The COVID-19 pandemic has severely altered the manner in which companies conduct their business. Almost all leading industrialised nations have already enacted crisis legislation in the field of company law. It has become difficult and sometimes impossible to conduct in – person meetings. After taking the cognizance of the disruptions in the functioning of companies, the Ministry...
The COVID-19 pandemic has severely altered the manner in which companies conduct their business. Almost all leading industrialised nations have already enacted crisis legislation in the field of company law. It has become difficult and sometimes impossible to conduct in – person meetings.
After taking the cognizance of the disruptions in the functioning of companies, the Ministry of Corporate Affairs, Government of India ("MCA") announced several relaxations in regulatory and statutory compliances to enable companies to tide over this period of disruption.
There have been numerous fields within the Company Law within which the relaxations announced by the MCA have been particularly active. Firstly, the last date of various schemes was extended upto 31st December, 2020. Secondly, the time for creation of DRR was extended upto 31st December, 2020. Thirdly, the last date to enter details in Independent Director's data bank was extended. Fourthly, there has been inclusion of spending funds on tackling COVID – 19 as a CSR activity. Fifthly, companies may hold Extra Ordinary Meeting (EGM) through Video Conference (VC) or other audio – visual means (OAVM) upto 31st December, 2020. Sixthly, the MCA allowed board meeting to be held via video conference on restricted matters for a temporary period.
This article seeks to discuss the temporary relaxation provided by the MCA with regard to virtual meetings. Virtual meetings are helping not only by preventing the spread of the infection, but also in lowering the cost of holding meetings. However, there exist serious concerns about companies' security and suppression of the minority's voice.
This article analyses the future of the virtual meetings, post COVID 19 after weighing the advantages and disadvantages. It also makes certain proposals for moving forward towards best practice for the conduct of virtual meetings while safeguarding the interests and concerns of companies and investors.
VIDEO CONFERENCING OF BOARD MEETINGS UNDER THE COMPANIES ACT, 2013 – NOT A NEW CONCEPT
The Companies Act, 2013 provides for holding board meetings through video conferencing. Section 173 (2) of the Companies Act, 2013 allows the director of a company to participate in a meeting Board through Video Conferencing, provided that the Company is 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. However, the Central Government is empowered to take a call regarding the matters or items that shall not be dealt with in a meeting through Video Conferencing.
Rule 4 of The Companies (Meetings of Board and its Powers) Rules, 2014 enumerates the following matters which cannot be raised in any meeting through Video Conferencing:
- the approval of the annual financial statements; the approval of the Board's report; the approval of the prospectus;
- the Audit Committee Meetings for consideration of financial statement including consolidated financial statement if any, to be approved by the board; and the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
The Legislature has further to remove the hardships caused by the exception enumerated above, introduced the Companies Law (Amendment) Act, 2017, w.e.f. 7th May, 2018, wherein another proviso was inserted to this Section. The said proviso states that where there is quorum in a meeting through physical presence of directors, any other director may participate through Video Conferencing in such meeting on any matter specified under the first proviso.
In Achintya Kumar Barua v Ranjit Barthkur[1], the National Company Law Appellate Tribunal (NCLAT) held section 173(2) of the Act read with the Companies (Meetings of Board and its Powers) Rules, 2014 to be a 'progressive step', as the said provisions confer the right upon a director to participate in a meeting through video-conferencing or other audio-visual means, and the Central Government has notified the aforesaid rules to enforce this right. The NCLAT observed that it would be in the interest of the companies to comply with the provisions in public interest.
PROCEDURE FOR CONVENING AND CONDUCTING THE BOARD MEETINGS THROUGH VIDEO CONFERENCING OR OTHER AUDIO VISUAL MEANS.
Rule 3 of The Companies (Meetings of Board and its Powers) Rules, 2014 stipulates various important points which is to be ensured for a meeting conducting through Video Conferencing or other audio visual means.
Notice of Board Meeting: The Directors shall be informed about the option to participate in the board meeting through Video Conferencing or other audio visual means and all necessary information regarding the same, by a notice. The director who intents to attend the meeting through video conferencing or other audio visual means is obligated to intimate regarding the same to the Chairperson or the Company Secretary of the Company. In order to enable the Company to make suitable arrangements, the Director is also obligated to give prior intimation about his intention to participate in the Board Meeting through video conferencing or other audio visual means, in advance.
Arrangements: The Necessary arrangements shall be made by the Company to avoid failure of video or audio-visual connection.
Safeguard Integrity: It will be the duty of the Chairperson/Secretary to ensure that only the concerned director is attending or has access to the proceedings of the meeting conducted through Video Conferencing.
