Chapter 4 Board Processes through Secretarial Standards – CS Professional Governance Risk Management Compliances and Ethics Notes is designed strictly as per the latest syllabus and exam pattern.
Board Processes through Secretarial Standards – Governance, Risk Management, Compliances and Ethics Study Material
Write short note on:
Matters that cannot be discussed in a Board meeting conducted through Video-conferencing. (Dec 2020, 3 Marks)
The following matters shall not be dealt with in any meeting held through video conferencing or other audio visual means.-
- the approval of the annual financial statements;
- the approval of the Board’s report;
- the approval of the prospectus;
- the Audit Committee Meetings for consideration of financial statement including consolidated financial statement if any, to be approved by the board under sub-section (1) of section 134 of the Act; and the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
Provided that where there is quorum presence in a meeting through physical presence of directors, any other director may participate through video conferencing or other audio visual means.
Relaxation to consider restricted items at Board Meetings held through Video Conferencing The Companies (Meetings of Board and its Powers) Rules, 2014 were amended to provide relaxations till 30th June, 2021 in holding Board meetings with physical presence of Directors for approval of restricted matters prescribed under Section 173(2) of the Act read with Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014.
Accordingly, up to 30th June 2021, following restricted matters can be dealt in Board meetings held through video conferencing or other audio-visual means by duly ensuring compliance of Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014.
(i) KLM Ltd. in its 64th Board meeting held on 30th June, 2019 has constituted Risk Management Committee with objective of mitigation of risk and recommendation of preventive measures comprising of two Independent Directors and one Whole Time Director. In the first Meeting of the Committee held on 6th July, 2019, Whole Time Director could not be present and sought the leave of absence. The Board proposal about the constitution was silent with respect to Chairman of the Committee and quorum of the Meeting of Committee. The remaining two members held the Meeting and the Senior most Director present in the Meetihg was selected as Chairman of the Committee. The Committee also approved the policy for Systematic Risk Management. Whether, the decision of the Committee is valid in light of the approved Secretarial Standards as issued by the ICSI? (Dec 2019, 5 marks)
The Secretarial Standard 1 (SS-1) deals with the Meetings of the Board of Directors.
Clause 3.5 of Secretarial Standard 1 (SS-1) which relates to the Meetings of Committees provides as under:
“Unless otherwise stipulated in the Act or the Articles or under any other law, the Quorum for Meetings of any Committee constituted by the Board shall be as specified by the Board. If no such Quorum is specified, the presence of all the members of any such Committee is necessary to form the Quorum”. In the given case Of the company KLM Ltd, it is mentioned in the question itself that “The Board proposal about the constitution was silent with respect to Chairman of the Committee and quorum of the Meeting of Committee”. Since the quorum was not specified, hence as per the clause 3.5 of SS-1, where no such quorum is specified, the presence of all the members of such committee is necessary to form the quorum. Therefore, the meeting was held by the Risk Management Committee (RMC) without the presence of adequate quorum and in view of this the decision taken by the RMC is also invalid.
ABC Ltd., is a Joint Venture between an Indian Company and a Multi-National Company. In present Covid pandemic situation, a Board Meeting through video conference was held on 29th October, 2020 at a shorter notice of 3 days. One of the agenda items was approval of the financial statements for the quarter ended 30th September, 2020.
One of the Directors joined late in the Board Meeting and was not present while discussing one agenda item. None of the Independent Directors were present.
The Company needs funds and is proposing to issue rights shares. Board recommended increase in authorised share capital as well as approved convening of an EGM through Video Conference on 31st December, 2020. The Board discussed on a business proposal at length in the Board Meeting. When minutes were circulated by the Company Secretary, both the joint venture nominee Directors on the Board of the Company had different views on the discussions made and suggested modifications to the minutes which were not in harmony with the minutes circulated by the Company Secretary. Chairman of the Board of Directors is nominee of Indian Company. He is firm that Chairman’s decision is final in finalising the minutes of the meeting. Based on the above facts, answer the following questions:
(a) Discuss whether the financial statements can be approved in Board Meeting through Video Conferencing?
