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2021

Requirement of Quorum under Companies Act, 2013

Requirement of Quorum under Companies Act 2013

A ‘Quorum’ in simple words means the minimum number of members that have to be present. Under the Act, the quorum for a General Meeting, a Board Meeting and an Extraordinary General Meeting is enumerated within its provisions.

A quorum refers to the minimum acceptable level of individuals with a vested interest in a company needed to make the proceedings of a meeting valid under the corporate charter. This clause or general agreement ensures there is sufficient representation present at meetings before any changes can be made by the board.

A quorum normally consists of a group that is considered as large as possible to be depended on to attend all corporate meetings, which is a qualitative assessment. The plural of a quorum is "quora."

The Companies Act, 2013 (hereinafter referred to as the Act) requires that a company established under the Act has to hold General meetings as well as Board meetings periodically. To ensure that the companies follow this regulation and that such meetings are held properly, it requires a quorum to be met for it to be deemed as a valid meeting.

Requirement of Quorum under the Companies Act, 2013:

General Meetings:

Section 103 of the Act states the quorum required for a General Meeting. Under this Section, unless the Articles of Association of the company provide for a larger quorum, the minimum quorum must be:

For public companies:

Number of Members of the Company Quorum
Not more than one thousand. 5 Members
More than one thousand but less than five thousand. 15 members
More than five thousand members. 30 members

For Private Companies:

  • In the case of a private company regardless of the number of members, two members must be present for the quorum to be met for a meeting.
  • Sub-clause (2) and (3) of the same Section, the Act provides for when the quorum has not been met. If the quorum is not present within half an hour of the timeset for the meeting to begin, then the following options will be applicable:
  1. The meeting will be adjourned, and it shall be held on the same day and at the same time next week, or any other date and time as the Board may determine.
  2. If the meeting is adjourned then the date, time and place of the meeting will be notified personally or via advertisement.
  3. The advertisement must be published in both English as well as the vernacular language in a newspaper which is in circulation at a place where the registered office of the company is situated.
  4. The meeting, if called by requisitionists under Section 100, shall stand cancelled.

Under sub-clause (3), if the quorum is not present at the adjourned meeting, then the members present shall be the quorum.

Board Meeting:

  • A board meeting is a meeting that is held between the directors of a company.
  • Such meetings are held usually to take important decisions about the company.
  • To make sure that such decisions are not taken arbitrarily, the Act requires a quorum for the meeting and the decisions taken in the meeting to be valid.
  • Section 174 of the Act provides the quorum for a board meeting.

Section 174(1):

  • The quorum for a board meeting must be 1/3rd of the total number of directors or 2 directors whichever is the higher number.
  • Therefore in case, there are only three directors in a company, then at least two must be present even though 1/3rd would entail that only one director needs to be present.
  • If the directors are not physically present but take part in the meeting via any audio/visual means, they too shall be considered part of the quorum.

Section 174(2):

  • In the case where the quorum for a board meeting is not present, the directors may only take two courses of action:
  • They may act for the purpose of increasing the number of directors to that fixed for the quorum or;
  • They may act to summon a general meeting.

Section 174(3):

  • Where the number of interested directors , i.e. directors who have invested in the company, exceeds or is equal to 2/3rd of the board of directors, the number of not interested directors present at the meeting has to be at least 2 for the quorum.

Section 174(4):

  • In the case where the board meeting could take due to the lack of the quorum, the board meeting shall be adjourned.
  • This is subject to the Articles of Association of the company.
  • Therefore as long as the articles of the company do to state otherwise the meeting will be adjourned. The meeting will be adjourned to the same time and place as the original meeting on the same day the following week.
  • In the case where the adjourned date is a national holiday, then the board meeting will be held at the same place and time on the following day.

Calculation of Quorum:

  • In the case where when calculating 1/3rd or 2/3rd of the strength of the board of directors, if the final number is in fractions, then it shall be rounded off to one.
  • When calculating the strength of the board of directors, one should not take into account directors whose place is vacant.

Exception: A valid meeting may be constituted by the presence of one person in the following cases:

  • If the meeting is an annual general meeting which was called by, or on the direction of, the registrar pursuant to S.131(2). In such a case, the section empowers the registrar to direct “that one member of the company present in person or by proxy shall be deemed to constitute a meeting”.
  • If the meeting is one which has been called pursuant to a court order under S.135(1). The section empowers the court to direct that “one member of the company present in person or by proxy shall be deemed to constitute a meeting”. This is illustrated by Re: El Sombren Ltd (88).
  • If the meeting is a class meeting held pursuant to the provisions of the articles for the purpose of authorizing a variation of a right to those shares and all the shares are held by one member, as in East v Bennett Brothers Ltd(94).
  • If the meeting is an adjourned meeting and the articles provide that “the member or members present shall be a quorum”.

 

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