Proper Facility: There should be clear audio and video for the participants who are attending the meeting through Video Conferencing during the course of the meeting. Companies shall, after thorough check of the various video Conferencing applications, choose the right application
Recording the proceedings: The Company must ensure the while choosing the video conferencing application, it chooses which has audio/video recording facility, so that it can be stored as part of the records of the company for at least before the time of completion of audit of that particular year.
Quorum: It is also to be ensured that throughout the meeting the required quorum is present.
Statutory registers: The Registers which are required to be there in the Board meeting as per the Companies Act must be placed at the scheduled venue of the meeting. Also, where the Act requires such to be signed by the directors, they shall be deemed to have been signed by the directors participating through electronic mode, if such directors gave their consent to this effect and it is so recorded in the minutes of the meeting.
Procedure: At the initiation of the board meeting, the Chairperson make a roll call at the commencement and the director's attending such meeting through electronic mode shall state the following:
- Name;
- Location from where he is participating;
- Confirmation the receipt of the agenda and relevant material facts of the meeting;
- Confirming that no person other than him/her is attending or have access to the proceedings of the meeting.
Proceedings of the Meeting: The director attending the board meeting through Video Conferencing shall identify himself for the record before speaking on any item of business on the agenda.
Whenever there is any interruption or garble with respect to a statement of a director, who's attending the meeting through Video Conferencing, there shall be a request by the Chairperson or Company Secretary for a repeat or reiteration by the Director.
It shall be the duty of the Chairperson to conclude the decisions which are taken during the meeting on each item of agenda transacted. The same should be with the voting details, at the end of the meeting.
The Chairperson has to make roll call at the end of the meeting and after every break.
Minutes: The minutes of the meeting have to disclose the particulars of the directors who participated in the meeting through Video Conferencing. There should be circulation of the draft minutes of the meeting among all the directors within fifteen days of the meeting either in writing or in electronic mode as may be decided by the Board. There should be confirmation by every director regarding the accuracy of recording of the proceedings of that particular meeting in the draft minutes, within seven days or some reasonable time as decided by the Board, after receipt of the draft minutes failing which, his approval shall be presumed. In compliance with Section 118 of the Companies Act, 2013, the minutes of meeting shall be entered in the minute book and should be signed by the Chairperson.
RELAXATION IN CONDUCTING BOARD MEETINGS THROUGH VIDEO CONFERENCING
To tackle the inconvenience caused to Companies due to conduct the Board meetings during the lockdown period, the Ministry of Corporate Affairs has issued the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 dated 19th March, 2020. These Amendment Rules dispensed with the requirement of the physical presence of the director at the Board Meetings of companies for a temporary period till 30th June, 2020. The Amendment permit such meetings though video conferencing temporarily.
Thus, these Amendment Rules create exception till 30th June, 2020 that all the items including the five items mentioned in Rule 4 can also be conducted through Video- conferencing or other audio visual means in accordance with Rule 3 of the The Companies (Meetings of Board and its Powers) Rules, 2014.
The Ministry of Corporate Affairs, again amended the aforesaid rules to further extend aforesaid temporary period till 30th September, 2020. Companies (Meetings of Board and its Powers) Second Amendment Rules, 2020.
Vide Companies (Meetings of Board and its Powers) Third Amendment Rules, 2020, the aforesaid temporary period was further extended till 31st December, 2020.
Most recently, the Ministry of Corporate Affair has notified the Companies (Meetings of Board and its Powers) Third Amendment Rules, 2020, which has extended the aforesaid temporary period till 30th June, 2021.
RELAXATION IN CONDUCTING EXTRA – ORDINARY GENERAL MEETING (EGM)
The Companies Act, 2013 does not permit the conduct of member meetings through Video Conferencing or other audio visual means.
However, pandemic caused by COVID – 19 on such colossal scale has constrained the Ministry of Corporate Affairs to issue a circular [2] for allowing companies to hold "Unavoidable" Extraordinary General Meetings (EGMs) through video conferencing (VC) or other audio-visual means (OAVM), complemented with e-voting facility or voting through registered emails. However, such permission to hold unavoidable EGMs through Video Conferencing was for a limited period till 30th June, 2020.
Later, the Ministry of Corporate Affairs issued another circular[3] allowing the companies to conduct their EGMs through VC or OAVM or transit items through ballot upto 30th September 2020.
Most recently, the Ministry of Corporate Affairs has allowed companies to conduct their EGMs through VC or OAVM up to 31st December, 2020 in accordance with MCA Circular No. 14/2020 dated 08th April, 2020.
RELAXATION IN CONDUCTING ANNUAL GENERAL MEETING (AGM)
Section 96 of the Companies Act, 2013 deals with calling, way of directing and time span of leading Annual General Meeting. This Section does not allow companies to assemble and direct the Conference through video conferencing or other general media.