(b) What is the procedure to be followed by the Company Secretary when conducting Board Meeting through Video Conferencing as per SS-I ?
(c) How is proceeding of the Meeting is recorded by the Company Secretary in the Board Meeting ? Discuss on recording and finalisation of minutes in light of the provisions of applicable SS-I.
(d) Can EGM be held through Video Conferencing? (2021, 5 Marks)
(a) Approval of financial statements for the quarter ended 30th September 2020 should have been approved at a physically held Board Meeting as per Section 173 and Section 179 of the Companies Act, 2013 read with Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014.
However, on account of current scenario due to COVID-19 pandemic, Ministry of Corporate Affairs had relaxed these provisions vide Companies (Meetings of Board and its Powers) Amendment Rules, 2020 dated 19th March 2020 by providing that for the period beginning from the commencement of the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 and ending on the 30th June 2020 (later extended upto 30th June, 2021), the meetings on all matters referred to in sub-rule (1) of Rule 4 may be held through video conferencing or other audio visual means in accordance with rule 3. Therefore, the resolution passed is proper.
(Note: Rule 4 has been omitted vide the Companies (Meetings of Board and its Powers) Amendment Rules, 2021 dated 15.06.2021 implying that all business matters can now be dealt in meetings held through video conferencing or other audio visual means in accordance with Rule 3).
(b) The complete process for conducting of board meetings through video conferencing is prescribed under Section 173 read with Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014 and Secretarial Standard 1.
Process to be followed by Company Secretary when conducting the Board Meeting through Video Conference is as below:
The notice of the meeting shall inform the directors regarding the option available to them to participate through video conferencing mode. The notice shall also contain all the necessary information to enable the directors to participate through video conferencing mode, like contact number or email address of the chairman or any other person authorised by the board, to whom the director shall confirm in this regard.
The notice shall also seek advance confirmation from the directors as to whether they will participate through electronic mode in the meeting. Director who intends to participate through video conferencing shall give prior intimation to chairman of the company well in advance so that the company can make necessary arrangements in this behalf.
At the commencement of the meeting, a roll call shall be taken by the chairperson when every director participating through video conferencing or other audio visual means shall state, for the record, the foJ lowing namely:
(b) The location from where he is participating,
(c) That he has received the agenda and all the relevant material for the meeting like draft resolution, notes to agenda etc, and
(d) That no orie other than the concerned director is attending or having access to the proceedings of the meeting at the location.
After the roll call, the chairperson shall confirm that the required quorum is complete.
Every participant shall identify himself for the record before speaking on any item of business on the agenda. If statement of a director in the meeting through video conferencing or other audio-visual means is interrupted or garbled, the chairperson shall request for a repeat or reiteration by the director.
The minutes of the meeting shall disclose the particulars of the directors who attended the meeting through video conferencing or other audio-visual means and the location from where and the agenda items in which he participated.
(c) As per Clause 7 of SS- 1, the Company Secretary shall record the proceedings of the Meetings. Where there is no Company Secretary, any other person duly authorised by the Board or by the Chairman in this behalf shall record the proceedings.
The Chairman shall ensure that the proceedings of the Meeting are correctly recorded. The Chairman has absolute discretion to exclude from the Minutes, matters which in his opinion are or could reasonably be regarded as defamatory of any person, irrelevant or immaterial to the proceedings or which are detrimental to the interests of the company.
Minutes need not be an exact transcript of the proceedings at the Meeting. In case any Director requires his views or opinion on a particular item to be recorded verbatim in the Minutes, the decision of the Chairman whether or not to do so shall be final.
In case of meetings held through electronic mode, all the recordings of the proceedings of the Meeting, shall be deemed to be made at the venue of the meeting as mentioned in the Notice. The proceedings of Meetings held through video conferencing or other audio visual means shall be recorded through any electronic recording mechanism and the details of the venue, date and time shall be mentioned.
