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DIRECTOR’S RIGHT OF DIGITAL PRESENCE IN BOARD MEETINGS:

Order pronounced on 22nd June, 2016 by New Delhi Bench of National Company Law Tribunal (NCLT)

In the matter of

Mr. Rupak Gupta & Another….. (Applicant)

 Vs.

 U.P. Hotels Limited ………….(Respondent Company)

& Others…………………………..(Respondent Director)

Facts of the Case:

Applicant and his mother were Directors of the Respondent Company. On 28th May, 2016, applicant received a notice for a Board Meeting of the Company to be held on 4th June, 2016 having agenda item of selection of a Company Secretary and to deal with other matters with permission of the Chair. As the selection of Company Secretary is a major item for the Company, applicant and his mother were desirous of attending the Board Meeting. However, they had scheduled for foreign visit for the period ranging from 1st June, 2016 to 14th June, 2016 and because of this reason applicant and his mother requested for rescheduling of the Meeting either on or before 1st June, 2016 or after 14th June, 2016. In return, Respondent Director assured for rescheduling and fixed the date on 1st June, 2016.

But on 30th day of May, 2016, another notice for the Board meeting was sent to the applicant about rescheduling the Board Meeting from 1st June, 2016 to 4th June, 2016. The reason communicated to the Applicant was that the candidates who had applied for the post of Company Secretary would not be able to come for an interview on 1st June, 2016 and thus meeting to be held on 4th June, 2016.

Owing to the importance concerning the position of Company Secretary in the Company, the Applicant requested for facility to participate in the Board meeting through video conferencing and the Respondent assured that the same would be provided. The Applicant and his mother, trusted the Respondent Director’s assurance, and left for their scheduled trip.

The Respondent Director, on 3rd June, 2016, sent the Applicant an email informing him that he and his mother would not be permitted to participate in the meeting through video conferencing in order to comply with Rule 3(3)(e) of Companies (Meetings of Board and its Powers) Rules, 2014.

Even though Applicant sent his staff to arrange for video conferencing through Skype, the Respondent Director disconnected the Skype facility to prevent the Applicant and his mother from participating in the Board Meeting.

In the same Board Meeting they appointed an Independent Director (Additional Director) of the Company. Further on 22nd June, 2016 another Board Meeting was held and the minutes of the Board Meeting held on 4th June, 2016 were considered to give effect to the resolution passed in the Meeting held on 4th June, 2016.

In defence, Respondent Director cited Rule 3(3)(e) of the Companies (Meetings of Board and its Powers) Rules, 2014. For ease of reference the said Rule 3(3)(e) is reproduced below:

"…Rule 3(3)(e) - The director, who desires, to participate may intimate his intention of participation through the electronic mode at the beginning of the calendar year and such declaration shall be valid for one calendar year."

The Respondents contended that there being no prior intimation from the Applicant at the beginning of the calendar year for participation in the Board Meetings through video-conferencing, the Applicant and his mother were barred by the fetters of Rule 3(3)(e) of the Companies (Meetings of Board and its Powers) Rules, 2014, and, thus, could not be permitted to participate in the Company's Board Meeting via video-conferencing.

NCLT on the Issue:

The NCLT held that:

  • Sub Rule 3(e) states that intimation given at the beginning of a calendar year will remain valid for the entire year. It is not said anywhere that if an intimation to participate in a meeting through video conferencing or any audio visual mode is not given at the beginning of the year, the directors are not entitled to participate in the said meeting through video conferencing.
  • Holding a Board meeting and passing Board resolution by preventing the Applicant and his mother from participating in the said meeting was unfair.

The NCLT, therefore passed interim orders staying the operation of the resolutions passed in the Board Meeting held on 4th June, 2016 and to withhold the passing of resolutions in respect of other important items that were part of the Board Meeting held on 22nd June, 2016.

Conclusion:

From the present case, we can conclude that:

  • Director intending to participate through video conferencing or audio visual means shall communicate his intention to the Chairperson or the Company Secretary of the company.
  • It is important to note that sub Rule 3(e) of Rule 3 of Companies (Meetings of Board and its Powers) Rules, 2014 provides an option to the Director to submit a declaration stating their desire to attend the Board Meeting through e-mode at the beginning of the calendar year and such declaration shall be valid for one year. If a director fails to give such a declaration, he cannot be prevented from participating in the Board meetings through video conferencing and audio visual means.

From the above decision of NCLT, it is spreading a clear and strong message that oppressive act perpetrated by the Directors of the Company will not be tolerated. As NCLT is clothed with far reaching powers, it is protecting stakeholders’ interest and making responsible persons more accountable.

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