The Companies (Meetings of Board and its Powers) Rules
The Companies (Meetings of Board and its Powers) Rules
The ‘Companies (Meetings of Board and its Powers) Rules’ were introduced to regularise board meetings of companies. They also serve the purpose of establishing a standardised set of guidelines based on which companies could conduct board meetings. These rules contain provisions relating to the participation of directors in board meetings through video-conferencing, maintenance of minutes of meetings, forms required to be maintained at the registered office of the company, and transactions requiring prior approval by members. Certain additional concepts, such as ‘vigil mechanism’ and ‘omnibus approval’ are also introduced.
On 18 November 2019, the Central Government notified certain changes to these rules through GSR 857(E). The impact of these changes is that certain relaxations have become available to companies making high-value transactions with related parties so that approval by special resolution of members becomes unnecessary. The notification can be accessed here:Comp2Amndt_18112019
Participation in Board Meeting through Video-conferencing
When a company conducts board meetings through video-conferencing, the following rules should be followed:
- Video-conferencing is allowed as a means to conduct board meetings only if all directors can hear as well as see each other.
- If a meeting is conducted for approving financial statements, prospectus, or proposals relating to amalgamation, merger, demerger, acquisition and takeover, attending through video-conference is not permitted.
- The videos of the meeting should be stored in an Electronic Recording Mechanism (ERM).
- Other than the directors, no person should have access to the videos of board meetings.
- Notice mentioning the option to participate through video-conferencing should be sent to the directors of the company one week before the meeting date.
- A director who is interested in participating through video-conferencing should inform the company before the first meeting is held in the current year.
- At the time of starting the meeting, the chairperson should take a roll call from every director who is participating asking the following details: Name of the director, his physical location, whether he knows about the agenda for the meeting, and whether any other person is participating in the meeting with him.
- A minimum of one-third of the total number of directors should be present throughout the meeting.
- If documents are required to be signed by a director attending the meeting through video-conferencing, he may sign through a representative or use his digital signature.
- Only those who are attending the meeting should be present in the venue(s) where the meeting is conducted.
- At the end of the discussion on each agenda, the chairperson of the meeting should announce the decision arrived on that agenda. He should also read out the names of the directors who disagreed with the decisions taken by the majority.
For a further understanding of board meetings and how they should be conducted, click here (https://www.indiafilings.com/learn/notice-of-board-meeting-sample/).
Minutes of Meeting
Minutes should be prepared from the videos before completion of the audit for the current financial year (FY). The minutes should mention the names of the directors who participated through video-conferencing. A copy of the minutes should be sent to all the directors within fifteen days of the meeting date. If any director has any suggestions to make on the minutes, he should communicate it to the company within seven days of the date on which he received a copy of the minutes. After suggestions have been received from all the directors, necessary corrections should be made in the minutes. A physical copy of the minutes should be entered in the minutes book and signed by the chairperson.
In case of the following companies, minutes should be approved and signed by the Audit Committee: Listed companies, public companies which have a paid-up capital of ten crore rupees or more, public companies which have a turnover of one hundred crore rupees or more, and public companies which have outstanding borrowings of fifty crore rupees or more.
In case of repetitive transactions requiring approval by the board of directors, an ‘omnibus approval’ can be given. Omnibus approval is an approval given for multiple transactions at the same time. Omnibus approvals are usually given for related party transactions (https://www.indiafilings.com/learn/related-party-transactions/). Since all related party transactions require approval from the Audit Committee, omnibus transactions are generally issued only by the Audit Committee. When an omnibus approval is given, the minutes of the meeting should include the following particulars:
- Maximum aggregate value of transactions proposed to be permitted under the omnibus approval and the maximum aggregate value per transaction
- Reasons for which the decision was made to opt for omnibus approval
- Details submitted to the Audit Committee at the time of opting for omnibus approval
- Periodicity at which the decision to opt for omnibus approval must be reviewed
- Transactions considered exceptional by the Audit Committee, and thus excluded from the scope of the omnibus approval
- Repetitiveness of the transactions for which omnibus approval is opted for
- Name of the related parties, nature of the transactions, and the price at which the transaction is expected to be settled
Omnibus approvals can be made for a maximum period of one financial year. Omnibus approvals cannot be made for selling the company or a substantial part of its assets.
A ‘vigil mechanism’ is a forum controlled by the Audit Committee of a company, and its purpose is to function as a platform for directors and employees of the company to report their grievances.
In case of the following companies, it is mandatory to form a vigil mechanism: Listed companies, companies which have accepted deposits from the public, and companies which have borrowings in excess of fifty crore rupees from public sector institutions.
A vigil mechanism aims to ensure that the opinions of all directors are heard and that no employee is victimised for trying to highlight irregularities taking place in the company.
In case any director or employee of the company wants direct access to the chairperson of the Audit Committee, the vigil mechanism should allow it if the purpose is reasonable.
Forms to be Maintained at the Registered Office of the Company
The company should maintain the following forms at its registered office (https://www.indiafilings.com/learn/registered-office-company/) for at least eight financial years preceding the current financial year. The forms should be in the custody of the company’s company secretary (CS). The prescribed format for these forms can be found here (https://www.mca.gov.in/Ministry/pdf/NCARules_Chapter12.pdf). The applicability for using these forms is as follows:
- Form MBP 1
A director should use this form when a company is entering into a transaction with a concern in which the director has an interest.
- Form MBP 2
All companies which give any loan or guarantee, and all companies which issue or purchase securities, should use this form.
- Form MBP 3
A company purchasing securities in any name other than its name should use this form.
- Form MBP 4
A company should use this form in case it is entering into a contract with any of the following:
- A company in which the director of the first company holds more than 2% of the shareholding
- A company of which the director of the first company is the promoter, manager or Chief Executive Officer (CEO)
- A firm in which the director of the first company is a partner, owner or member
Transactions Required to be Approved by Special Resolution
A company can enter into the following transactions only after the members have approved them of the company by passing a special resolution:
- Making sale or purchase of goods or property for 10% or more of the company’s turnover (until 18.11.2019, it was one hundred crore rupees or 10% of the company’s turnover, whichever is less)
- Leasing any property for 10% or more of the company’s turnover (until 18.11.2019, it was one hundred crore rupees or 10% of the company’s net worth, whichever is less)
- Availing any services for 10% or more of the company’s turnover (until 18.11.2019, it was fifty crore rupees or 10% of the company’s net worth, whichever is less)
- Employing any person for more than two and a half lakh rupees a month
- Paying underwriting commission of more than 1% of its net worth
To understand the meaning of a special resolution and how it differs from an ordinary resolution, click here (https://www.indiafilings.com/companies-act-2013/ordinary-special-resolutions.php?pageno=2).