A BOARD BELOW THE QUORUM

After the list of disqualified directors made public by Government of India, Many companies facing “no director on board” or “board below the quorum” situations. In last post here, we discussed the first situation. Now, we will discuss the second one.

According to Section 149(1)(a), every company shall have shall have a minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company. In case, all directors on the Board of a company disqualified, the first situation discussed earlier will arise.

According to Section 174(1) the quorum for a meeting of the Board of Directors of a company shall be one-third of its total strength or two directors, whichever is higher. Where the number of directors reduced below the number required forming the quorum, its board may not work. However, there is one exception.

Section 174(2) provides, the continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act 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.

Articles 69 of the Table F and article 21 of H forming ideal Articles of Association,  also have similar provision with similar words:

The continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act 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, but for no other purpose.

As long as, the number of directors in the board not reduced below the quorum fixed, it may function properly irrespective the vacancy. Board may also fill the vacancy on the Board by appointing an Additional Director or, where articles so permit, a Director. However, once, the number of directors reduced below the number required for the quorum under the Act, it may not function properly but for the limited purpose only.

This subsection provides only two exceptional agenda, for which such board may function:

1. Increase the number of directors fixed for the quorum by the Act; and/or
2. Summoning a general meeting.

Increase the number of directors

How many numbers such board below the quorum may add to itself? Simply, only up to the quorum only. Any appointment on the Board by such Board above the requirement of the quorum shall not be proper. Any additional appointment on the board above the requirement of the quorum shall be made by a full quorum board. Once the Board of Directors has numbers required for the quorum, it may function properly, irrespective of any vacancy remaining.

Summoning a general meeting

A general meeting is all power body for the company. The Act correctly allows summoning a general meeting by a board below the quorum and reduces the requirement for court convened meetings. The general meeting so summoned may take any agenda permissible for any other general meeting. However, this General Meeting may not be an Annual General Meeting because of the other requirement related to the annual account and annual report. Presumably, such general meeting shall have an appointment of directors on the board as one of the agenda items.