However, by virtue of need for ceaseless adherence to the social separating standards and limitations set on the movement of people, it was essential. Consequently, the Ministry of Corporate Affairs permitted organisations to hold their Annual General Meeting (AGM) by Video Conferencing (VC) or other general media implies (OAVM) during the schedule year 2020[5].
Taking into consideration the hardship suffered by companies due to the outbreak of COVID-19, and the limitations on free movement of people, the Ministry of Corporate Affairs allowed companies to hold virtual meeting temporarily.
PROS OF HOLDING VIRTUAL MEETINGS OR MEETINGS THROUGH VIDEO CONFERENCING OR OTHER AUDIO VISUAL MEANS
Virtual meetings have the upside that they save travelling time, accessibility increases and it is likely that more members will attend meetings.
Crisp Meeting: In virtual meeting, if an agenda is clearly sent prior to the meeting, decision making becomes quick. However, in real time meetings, there tends to be delays and sometimes go off-track. Because online meetings tend to be shorter, there is a greater chance that the discussion will be focused.
Equality: In real time meetings, the seating arrangement plays an important role. However, the virtual meetings do not provide any disadvantage to any member on account of their seating position and all members can see each other clearly resulting in each member's buy-in, focus and decision making improves.
Harnessing the talent of experienced leaders: Seniors and experienced members of a Company work for multiple boards and thus, at times, they were unable to join due to the inability to accommodate additional travel. Now, virtual meetings enable attendance without geographical restrictions.
Including experts and thought leaders: In virtual meetings, it is easy to invite experts and leaders from different fields to guide through their enriching experiences to the members of the Company. The guests can easily and conveniently attend the session if it happens to be in the virtual form.
Cost Effective: With the virtual meetings or meeting through video conferencing, the cost of holding the meetings including the costs of physical facilities for hosting the meeting and of security requirements and personnel substantially reduces.
Comfort: The Virtual meetings also encourages few members of the Company to ask questions from the Board by removing their hesitation and anxiety about public speaking, with the use of the technology.
CONS OF HOLDING VIRTUAL MEETINGS OR MEETINGS THROUGH VIDEO CONFERENCING OR OTHER AUDIO VISUAL MEANS
Although, the benefits or the upside of holding meetings of the companies through videoconferencing or other audio visual means are notable, but there exists certain serious concerns as well.
The interests of minority shareholders are often ignored as shareholders are cherry-picked for questions during a meeting. The suppression of the voice of the minority is a significant concern which lead to the oppression of minority at the hands of the majority and the board.
One of the serious concerns of holding virtual meetings or meeting through Video Conferencing or other audio visual means is that the third party online platforms which are used for holding such meetings can be unfavourable for the Company, if such online platforms has access to sensitive information or company secrets which are discussed in the meeting. Such platforms may earn by selling such information, which would hamper the market position of the Company.
In videoconferencing, the users are put at the mercy of the technology, which can be disrupted or stopped halfway through a meeting due to some network issues. There can be disruptions in the meetings or its sessions on account of the technical glitches at any particular time. The decision making process would be eventually delayed. There are instances where the webcast technology may cause delays in transmission, leading to uncertainty in timing during the Questions and Answers and voting segments of the meeting. Thus, the meetings conducted through online mode can be rendered useless, at times, due to dropped connections, camera malfunctions and choppy video streams.
In videoconference meetings, it is impossible to look out for a time which would be reasonable to everyone because of difference in time in different locations in the world means it is virtually impossible to find a reasonable time for everyone.
Another downside of using video conferencing is that while conducting interviews everyone is not comfortable using the online format, so there exists certain cases where either the employer or candidate opts for a face-to-face meeting instead.
Another issue that arises with videoconferencing meetings is security. There are instances where in certain meetings, a very confidential information is generated. Thus, the companies prefer that their members go to the business trips rather than putting sensitive information of the company at risk.
In addition, there are also non-technical challenges faced during virtual meetings, which include the disruptions caused by people who raise their views or ask questions at the same time, during virtual meetings meeting.
PROPOSALS/SUGGESTIONS FOR MOVING AHEAD WITH THE CONCEPT OF VIDEOCONFERENCING AND OTHER AUDIO VISUAL MEANS (OAVM)
The concept of holding meetings through Videoconferencing or other audio visual means was not prevalent in our country until the pandemic struck, post which it became necessary to permit the Companies to operate through visual mode in order to maintain business continuity along with protecting the health of the public. Although this decision to hold Board meetings and shareholder meetings through the digitalisation was only for a temporarily period, but with the benefits which digitalisation offers, there exists a strong recommendation to make it permanent. However, certain proposals have been enumerated herein below, which should be considered:
AUTHORITY TO CONDUCT A VIRTUAL MEETING
Since our country lacks legislative norms which govern the virtual meetings of a company, legislators at first shall lay legal norms for holding such meetings on online platforms. However, before the legislature permits the virtual meetings, it must also ensure certain safeguards to assuage the privacy concerns of the Company.
