Convening and Holding Board Meetings Through Electronic Means: Moot Question of Law

1
Convening and Holding Board Meetings Through
Electronic Means Moot Question of Law
2
Board Meetings Present Scenario

• Governing Law Provisions of the Companies Act 
• Section 285 atleast one meeting in every 3 months
  and atleast 4 such meetings shall be held every
  year 
• Section 286 notice shall be given in writing
•  
• Section 287 prescribes the minimum Quorum to
  facilitate conduct of the meeting
•  
• Section 288 contains the provisions where a
  meeting is adjourned for the want of the quorum
• Certain Powers of the Board can be exercised at
  the Board meetings only, others can be exercised
  thru Circular Resolution as well

3
Board Meetings Present Scenario

• Peremptory Norms in the Industry
• Convening
• Proper Authority
• Proper and Adequate Notice
• Constitution
• Chairman
• Quorum
• Proxies and Representatives
• Conduct
• Ascertaining Sense of the meting
• Voting
• Passing of Resolutions
• Circular Resolutions
• Motion, Amendment, Point of Order

4
Board Meetings Present Scenario

• Move towards Normativity for Board Meetings
• Introduction of Secretarial Standards by The
  Institute of Company Secretaries of India
• Though only recommendatory in nature in the
  initial stages, the Institute intends to
  introduce uniformity in the practices adopted in
  the Industry
• Secretarial Standard-1 (SS-1) on Meetings of
  the Board of Directors seeks to prescribe a set
  of principles for convening and conduct of Board
  Meetings and matters related thereto

5
Recognition of Technological Advancement in Laws

• Need to accord legal recognition to technological
  innovations
• Need to have a sound regulatory mechanism and
  infrastructure so as to
• ensure effective utilization of the changed
  technology so that benefits accrue for the
  benefit of all users
• ensure that misuse of the changed technology is
  decimated or nipped in the bud
• IT Act is a move in this direction
• Francis Bennion in Statutory Interpretation has
  stressed the need to interpret a statute by
  giving allowances for any relevant changes that
  have occurred, since the Acts passing, in law,
  social conditions, technology, the meaning of the
  words and other matters.

6
Board E-Meetings

• Issues Involved
• Convening the meeting and electronic notice
• Place for holding Meeting in electronic Form
• Constitution of Meeting
• Conduct of electronic meeting

7
Board E-Meetings Issues Involved

• Convening the meeting
• Sec-286-the notice in writing
• Proper Authority- written notice needs to be
  authenticated by the authorized person
• Convening the meeting electronically Legal
  Validity
• IT Act
• Sec-4 accords legal recognition to the electronic
  records
• Sec-5 accords legal recognition to digital
  signatures affixed in accordance with the Act and
  rules made thereunder
• Provides for the authentication, attribution,
  acknowledgment and despatch of electronic records
  and hence providing a sound regulatory mechanism
• Sec-81 gives overriding effect to the Act
• Also SS-1 issued by ICSI recognizes the
  electronic media as a mode of giving notices

8
Board E-Meetings Issues Involved

• Place for Holding meeting
• No Provision in Companies Act, that Board Meeting
  to be held at a particular place as stated in the
  notice
• Except that Section 288(1) gives rise to
  presumption that there must be a definite place
  where a Board meeting can be held
• Place for Holding meeting electronically
• In one of the decided case of Byng vs London Life
  Association Club, in context of shareholders
  meetings held in 3 adjoining rooms connected via
  audio-visual links, it was held that the
  meeting was held at the place of which notice had
  been given, namely Cinema1, since this was where
  the center of gravity of the meeting was to be
  found
• But the issue is unsettled as to determine the
  place of meeting in the case of electronic board
  meetings

9
Board E-Meetings Issues Involved

• Constitution of Meeting
• Sec-287 Quorum should be present, else meeting
  stands adjourned as per Sec-288
• Meeting to be Chaired by the person legally
  elected (AoA or by Directors)
• Physical presence of Directors
• Sec-301(2)- Register of Contracts to be placed
  before the Board and signed by the directors
  present (only if Company has entered into a
  contract or arrangement in which directors are
  interested)
• As per Table A, Common Seal to be affixed in
  presence of 2 Directors and CS (the prov can be
  altered by making prov in AoA)
• No other stipulation in Companies Act requiring
  physical presence of Directors
• IT Act contains enabling provisions to regulate
  the electronic ways and mechanisms adopted in
  meetings, transactions, trade, commerce
• But the judiciary is in state of conflict, where
  few recognizes that the rationale behind the
  provision of meetings is to enable the directors
  to effectively discuss the matters and take
  decisions in the interests of the Company, so it
  shall be sufficient that everyone participating
  are able to see, hear, communicate with each
  other and hence Board meetings can be held
  electronically but others interpret meetings to
  require physical presence of Directors

10
Board E-Meetings Issues Involved

• Conduct of Board Meetings
• Subject to AoA, the Board can regulate the
  conduct of their meetings
• The Question arises that whether the meeting thru
  video and tele-conferencing, net-meeting can be
  treated as being in electronic form and whether
  the signals, images, sounds transmitted in course
  of meeting can be treated as electronic records
• As per IT Act
• Sec 2(r) electronic form w.ref.t information
  means any information generated, sent, received
  or stored in media, magnetic, optical, computer
  memory, micro film, computer generated micro
  fiche or similar device
• Sec 2(v) information includes data, text,
  images, sound, voice, codes, computer programmes,
  software and databases or micro film or computer
  generated micro fiche
• Sec 2(t) electronic record means data, record
  or data generated, image or sound stored,
  received or sent in an electronic form or micro
  film, computer generated micro fiche
• Hence, the Board meeting can be conducted
  electronically and IT Act contains enabling
  provision to give legal sanctity to electronic
  records and contains provs for attribution,
  acknowledgment and despatch of electronic records
• Thus, motions, resolutions, voting, discussions
  can be conducted electronically in accordance
  with the IT Act and rules made thereunder

11
Board E-Meetings Legal sanctity

• In the light of above discussion, technological
  advancement and enabling provisions of IT Act, it
  appears that Board Meetings thru electronic means
  are permissible (except under few instances)
• But in absence of any specific provs in the
  substantive law governing the Companies, Board
  Meeting held thru electronic means is capable of
  being challenged in a Court of Law

12
Board E-Meetings International Scenario

• In few Countries, the substantive Company Law
  itself has been amended to facilitate holding of
  Board Meetings through Electronic Means
• In UK a spl Order termed Companies Act, 1985
  (Electronic Communications) Order, 2000 under the
  Electronic Communications Act, 2000 has been
  passed which enables companies to hold Board
  Meetings thru electronic means
• In Canada, a specific provision to facilitate
  Board Meetings thru tele-conferencing has been
  introduced in Canada Business Corporations Act
• In U.S. the Massachusetts (USA) Business
  Corporation Law has made a specific provision for
  conduct of Board Meetings thru electronic means

13
Board E-Meetings What needs to be done

• The Companies Act, 1956 needs to be amended
• The modalities for such meetings could be
  prescribed through specific rules
• The Articles of Association of the Companies
  needs to be amended to contain enabling
  provisions to the effect