By Jayant M. Thakur, Chartered Accountant
Background
Is a company
bound to provide facilities to directors to participate in board meetings by
video conferencing? The NCLAT has answered in the affirmative even if one
director so desires. This is what the Tribunal has held in its recent
decision in the case of Achintya Kumar Barua vs. Ranjit Barthkur ([2018] 91
taxmann.com 123 (NCL-AT)).
Section 173(2)
of the Companies Act, 2013 provides that a director may participate in a board
meeting in person or through video conferencing or through audio-video visual
means. Clearly, then, a director has three alternative methods to attend board
meeting. The question was: whether these three options arise only if a company
provides such facility or whether a director can insist that he be provided all
the three choices the director has the option of using any one of the three.
It is clear
that, for video-conferencing to work, facilities would have to be at both ends.
Indeed, as will also be seen later herein, the company will have to arrange for
far more facilities to ensure compliance, than the director participating by
video conference. The director may need to have just a computer – or perhaps
even a mobile may be sufficient – and internet access. Apart from providing
these facilities, the process of the board meeting itself would undergo a
change in practice where meeting is held by video conference.
While one may
perceive that, particularly with internet access and high bandwith
proliferating, video conferencing would be easy. However, the formal process of
Board Meetings by video conferencing has May 2018 video conferencing article
first post board been simplified. This would not only require bearing the cost
of video conference facilities but also carrying out several other compliances
under the Companies Act and Rules made thereunder. This makes the effort
cumbersome and costly particularly for small companies. Moreover, the
proceedings would become very formal. Directors would be aware that their words
and acts are being recorded. These video recordings can be reviewed later very
closely for legal and other purposes particularly for deciding who was at fault
in case some wrongs or frauds are found in the company.
Arguments before the NCLAT
Before the
NCLAT, which was hearing an appeal against the decision of the NCLT, the
company argued that the option to attend by video conferencing to a director
arises only if the company provides such right.
It was also
argued that the relevant Secretarial Standards stated that board meeting could
be attended by video conferencing only if the company had so decided to provide
such facility.
Additional
issues raised including facts that made it difficult for the company to provide
such facility.
Relevant provisions of law
Some relevant
provisions in the Companies Act, 2013 and the Companies (Meetings of Board and
its Powers) Rules, 2014 are worth considering and are given below (emphasis supplied).
Section 173(2)
of the Act:
173(2) The
participation of directors in a meeting of the Board may be either in person or through video conferencing or other
audio visual means, as may be prescribed, which are capable of recording and
recognising the participation of the directors and of recording and storing the
proceedings of such meetings along with date and time:
Provided
that the Central Government may, by notification, specify such matters which shall not be dealt with in a meeting through video
conferencing or other audio visual means:
Provided
further that where there is quorum in a meeting through physical presence of
directors, any other director may participate through video conferencing or
other audio visual means in such meeting on any matter specified under the
first proviso. (This second proviso is not yet brought into force)
Some relevant
provisions from the Rules:
3. A company shall comply with the
following procedure, for convening and conducting the Board meetings through
video conferencing or other audio visual means.
(1) Every
Company shall make necessary arrangements to avoid failure of video or audio
visual connection.
(2) The
Chairperson of the meeting and the company secretary, if any, shall take due
and reasonable care—
(a) to
safeguard the integrity of the meeting by
ensuring sufficient security and identification procedures;
(b) to ensure availability of proper
video conferencing or other audio visual equipment or facilities for providing
transmission of the communications for effective participation of the directors
and other authorised participants at the Board meeting;
(c) to record
proceedings and prepare the minutes of the meeting;
(d) to store for safekeeping and marking the tape
recording(s) or other electronic recording mechanism as part of the records of
the company at least before the time of completion of audit of that particular
year.
(e) to ensure that no person other than
the concerned director are attending or have access to the proceedings of the
meeting through video conferencing mode or other audio visual means; and
(f) to ensure that participants attending the meeting
through audio visual means are able to hear and see the other participants
clearly during the course of the meeting:
What the NCLAT held
The NCLAT,
however, held that the right to participate board meetings via
video-conferencing was really with the director. This is clear, it pointed out,
from the opening words of Section 173(2) that read: “The participation of
directors in a meeting of the Board may
be either in person or through video conferencing or other audio visual means“.
Thus, if the director makes the choice of attending by video-conferencing, the
company will have to conduct the meeting accordingly.
The NCLAT
analysed and observed, “We find that the word “may” which has been
used in this sub-Section (2) of Section 173 only gives an option to the
Director to choose whether he would be participating in person or the other
option which he can choose is participation through video-conferencing or other
audio-visual means. This word “may” does not give option to the
company to deny this right given to the Directors for participation through
video-conferencing or other audio-visual means, if they so desire.”.
The NCLAT
further stated, “…Section 173(2) gives right to a Director to participate
in the meting through video-conferencing or other audio-visual means and the
Central Government has notified Rules to enforce this right and it would be in
the interest of the companies to comply with the provisions in public
interest.”.
On the issue of
the relevant Secretarial Standard that stated that video conferencing was
available only if the company had provided, the NCLAT rejected this
argument saying that in view of clear words of the Act, such standards could
not override the Act and provide otherwise. In the words of the NCLAT, “We
find that such guidelines cannot override the provisions under the Rules. The
mandate of Section 173(2) read with Rules mentioned above cannot be avoided by
the companies.”.
The NCLAT
finally stressed on the positive aspects of video conferencing. It said that
vide conferencing it could actually help avoid many disputes on the proceedings
of the Board meeting as a video record would be available. To quote the NCLAT, “We
have got so many matters coming up where there are grievances regarding
non-participation, wrong recordings etc.” It also upheld the order of the
NCLT which held that providing video conferencing facility was mandatory of a
director so desired, and said, “The impugned order must be said to be
progressive in the right direction and there is no reason to interfere with the
same.”.
Implications and conclusion
It is to be
emphasised that the requirements of section 173 apply to all companies –
listed, public and private. Hence, the implications of this decision are far
reaching. Even if one director demands facility of video conferencing, all the
requirements will have to be complied with by the company.
Rule 3 and 4 of
the Companies (Meeting of Board and its Powers) Rules, 2014, some provisions of
which are highlighted earlier herein, provide for greater detail of the manner
in which the meeting through video conferencing shall be held. Directors should
be able to see each other, there should be formal roll call including related
compliance etc. There are elaborate requirements for recording decisions
and the minutes in proper digital format.
In these days,
meetings so held can help avoid costs and time, particularly when the director
is in another city or town or in another country. However, there are attendant
costs too. Even one director could insist on attending by video conferencing
and the result is that the whole proceedings would have to be so conducted and
the costs have to be borne by the company.
Certain
resolutions such as approval of annual accounts, board report, etc.
cannot be passed at a meeting held by video-conferencing. A new proviso has
been inserted to section 173(2) by the Companies (Amendment) Act, 2017. This
proviso, which is not yet brought into force, states that if there are enough
directors physically present to constitute the quorum, then, even for such
resolutions, the remaining directors could attend and participate by video
conferencing.
Thus, in
conclusion, it is submitted that the lawmakers should review these provisions
and exclude particularly small companies – private and public – from their
applicability. 
Note: in the april 2018 issue of
the journal, in the article titled “tax planning/evasion transactions on
capital markets and securities laws – supreme court decides”, on page 110, the
relevant citation of the decision of the supreme court was inadvertently not
given. the citation of this decision is sebi vs. rakhi trading (p.) limited
(2018) 90 taxmann.com 147 (sc).
