maintaining the integrity of company meetings, safeguarding the rights and interests of shareholders, and promoting corporate governance and transparency within the framework of the Companies Act. It stands as an essential pillar in the foundation of corporate governance in India.
Frequently Asked Questions (FAQs)
A “quorum” refers to the minimum number of members or participants required to be present at a meeting for that meeting to be considered valid and have the authority to make decisions or take actions.
Yes, the quorum requirement can vary for different types of meetings. Annual general meetings (AGMs) often have specific quorum requirements, while other types of meetings may have their own stipulations.
The company’s articles of association typically determine the quorum for a meeting, and it should comply with the statutory minimum requirements as outlined in Section 103. If the articles are silent on the matter, the statutory provisions apply.
For public companies, the quorum for general meetings is usually a minimum of five members personally present if the number of members is up to 1,000, and 15 members if the number of members is more than 1,000. Private companies may have different quorum requirements as per their articles.
No, a meeting cannot proceed unless the quorum requirement is met. The meeting may be adjourned if the quorum is not achieved within a specific time after the scheduled start.
Yes, a company’s articles can prescribe a higher quorum than the statutory requirement. Still, they cannot prescribe a lower quorum than what is specified in Section 103 of the Companies Act.
Yes, members can be counted as part of the quorum if they are represented by a proxy, as long as the proxy is valid and in compliance with the relevant provisions of the Act.
Electronic participation, where allowed by the company’s articles, can count toward the quorum if the articles explicitly permit it.
Yes, quorum can be counted during virtual meetings if the articles of association allow for virtual meetings and specify the procedures for counting quorum in such cases.
As per Section 103 of the Companies Act, if the quorum is not met within the prescribed time, the meeting may be adjourned to a later date. Notice of the adjourned meeting must be given, and the adjourned meeting can proceed with the members present, regardless of the quorum.
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