Finalisation of Minutes: Within 15 days from the date of the conclusion of the Meeting, the draft Minutes thereof shall be circulated to all the members of the Board, as on the date of the Meeting, for their comments. The Directors, whether present at the Meeting or not, shall communicate their comments, if any, in writing on the draft Minutes within 7 days from the date of circulation thereof, so that the Minutes are finalised and entered in the Minutes Book within the specified time limit of 30 days. Minutes shall be entered in the Minutes Book Within 30 days from the date of conclusion of the Meeting.
(d) The Companies Act, 2013 does not contain any specific provisions allowing or disallowing conduct of members’ meetings through Video Conferencing or other audiovisual means. In other words, it is silent on the matter.
However, in view of the current extra-ordinary circumstances due to COVID-19 Pandemic MCA has vide their circular No. 14 dated 8th April 2020, circular No. 17 dated 13th, April 2020, circular No. 22 dated 15th June 2020, circular No. 33 dated 28th September 2020 and circular no. 39 dated 31st December 2020 allowed companies to hold EGMs through Video Conference or other audio visual means or postal ballot subject to some guidelines prescribed under the above circulars.
(Note: As per the recent circular issued on 23rd June 2021, companies can hold Extra-ordinary general meeting through Video Conference or other audio-visual means or transact items through postal ballot subject to compliance with the guidelines prescribed in the above circulars upto 31st December 2021.
P Ltd. is a listed company having 10 directors but only 9 were present in a particular board meeting. What would be the quorum required for the board meeting ? The number of interested directors in respect of an agenda item is 7. What would be the quorum in such a case ? Discuss with reference to Secretarial Standard-1 (SS-1). (Dec 2021, 5 Marks)
(As per Secretarial Standard -1 (SS-1) on Meetings of the board of directors, the quorum for board meeting shall be one-third of the total strength of the board or two directors, whichever is higher. Any fraction contained in the above one-third shall be rounded off to the next one.
Directors participating through electronic mode in a meeting shall be counted for the purpose of quorum, unless they are to be excluded for any items of business under the provisions of the Companies Act, 2013 or any other law. In the instant case, P Ltd. has 10 directors. Therefore, the quorum for its board meeting would be 4 (1/3rd of 10 = 3:33, rounded off to 4). As 9 directors are present, the requisite quorum is fulfilled.
If the number of interested directors exceeds or is equal to two-thirds of the total strength, the remaining directors present at the meeting, being not less than two, shall be the quorum during such item. In a board meeting, where 7 out of 9 directors present are interested in an agenda item, two-thirds of the total strength will be 7 (2/3rd of 10 = 6.67, rounded off to 7). Hence, number of interested directors is equal to 2/3rd of total strength and the required quorum’will be the number of directors who are not interested and present at the meeting, i.e. 9-7 = 2 directors.
Write a short note on frequency of meetings as per Secretarial Standard.
Frequency of Meetings:
Meetings of the Board The company shall hold at least four Meetings of its Board in each calendar year with a maximum interval of one hundred and twenty days between any two consecutive meetings.
Meetings of Committees
Committees shall meet as often as necessary subject to the minimum number and frequency prescribed by any law or any authority or as stipulated by the Board.
Meeting of Independent Directors
Where a company is required to appoint Independent Directors under the Act, such Independent Directors shall meet at least once in a calendar year.
Write a short note on quorum as per Secretarial Standard.
- Quorum shall be present throughout the Meeting.
- Quorum shall be present not only at the time of commencement of the meeting but also while transacting business.
- A Director shall neither be reckoned for Quorum nor shall be entitled to participate in respect of an item of business in which he is interested. However, in case of a private company, a Director shall be entitled to participate in respect of such item after disclosure of his interest.
- Directors participating through Electronic Mode in a meeting shall be counted for the purpose of quorum, unless they are to be excluded for any items of business under the provisions of the Act or any other law.
