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 Act’s 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 shareholder’s 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