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Satisfaction of Quorum Requirement in General Meetings by a Single Person: Not a Distant Possibility

September 13, 2018

[Debanga Goswami is a fourth-year student at WBNUJS Kolkata.]

 

The term ‘quorum’ can be understood as the minimum number of members required to be present in a meeting for it to be considered valid. A quorum is considered to be very essential because the presence of a very less number of people defeats the purpose of a meeting, i.e., to deliberate and take decisions on important issues in a democratic and transparent manner. Thus, quorum requirements for general meetings found a place in both the erstwhile and the present company law statutes in India.

 

Section 103 of the Companies Act, 2013 (Act) lays down the quorum requirement for general meetings. For the requirement of quorum to be fulfilled, the requisite number of members needs to be “personally present”. It implies that a proxy, i.e., a person representing a member of a company and voting on behalf of him or her in the meeting cannot be included within the quorum. However, there are a few exceptions to this rule. They are: (a) a representative of a body corporate; (b) a representative of the President of India or the Governor of a State; (c) a donee of a power of attorney. A person can represent more than one body corporate and each body corporate represented by him will be accorded one membership. However, a person representing more than one body corporate cannot complete the quorum on his own. He needs at least one member personally present along with him. This was affirmed in a clarification issued by the Department of Company Affairs of Ministry of Law and Justice, the predecessor of Ministry of Corporate Affairs. In the case of Awadhoot v. State of Maharashtra, the Bombay High Court also held that a quorum will need a minimum of two persons. The court, in the said case, based its reasoning on the common parlance understanding of the word meeting and said that it is not possible for a man to meet himself.

 

Though the above discussion may give an impression that the formation of a quorum with the personal presence of only one member is not possible, the guidance note on the secretarial standards does not negate this possibility, and lays down some probable exceptions which may be allowed under unavoidable circumstances. These exceptions are (a) in case of a class meeting, where the person holds all the shares of a class; and (b) orders from the NCLT under special circumstances. The guidance note on the secretarial standards, which is advisory in nature, helps the Board of Directors in effectively complying with the secretarial standards, which are made mandatory under section 118 (10) of the Companies Act, 2013.

 

A careful reading of section 103 of the Companies Act, 2013 makes it evident that there exist circumstances apart from the above mentioned ones under which the personal presence of only member is enough to constitute a quorum.  Such a situation occurs when a meeting is adjourned for the first time for want of quorum and the situation repeats itself even in the second time. In such a scenario, the Act prescribes that the members who are present will constitute the quorum. And as a rule of construction, the plural word ‘members’ would also include the single word ‘member’.[1]

 

If we apply this rule and exception in case of a private company, we arrive at a very interesting inference. For private companies, the required quorum for a general meeting is of two members. Thus, the lack of a quorum indicates towards only one possible situation, i.e. presence of one member, and if the Act permits a meeting with a lack of required quorum even for private companies, it leads us towards only one reasonable inference, i.e. the Parliament of India, while drafting the provision, contemplated and implicitly allowed a meeting with the personal presence of only one member. This inference is further bolstered by the fact that the Parliament did not make any difference in the manner and procedure of convening and adjournment of general meetings of a private and a public company. In addition to this, the English Courts, at various points in time, have supported the convening of meetings with a single member quorum. One such case is L. Opera Photographic Ltd., in re.,[2] wherein, in a two-member company, both the members were also appointed as directors. When a professional rivalry occurred between the two, the applicant called a meeting to remove the respondent from the position of director. The respondent did not attend the meeting and the appellant could not pass a resolution due to the lack of quorum. The applicant then applied before the court to constitute a one member quorum which was allowed. In the case of Sticky Fingers Restaurant Ltd., in re,[3] the court gave a similar order when there was a problem in transacting the business of the company when one of the two members, who were also its directors, could not attend the meeting(s).  

 

To conclude, application of the traditional meaning of ‘meeting’ may not be always beneficial for a company, especially when some members of the company are (mis)using this requirement of two members in order to veto the normal transaction of the business of the company for their own vested interests. Since the Act does not, in literal sense, prohibit a single member from forming the quorum for a meeting, the courts may allow convening of meetings in a situation if it is in the best interests of the company.

 

[1] Jarvis Motors (Harrow) Ltd. v. Carabott, (1964) 3 All ER 89

 

[2] 1989 BCLC 763 (ChD).

 

[3] 1992 BCLC 84 (ChD).

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