This is a very interesting query received recently.
One existing independent director is going to be retired at the conclusion of the upcoming Annual General Meeting of the company. The company (read management) do not want to renew the tenure of independent director. The name of another independent director has already been proposed by the management in the notice of the Annual General Meeting. Now, there is a proposal to call a Board Meeting just after (or next day) the conclusion of Annual General Meeting. As per the law and the articles of the company, there is a requirement of 7 days notice or 48 hours shorter notice for calling the Board Meeting. The outgoing independent director should receive notice of the Board Meeting. Will it really serve any purpose in law?
The query has the following points to discuss:
- Should the notice be given to a person who is going to be a director after a General Meeting but before the Board Meeting for which the notice is served?
- Should the notice be given to the outgoing director who shall cease before the meeting but after the date of the notice?
- Where notice is being given to the outgoing director, does it serve any purpose?
- Where notice is being given to the outgoing independent director, does it serve any purpose?
In term of Section 173(3), the company shall give the notice to all directors existing on the date of the notice. The Secretarial Standards also confirm the same. A person proposed to be a director is not a director until his formal appointment as director. However, he may be invited to the meeting as in invitee at the date of the notice. However, my submission is not complete on this point.
As mentioned hereinabove, the company shall give the notice to all directors existing on the date of the notice. A company may not escape its duty to serve notice to the outgoing director. This duty to serve the notice is more important when the recipient is an independent director.
All directors of the company are directors till the cessation of their directorship. As directors, they have to perform their duties as director until relieved from their duties. The company may not obstruct them in the accomplishment of their duties. Any failure to send the notice of the meeting to a director that too selectively will be a legal wrong.
When the notice be served to the outgoing director for a board meeting, he should perform all such duties which he shall otherwise perform for the company in which he continues to be a director. The director may take note, seek clarification and explanation, discuss agenda with other directors, and seek professional advice on the matter to be discussed in the Board meeting. More importantly, he may handover all these information as a good practice to the incumbent director for his benefit and for benefit of the company at large. This working may be important, where such notes are given by an outgoing independent to an incumbent independent director.
In the meeting, the invitee (who is now a director at the time of meeting) may arm with input from his predecessor and his own study as invitee performs better in the Board Meeting.
This practice should be developed as the secretarial standard for the Board Meeting or industry standards for independent directors.