Video Conference: An Option for Director or Obligation for Company
May 14, 2020 by Nidhi Kapoor
The mother provision for Video Conference (VC) are contained in Section 173 (2) of the Companies Act, 2013 which allows directors to participate in person or through a VC or other Audio-Visual means. The word ‘in person’ in Sec. 173 (2) should be read as ‘physically’, such that the intent of the language becomes –a director may participate in a board meeting either physically, or through VC or other audio-visual means.
The erstwhile Companies Act, 1956 did not have such an enabling provision, however, the Ministry did recognise the same pursuant to a circular dated 20/05/2011. With introduction of Section 173(2) under Companies Act, 2013, the Ministry explicitly added the following in the Act and we quote:
“The participation of directors in a meeting of the Board may be either in person or through video conferencing or other audio visual means, as may be prescribed, which are capable of recording and recognising the participation of the directors and of recording and storing the proceedings of such meetings along with date and time.”
Now the question arises as to whether attending meetings through VC is an option available with the directors or an obligation on the Company to provide this option?
It was argued by some that the above highlighted word ‘may’ means that the provision of this Section is directory and not mandatory to be followed by the Companies. To answer the above question, we would like to draw your attention to a NCLAT judgement (Company Appeal (AT) No. 17 of 2018 dated 08/02/2018) on the related matter and we quote:
“The word ‘may’ which has been used in this sub-Section (2) of Section 173 only gives an option to the Director to choose whether he would be participating in person or the other option which he can choose is participation through video-conferencing or other audio-visual means. This word ‘may’ does not give option to the company to deny this right given to the Directors for participation through video-conferencing or other audio-visual means, if they so desire.
The provisions of Section 173 (2) of the New Act are mandatory and the companies cannot be permitted to make any deviations therefrom. The NCLT directed to provide the facilities as per Section 173(2) of the New Act subject to fulfilling the requirements of Rule 3(3)(e) of the Rules.”
Our Understanding of Section 173(2):
Based on the MCA circular cited above, the NCLAT judgement and the inherent intent of the Section 173(2) read with Rule 3 (3)(b) of the Companies (Meetings of Board and its powers), 2013, it is safe to understand that it is indeed the right of the director to choose her convenient mode of participation at the Board Meeting. This right can only be exercised if she is given the opportunity and option to participate in the meeting through VC.
Further, as per the Rule, the Notice of the Board Meeting shall contain the instructions to enable the directors to participate through VC. Thus, it is an implied obligation of the Company to provide VC facilities with respect to all Board Meetings except such board meetings whereat restricted matters as per Rule 4 of the Companies (Meetings of Board and its powers), 2013 are to be conducted. Provided that such business may also be conducted through VC if a physical quorum is present at the place of the meeting.
Thus, it can be safely concluded that provision of VC is indeed an obligation on the Company and an option/ right available with the Directors.
In the present scenario where we are under a complete shut-down, Companies must come out of the traditional mindset of physical board meetings and allow board proceedings to embrace technology. However, certain relaxations on conducting Board Meetings have been provided owing to the covid pandemic.