In today’s fast-paced environment, directors of companies often have various professional or personal commitments that may prevent them from attending every Board meeting. However, Board meetings are crucial for the governance of a company, as they involve key discussions and decision-making and there are legal implications to staying away from a board meeting as per the provisions of the Companies Act, 2013.
This article explores two important aspects of a director’s absence from Board meetings:
1. Quorum for a Board Meeting
2. Consequences of a Director’s Absence from a Board Meeting
1) Quorum for a Board Meeting
Section 174(1) of the Companies Act, 2013 provides flexibility in case not all directors can attend a Board meeting. It specifies that the quorum, or the minimum number of directors required for a valid meeting, is one-third of the total strength of the Board, or two directors, whichever is higher. This ensures that decisions can still be made even if not all directors are present.
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Example 1:
If a company, X Ltd., has seven directors, the quorum will be one-third of seven, which equals 2.33. This is rounded up to 3 directors as per the rule. Therefore, at least three directors must be present for the meeting to be valid.
Example 2:
For Y Ltd., which has 11 directors, one-third of 11 equals 3.67, rounded up to 4. Thus, the quorum for Y Ltd. will be four directors.
It’s worth noting that directors can attend Board meetings either physically or through video conferencing (VC), ensuring flexibility for directors who cannot be physically present.
2) Consequences of a Director’s Absence from a Board Meeting
A director may miss one or more Board meetings for various reasons, whether intentional or beyond their control. The key question that arises is whether such absences affect their directorship in the company.
Section 167(1)(b) of the Companies Act, 2013
This section states that if a director is absent from all meetings of the Board of Directors for a continuous period of 12 months, without attending any, their office will be vacated, regardless of whether they have sought leave of absence.
Examples:
Case 1:
Mr. A is a director in both X Ltd. and Y Ltd. While he attends all the Board meetings of X Ltd., he misses every meeting in Y Ltd. for 12 months. As a result, his office in Y Ltd. will be vacated, but his position in X Ltd. remains unaffected.
Case 2:
If no Board meeting is held in X Ltd. for 12 months, and Mr. A is unable to attend because no meetings are held, his directorship remains unaffected, as Section 167 is not applicable in this case.
Case 3:
Mr. A attended 10 of the 12 Board meetings in X Ltd. over the last year. Since he was not absent for all meetings over a 12-month period, his directorship remains intact.
Case 4:
Mr. A attended a Board meeting on 10.01.2023 and missed all subsequent meetings until he attended the next meeting on 11.05.2024. The interpretation of this case can be twofold:
1. One could argue that since Mr. A missed all meetings over a period of 16 months, his office should be vacated.
2. Alternatively, the 12-month period should start from 25.06.2023, the first meeting held after his absence began, meaning that Mr. A attended a meeting within 12 months, and his office should not be vacated.
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In this case, the second interpretation is correct, as the 12-month count begins from the meeting held on 25.06.2023. If Mr. A had attended a meeting on 01.01.2023 and then missed all meetings until 11.05.2024, his office would be vacated.
Outdated Provisions of the Companies Act, 1956
Some believe that the 12-month period for absence should be three months, and that seeking a leave of absence would allow a director to remain in office. However, this rule applied under the Companies Act, 1956 and has since been replaced by the Companies Act, 2013. Under the new Act, the period is 12 months, and whether leave of absence is granted or not is irrelevant.
Several court rulings have stated that if a director was not properly notified about a Board meeting, and their absence was due to this lack of communication, the automatic vacation of office can be challenged. In such cases, the vacation of the director’s office may not be enforceable.
In conclusion, it is important for directors to attend Board meetings, as failure to attend all meetings for 12 months will result in the automatic vacating of their office. Directors should remain informed of the rules governing absences and ensure proper communication with the Board to avoid any unintended consequences.
Additionally, companies must ensure that directors are duly informed of meeting schedules to avoid potential legal challenges.
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