Virtual board meetings – corporate governance redefined

Like all the other spheres of life today ‘virtual is the new real’ even for the corporates. In this pandemic if something is holding the economies of the world and has been able to avoid the devastations of economic crisis in the form of Inflation i.e., the smooth running of the business eco system.

In the journey of adaptation of from offline to online mode the companies have been very swift. This flexibility in the corporate world has been facilitated by the foresighted provisions of Companies Act, 2013 and quick decisions and implementation of the Ministry of Corporate Affairs.

The major decisions regarding the functioning of the company are taken in the board meeting. The Companies Act under section 173 mandates that every company shall hold its first board meeting within thirty days of incorporation. The minimum number of board meetings that a company needs to carry out each year should be at least four. Additionally, it states that not more than one hundred twenty days should pass between two consecutive board meetings. 

Since March 2020 the nation is observing full or partial lockdowns and the Covid protocols maintenance requires that offices and other public establishments should remain close in such a situation conducting the stipulated number of board meetings becomes impossible physically. So, like all the other affairs of the company being conducted through the online mode, the alternate approach to conduct the board meetings has also been adopted as the ‘virtual board meeting’.


Laws for conducting virtual board meetings

Virtual board meetings are not a new concept under the Companies Act. Under section 173(2) of the Act, it has been stated that the presence of the directors in a board meeting can either be through physical or the audio-visual mode. Meeting carried out through an audio-visual mode is called the virtual meeting. 

The other laws which facilitate the carrying out of virtual meeting is the Rule 3 and 4 of the of companies (Meeting of Board and its powers) Rules, 2014. Rule 3 provides for the methodology to conduct the virtual board meeting it states:

  • The notice for the virtual board meeting should be sent in accordance to section 173(3) of the Act. The notice should state that the meeting will be virtual in nature and they have the option of participating in the prescribed manner.
  • The attendance of the directors present in the virtual meeting shall be recorded.
  • The minutes of the meeting shall be recorded and will be circulated among the present members post meeting.
  • The meeting will only be conducted if the quorum will be complete.

Under rule 4 of the companies (Meeting of Board and its powers) Rules, 2014 states that few matters of grave importance cannot be discussed in board meetings held via video conferencing i.e, virtual meetings they are as following:

  • Approval of annual financial statement
  • Approval of board’s report
  • Approval of prospectus
  • Audit committee’s report
  • Approval for matter relating to corporate restructuring

Voting in the board meetings held virtually are enabled by section 108 of the companies act which states the provision of voting through electronic mode in the board meeting subject to permission of the central government.

 COVID and Virtual board meetings

 With uncertainty circling after the second wave of the COVID 19 in India and ‘Back to normal’ remains a farfetched dream. So, For the smooth conduct of business Ministry of corporate affairs on June 15, 2021 notified certain amendments to the Board meeting rules specifically related to rule 4 where it did away with all the agenda which cannot be discussed in a virtual meeting. This embargo has been permanently removed giving the corporates an option to hold the virtual meetings with ease in future also.

Virtual meetings the way ahead

It is the need of the hour to allow the corporates to conduct virtual board meetings. However, doing away with the rule 4 entirely raises many questions. It is only natural to assume that it can be a hasty decision made under the present circumstances. If in the virtual meetings it is allowed to discuss every major decision the most of the directors and board members prefer the same keeping in mind the convenience factor of it. At the same time we need to take a not of the fact that the rules for conducting virtual meetings and the mode of decision making is not stated in the Companies (Meeting of Board and its powers) Rules, 2014. The substantiation and limitation of the virtual meetings are also needed to set else the decision making can be fraudulent and unfair giving rise to oppression of the member and mismanagement of the company.

By Avantika Banerjee

Co-Founder ISLR

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