Meetings of the Board
- The Quorum for a Meeting of the Board shall be one-third of the total strength of the Board, or two Directors, whichever is higher.
- Where the number of Directors is reduced below the minimum fixed by the Articles, no business shall be transacted unless the number is first made up by the remaining Director(s) or through a General Meeting.
Meetings of Committees
Unless otherwise stipulated in the Act or the Articles or under any other law, the Quorum for Meetings Of any Committee constituted by the Board shall be as specified by the Board. If no such Quorum is specified, the presence of all the members of any such Committee is necessary to form the Quorum.
Write short notes on –
(a) General Content of Minutes.
(b) Specific Content of minutes.
(a) General Content of Minutes:
- Minutes shall state, at the beginning the serial number and type of the meeting, name of the company, day, date, venue and time of commencement of the Meeting.
- Minutes shall record the names of the Directors present physically or through Electronic Mode, the Company Secretary who is in attendance at the Meeting and Invitees, if any, including Invitees for specific items.
- Minutes shall contain a record of all appointments made at the Meeting.
(b) Specific Content of Minutes:
Minutes shall interalia contain:
(a) The name(s) of Directors present and their mode of attendance, if through Electronic Mode.
(b) In case of a Director participating through Electronic Mode, his particulars, the location from where he participated and wherever required, his consent to sign the statutory registers placed at the Meeting.
(c) The name of Company Secretary who is in attendance and Invitees, if any, for specific items and mode of their attendance if through Electronic Mode.
(d) Record of election, if any, of the Chairman of the Meeting.
(e) Record of presence of Quorum.
(f) The names of Directors who sought and were granted leave of absence.
(g) Noting of the Minutes of the preceding Meeting.
(h) Noting the Minutes of the Meetings of the Committees.
(i) The text of the Resolution(s) passed by circulation since the last Meeting, including dissent or abstention, if any.
(j) The fact that an Interested Director did not participate in the discussions and did not vote on item of business in which he was interested and in case of a related party transaction such director was not present in the meeting during discussions and voting on such item.
(k) The views of the Directors particularly the Independent Director, if specifically insisted upon by such Directors, provided these, in the opinion of the Chairman, are not defamatory of any person, not irrelevant or immaterial to the proceedings or not detrimental to the interests of the company.
(l) If any Director has participated only for a part of the Meeting, the Agenda items in which he did not participate.
(m) The fact of the dissent and the name of the Director who dissented from the Resolution or abstained from voting thereon.
(n) Ratification by Independent Director or majority of Directors, as the case may be, in case of Meetings held at a shorter Notice.
(o) Consideration of any item other than those included in the Agenda with the consent of majority of the Directors present at the Meeting and ratification of the decision taken in respect of such item by a majority of Directors of the company.
(p) The time of commencement and conclusion of the Meeting.
Write a short note on chairman as per Secretarial Standard.
Meetings of the Board
- The Chairman of the company shall be the Chairman of the Board. If the company does not have a Chairman, the Directors may elect one of themselves to be the Chairman of the Board.
- The Chairman of the Board shall conduct the Meetings of the Board. If no such Chairman is elected or if the Chairman is unable to attend the Meeting, the Directors present at the Meeting shall elect one of themselves to chair and conduct the Meeting, unless otherwise provided in the Articles.
Meetings of Committee
A member of the Committee appointed by the Board or elected by the Committee as Chairman of the Committee, in accordance with the Act or any other law or the Articles, shall conduct the Meetings of the Committee. If no Chairman has been so elected or if the elected Chairman is unable to attend the Meeting, the Committee shall elect one of its members present to chair and conduct the Meeting of the Committee, unless otherwise provided in the Articles.
Write a short note on frequency of attendance of meetings as per Secretarial Standard.
Attendance at Meetings:
- Every company shall maintain attendance register for the Meetings of the Board and Meetings of the Committee.
