What can a Company do if it Misses a Board Meeting?

What is a Board Meeting?

Meetings are an essential part of carrying out any business. A formal meeting of the Directors of a company is organized to address encountered problems and discuss the plans for future to ensure the smooth company operations.

These meetings are organized at specific venues and  times and are aimed at achieving certain goals and predetermined objectives. Board meetings are held to tackle complicated issues, review progress, make new policies, take vital decisions, assess compliances and other handle other highly important matters.

Considering its importance, unlike general meetings and events, you need to prepare extensively for board meetings, as it will be attended by all the Directors and possibly even experts, who have been called in for specific issues.

Secretarial Standard

Secretarial Standards (SS)-1 serves as a fundamental framework that companies must follow when setting up and conducting board meetings.

These standards play an important role in promoting good governance practices, enhancing board efficiency, and fostering confidence among investors, shareholders, and other stakeholders.

The guidelines provided in SS-1 covers various aspects of board meetings, including convening of meetings, maintaining quorum, noting minutes, and preserving records.

General Provisions of conducting a Board Meeting

Section 173 of the Companies Act, 2013 envisages provisions for conducting Board Meeting.

• First Board Meeting: Every company must within 30 days from the date of incorporation conduct a Board Meeting.
• Gap between two Board Meetings: The gap between two Board Meetings should not exceed 120 days.
• Minimum number of Board Meetings: Every company must hold a minimum of Four Board Meetings in a calendar year.
• Mode of conducting Board Meetings: Board Meetings can be conducted physically or through video conferencing or audio-visual means.
• Notice of calling Board Meetings: Notice, agenda and notes on agenda shall be given at least 7 days before the Meeting in writing to every director at their address registered with the company through hand delivery or by post or by facsimile or by e-mail or by any other electronic means. With consent of all directors, a meeting may be called on a shorter notice as well.

Consequences of not conducting a board meeting as per the provisions of the Companies Act, 2013

Any company not complying with the provisions of the Companies Act regarding the calling and conducting of a Board Meeting shall be liable for penalties as prescribed under the Act. The Company may suo moto, or the adjudicating authority i.e.; Registrar of Companies, may initiate penalty proceedings against the company in case of default.

Section 173(4) Every officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty-five thousand rupees.

Section 450 If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be 1[liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person]

Penalty

Section 174(4) of the Companies Act, 2013 contains penalty provisions in case of failure to give notice of Board Meeting.

• A penalty of INR 25,000 shall be imposed on the Company Secretary/Officer of the Company for not giving notice of Board Meeting.

For other non-compliances of the provisions of Section 173, penalty provisions contained in Section 450 shall apply.

According to the Section, where a contravention of any section of the Act has been committed either by a company or by an officer of the company or by any other person and no specific penalty or punishment is provided for that particular contravention, then Section 450 of the Act comes into play.

• First contravention: INR 10,000
• Further contravention:
  •     Company: Maximum of INR  2 lakhs
  •     Officer of the company or any other person: Maximum of INR 50,000

Process of Compounding

Compounding of offences means a settlement between the person committing an offence i.e. offender (Company) and the competent authority (ROC/RD/NCLT). Under this settlement, the offender pays an amount to the competent authority, i.e. a fine, to save themselves  from imprisonment/ prosecution.

Step-1 Calculating amount of penalty.

Step-2 Holding Board Meeting and authorising director to file a compounding application.

Step-3 Filing compounding application with ROC in form GNL-1.

Step-4 ROC will forward the application to concerned compounding authority (RD/NCLT).

Step-5 Personal hearing before the compounding authority.

Step-6 Order passed by the compounding authority and payment of penalty.

Step-7 Filing compounding order in e form INC-28 within 7 days from receipt of the order.

Relevant Case Laws

For not conducting minimum Board Meetings

Etsystore Private Limited vs ROC: ROC Delhi imposed penalty amounting to INR 45,000 for not conducting four Board Meetings in the calendar year 2020. During the year 2020, the company had conducted only 3 Board Meetings. ROC issued a show cause notice to the company vide No ROC/D/Adj/2022/Section173/ETSYSTORE/822-826 dated 20.02.2023 and imposed penalty.

In another case of Goodluck Petroleum Company Private Limited vs ROC, ROC Cum OL, Chhattisgarh imposed penalty under section 450 of the Companies Act, 2013 for contravening provisions of section 173(3) of the Companies Act, 2013 by not conducting Board Meetings from 2014-15 to 2021-2021. The penalty amounted to INR 2,40,000.

For not conducting First Board Meeting within 30 days from date of incorporation

Dhandho India Private Limited a Company incorporated on 18.05.2015 held its first Board Meeting on 17.09.2015, thereby contravening the provisions of section 173(1). The meeting could not be held within 30 days due to non-availability of directors and later the Company filed a compounding application with ROC and the application was forwarded to NCLT, Mumbai Bench.

The NCLT, after review of the application, observed that the said application violated the provisions of Section 173(1) of the Act, and the compounding of this offence falls under the punishment mentioned under Section 450 of the Act. The NCLT imposed a fine of INR 25,000 on each applicant in default i.e., the company and its two directors.

Conclusion

Board meetings are crucial gatherings of the top authorities of a company, making it imperative to ensure everything is up to the highest standards and in accordance with the regulations mentioned in the Act. In the event of contravention of the law resulting due to non-compliance of provisions of the Companies Act, 2013, penalties can be imposed against the company by the competent authorities. Hence it becomes impeccable for the companies to abide by the law and adopt good corporate governance.

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