Chapter XII (Section 173-195) of the Companies Act, 2013 (CA 2013) deals with the provisions related to Meetings of Board and its Powers. Section 174 of the CA 2013 provides for Quorum for meetings of Board. The provisions of section 174 came into force on 1st day of April, 2014 vide Notification No. S.O. 902(E) issued dated 27-03-2014.
Recently, we have discussed about meetings of board under section 173 of the Companies Act, 2013. Today, we shall learn about Quorum for Board Meetings (BM) of the company provided under section 174 of the CA 2013. Section 174 should be read with the Companies (Meetings of Board and its Powers) Rules, 2014.
Section 103 of the Companies Act, 2013 provides for quorum for meetings of Members of a company whereas the provisions of Section 174 of the CA 2013 deals with quorum required for conducting a Board Meetings of the company. Further, you should also note that Section 581V of the Companies Act, 1956 (PART-IXA) provides for the quorum for a meeting of the Board of a Producer Company.
Quorum for Board Meeting of a Company
Minimum Two Directors for Quorum [Section 174(1)]:
A quorum is the minimum number of qualified persons required to be present or attend in a meeting in order to hold that meeting properly. Otherwise the meeting shall not be deemed to have been held properly. In other words, the quorum is compulsory to transact business at a duly convened Board meeting of a company.
Actually, the quorum is not only required at the beginning of the board meeting but the quorum is required to transact each and every business of the company during the meeting of the Board of the Company.
Now, what is the minimum number of directors required for a quorum. According to sub-section (1) of Section 174, the quorum for a meeting of the Board of Directors (BOD) of a company shall be:
a) 1/3 of the total strength; or
b) 2 Directors.
As per the explanation given under section 174 of CA 2013:
(i) Any fraction of a number shall be rounded off as one;
(ii) “Total strength” shall not include directors whose places are vacant.
However, the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum under sub-section (1) of Section 174.
As per the explanation given in Rule 3(5) of the Companies (Meetings of Board and its Powers) Rules, 2014, a director participating in a meeting through video conferencing or other audio visual means shall be counted for the purpose of quorum, unless he is to be excluded for any items of business under any provisions of the Act or the rules.
Quorum for Non-profit Companies:
According to the exemption Notification No. G.S.R. 466(E) dated 5th June, 2015, the quorum for Section 8 (Non-profit) Companies shall be:
a) 8 Members; or
b) 25% of the total strength.
However, you should remember that in case of Non-profit Companies, the quorum shall not be less than two members.
Number of Directors below the Quorum [Section 174(2)]:
If at any point of time the total number of directors is less than the quorum required, you shall not hold the Board Meeting. However, the continuing directors may act notwithstanding any vacancy in the Board.
According to sub-section (2) of Section 174 of CA 2013, if and so long as the number continuing directors is reduced below the quorum fixed by the CA 2013 for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company and for no other purpose.
In other words, if total number of directors is less than quorum required, the board would transact only TWO matters:
- To increase No. of Directors for Quorum; or
- To summon a General Meeting.
That means, you cannot hold board meeting to act other than the above two purposes when you have no quorum. First you have to increase the number of directors up to the minimum number of directors required for quorum and then hold the meeting to transact any business of the company.
You may also refer the Paragraph 69 of Table-F (Articles of association of a company limited by shares) and Paragraph 21 of Table-H (Articles of association of a company limited by guarantee and not having share capital) of Schedule I of the Companies Act, 2013.
Number of Interested Directors [Section 174(3)]:
Where at any time the number of interested directors exceeds or is equal to two thirds of the total strength of the Board of Directors, the number of directors who are not interested directors and present at the meeting, being not less than two, shall be the quorum during such time.
In other words, if interested director exceed or equal to 2/3 of total strength the remaining directors not being less than 2 (two) shall be the quorum for Board Meeting of the Company.
As per the explanation given under sub-section (3) of Section 174 of the Companies Act, 2013, “Interested Director” means a director within the meaning of sub-section (2) of section 184. According to Section 184(2) of CA 2013, “Interested Director” means every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into—
(a) with a body corporate in which such director or such director in association with any other director, holds more than 2% shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or
(b) with a firm or other entity in which, such director is a partner, owner or member, as the case may be,
shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting.
However, where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board held after he becomes so concerned or interested.
Following are the exceptions provided for the purpose of Interested Directors:
- In case of Private company, sub-section (2) of section 184 shall apply with the exception that the interested director may participate in such meeting after disclosure of his interest. – Notification No. G.S.R. 464(E) dated 5th June, 2015.
- In case of Section 8 (Non-profit) Companies, sub-section (2) of section 184 shall apply only if the transaction with reference to section 188 on the basis of terms and conditions of the contract or arrangement exceeds one lakh rupees. – Notification No. G.S.R. 466(E) dated 5th June, 2015.
Board Meeting not held for want of Quorum [Section 174(4)]:
Where a meeting of the Board could not be held for want of quorum, then, unless the articles of the company otherwise provide, the meeting shall automatically stand adjourned to the same day at the same time and place in the next week or if that day is a national holiday, till the next succeeding day, which is not a national holiday, at the same time and place.
According to Section 173(5) of the Companies Act, 2013, the entire provisions of Section 174 shall not apply to One Person Company in which there is only one director on its Board of Directors.