Companies are also obligated to review their governing documents to ensure that they do not prohibit, either explicitly or implicitly, conducting virtual and hybrid meetings.
UPDATING MEETING PROTOCOLS TO ENHANCE SHAREHOLDER PARTICIPATION
Virtual meeting protocols can enhance shareholder participation or, if it is misused, can suppress it. Developing and following best practice in virtual meeting protocols as proposed below, combined with facilitative technology, is critical in maintaining investor confidence.
Just as the arrangements for physical meetings can vary based on the needs and profiles of the company and their investors, there is no "one size fits all" approach to virtual and hybrid meetings. The considerations raised here are therefore intended not to be prescriptive but instead to prompt discussion on appropriate guidelines.
MANAGEMENT OF QUESTIONS
While addressing shareholders' questions, transparency plays a pivotal role in building and retaining investor confidence. There must be protocols regarding management of shareholder questions and the same must be communicated in advance. This will dodge the perception that companies might manipulate or suppress undesirable questions.
It is considered that it is a fundamental right of the shareholder to ask questions at meetings. However, in virtual communications, the shareholders may fear that their right to ask questions be obstructed or weakened, if the management of the company has access to pre-screen and filter their questions. This concern can be addressed through the robust Question and Answers tools and keep it updated and refreshing the list of the questions.
For ensuring that the minority shareholders are not sabotaged by the majority, the management of the company should ensure that the good corporate governance is maintained at all times and the meeting duly complies with the necessary provisions of the Act and rules. Certain provisions such as Rule 20 of the Rules and Section 151 of the Act provide for the protection of interests of minority shareholders and prevent their oppression. Rule 20 provides for e-voting of shareholders with more than 1000 shares of a company in a meeting and Section 151 provides for appointment of directors elected by the minority shareholder.
SECURE AND RELIABLE TECHNOLOGY
- Elimination of the requirement for uncommon webcasting applications to take part in a virtual gathering;
- Use of versatile gushing to consistently progress between stream quality without intruded on playback or buffering;
- Provision of secure login and investor validation for participation, easily of access for investors, and distant democratic;
- Combined enlistment, casting a ballot and revealing programming;
- Provision of constant administration revealing, tweaked moment results screen and nitty gritty review detailing;
- Device autonomy, versatile to the investor's decision of gadget, to augment support.
NON – TECHNICAL CHALLENGES
Some techniques which can be used to overcome non-technical challenges experienced during virtual meetings include the Chairperson communicating rules of engagement at the beginning of each meeting, use of the chat box functionality to raise questions or comments, utilisation of the "hand raise" functionality and going around the virtual room requesting comments in a sequential manner.
Although, the decision to allow companies to hold virtual meetings was a temporary relief provided by the Ministry of Corporate Affairs during the pandemic, there exists a strong recommendation to make it a permanent measure.
The development of the virtual meetings is still in its infancy. However, there exists expectation that there will be a transition to virtual channels with increasing cross- border investment, the resulting geographic spread of investors, and the growing influence of the millennial generation on digital adoption in financial services.
Despite the downsides of the virtual meetings, if conducted with proper technology and measures, they hold the potential to increase shareholder participation. Shareholders through the digital channel can vote and ask questions live, who were earlier restricted to proxy vote due to their geographical location, now have the chance to vote and ask questions live. Further, if an effective amendment is introduced to permanently allow electronic delivery of meeting materials, there can be substantial reduction in the costs of shareholder meetings.
The use of virtual meetings or hybrid meetings has been already adopted by the several countries along with the statutory regulations over its conduct. However, in India, this scope is still uncertain but there is high possibility of amendments and regulations to come in place in Indian Corporate Law to conduct virtual meetings due to the existence of the Covid-19 pandemic and development of technology. Also, the decision to allow the companies to hold virtual meetings will aid the economic growth of India. This would require a revision to the important provisions of the Companies Act and related principles as likewise to the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.
Companies, investors and service providers, in conjunction with market regulators, need to work together to ensure that virtual meetings deliver the benefits of increased shareholder participation and engagement, and also support good corporate governance in a secure, reliable and cost-effective manner. As these actors draw on emerging practical experience to establish best practice, comfort and confidence in the conduct of virtual meetings will increase.
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