- The attendance register shall contain the following particulars: serial number and date of the Meeting; in case of a Committee Meeting name of the Committee; place of the Meeting; time of the Meeting; names and signatures of the Directors, the Company Secretary and also of persons attending the Meeting by invitation and their mode of presence, if participating through Electronic Mode
- The attendance register shall be deemed to have been signed by the Directors participating through Electronic Mode, if their attendance is recorded in the attendance register and authenticated by the Company Secretary or where there is no Company Secretary, by the Chairman or by any other Director present at the Meeting, if so authorised by the Chairmah and the fact of such participation is also recorded in the Minutes.
- The attendance register shall be maintained at the Registered Office of the company or such other place as may be approved by the Board.
- The attendance register is open for inspection by the Directors. Even after a person ceases to be a Director, he shall be entitled to inspect the attendance register of the Meetings held during the period of his Directorship.
- The attendance register shall be preserved for a period of at least eight financial years from the date of last entry made therein and may be destroyed thereafter with the approval of the Board.
Write a short note on frequency of passing resolution by circulation as per Secretarial Standard.
Passing of Resolution by Circulation:
- The Chairman of the Board or in his absence, the Managing Director or in their absence, any Director other than an Interested Director, shall decide, before the draft Resolution is circulated to all the Directors, whether the approval of the Board for a particular business shall be obtained by means of a Resolution by circulation.
- Where not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a Meeting, the Chairman shall put the Resolution for consideration at a Meeting of the Board.
- A Resolution proposed to be passed by circulation shall be sent in draft, together with the necessary papers, to all the Directors including Interested Directors on the same day.
- The draft of the Resolution to be passed and the necessary papers shall be circulated amongst the Directors by hand, or by speed post or by registered post or by courier, or by e-mail or by any other recognised electronic means.
- Each business proposed to be passed by way of Resolution by circulation shall be explained by a note setting out the details of the proposal, relevant material facts that enable the Directors to understand the meaning, scope and implications of the proposal, the nature of concern or interest, if any, of any Director in the proposal, which the Director had earlier disclosed and the draft of the Resolution proposed. The note shall also indicate how a Director shall signify assent or dissent to the Resolution proposed and the date by which the Director shall respond.
The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution, unless not less than one-third of the total number of Directors for the time being require the Resolution under’circulation to be decided at a Meeting.
Resolutions passed by circulation shall be noted at a subsequent Meeting of the Board and the text thereof with dissent or abstention, if any, shall be recorded in the Minutes of such Meeting.
Passing of Resolution by circulation shall be considered valid as if it had been passed at a duly convened Meeting of the Board.
Write a short note on signing and dating of minutes as per Secretarial Standard.
Signing and Dating of Minutes:
- Minutes of the Meeting of the Board shall be signed and dated by the Chairman of the Meeting or by the Chairman of the next Meeting.
- The Chairman shall initial each page of the Minutes, sign the last page and append to such signature the date on which and the place where he has signed the Minutes.
- Minutes, once signed by the Chairman, shall not be altered, save as mentioned in this Standard.
- Within fifteen days of signing of the Minutes, a copy of the said signed Minutes, certified by the Company Secretary or where there is no Company Secretary by any Director authorised by the Board, shall be circulated to all the Directors, as on the date of the Meeting and appointed thereafter, except to those Directors who have waived their right to receive the same either in writing or such waiver is recorded in the Minutes.
Write short notes on:
(a) Recording of Minutes
(b) Maintenance of Minutes
(c) Preservation of Minutes and other Records
(a) Recording of Minutes:
- Minutes shall contain a fair and correct summary of the proceedings of the Meeting.
- Minutes shall be written in clear, concise and plain language.
- Wherever the decision of the Board is based on any unsigned documents including reports or notes or presentations tabled or presented at the Meeting, which were not part of the Notes on Agenda and are referred to in the Minutes, shall be identified by initialing of such documents by the Company Secretary or the Chairman.
- Where any earlier Resolution(s) or decision is superseded or modified, Minutes shall contain a specific reference to such earlier Resolution (s) or decision or state that the Resolution is in supersession of all earlier Resolutions passed in that regard.
- Minutes of the preceding Meeting shall be noted at a Meeting of the Board held immediately following the date of entry of such Minutes in the Minutes Book.
(b) Maintenance of Minutes:
- Minutes shall be recorded in books maintained for that purpose.
- A distinct Minutes Book shall be maintained for Meetings of the Board and each of its Committees.
- A company may maintain its Minutes in physical or in electronic form.
- The pages of the Minutes Books shall be consecutively numbered.
- Minutes shall not be pasted or attached to the Minutes Book, or tampered with in any manner.
- Minutes Books, if maintained in loose-leaf form, shall be bound periodically depending on the size and volume and coinciding with one or more financial years of the company.
- Minutes Books shall be kept at the Registered Office of the company or at such other place as may be approved by the Board.
(c) Preservation of Minutes and other Records:
- Minutes of all Meetings shall be preserved permanently in physical or in electronic form with Timestamp
- Office copies “of Notices, Agenda, Notes on Agenda and other related papers shall be preserved in good order in physical or in electronic form for as long as they remain current or for eight financial years, whichever is later and may be destroyed thereafter with the approval of the Board.
- Minutes Books shall be in the custody of the Company Secretary.
What are the Secretarial Standards specified in respect of “Notice” & “Agenda and Notes on Agenda”?
- Notice in writing of every meeting shall be given to every Director by hand or by speed post or by registered post or by facsimile or by e-mail or by any other electronic means.
- Notice shall be issued by the Company Secretary or where there is no Company Secretary, any Director or any other person authorised by the Board for the purpose.
- The Notice shall specify the serial number, day, date, time and full address of the venue of the Meeting.
- The Notice shall inform the Directors about the option available to them to participate through Electronic Mode and provide them all the necessary information.
- The Notice of a Meeting shall be given even if Meetings are held on pre-determined dates or at pre-determined intervals.
- Notice convening a Meeting shall be given at least seven days before the date of the Meeting, unless the Articles prescribe a longer period.
Agenda and Notes on Agenda
- The Agenda, setting out the business to be transacted at the Meeting, and Notes on Agenda shall be given to the Directors at least seven days before the date of the Meeting, unless the Articles prescribe a longer period.
- Each item of business requiring approval at the Meeting shall be supported by a note setting out the details of the proposal, relevant material facts that enable the Directors to understand the meaning, scope and implications of the proposal and the nature of concern or interest, if any, of any Director in the proposal, which the Director had earlier disclosed.
- Each item of business to be taken up at the Meeting shall be serially numbered.
- Any item not included in the Agenda may be taken up for consideration with the permission of the Chairman and with the consent of a majority of the Directors present in the Meeting.
- To transact urgent business, the Notice, Agenda and Notes on Agenda may be given at shorter period of time than stated above, if at least one Independent Director, if any, shall be present at such Meeting.
What types of maters cannot be discussed in a board meeting conducted through video conference?
The following types of matters cannot be discussed in a board meeting conducted through video conference:
- Approval of the annual financial statements.
- Approval of the Board’s report.
- Approval of the prospectus.
- Audit Committee Meetings for consideration of accounts.
- Approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
Board Processes through Secretarial Standards Notes
Section 118 (10) of Companies Act 2013:
Every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under sectIon 3 of the Company Secretaries Act. 1980 (56 of 1980), and approved as such by the Central Government.
(In case of Specified IFSC Public Company and Private Company-Sub-section (10) of section 118 Shall not apply. – Notification Date 4th January, 2017)
Timestamp: means the current tine of an event that is recorded by a Secured Computer System and is used to describe the time that s printed to a file or other location to help keep track of when data is added, removed, sent or received.
An agenda is a list of meeting activities in the order in which they are to be taken up, beginning with the call to order and ending with adjournment. It usually includes one or more specific items of business to be acted upon. It may, but Is not required to, include specific times for one or more activities. An agenda may also be called a docket, schedule, or calendar. It may also contain a listing of an order of business.