Should board meetings by video conferencing be mandatory? Govt should exclude small firms from the provision

Is a company bound to provide facilities to directors to participate in board meetings via video conferencing? The National Company Law Appellate Tribunal (NCLAT) has answered in the affirmative provided even one director so desires. This is through its recent decision in the case of Achintya Kumar Barua vs. Ranjit Barthkur.

Section 173(2) of the Companies Act, 2013 provides that a director may participate in a board meeting in person or through video conferencing or through audio-visual means. Clearly, then, a director has three alternative methods to attend a board meeting. The question was whether these options arise only if a company provides such a facility or whether the director can insist that he be provided all three choices and he will choose one of them.

It is obvious that video conferencing facilities will have to be at both ends – at the place where the director is located and the place where the board meeting is actually being conducted (assuming that all directors are not attending by video conference). Thus, for video conferencing to work, the company too will have to arrange for such a facility at their end at the venue of board meeting.

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Board meetings by video conferencing are not simple matters even in these times. They would not only require bearing the cost of video conference facilities but also carrying out several other compliances. This makes the effort cumbersome and costly particularly for small companies. Moreover, the proceedings would become very formal. Directors would be aware that their words and acts are being recorded. These video recordings can be reviewed for legal and other purposes particularly for deciding who was at fault in case some wrongs or frauds are detected in the company.

Before the NCLAT, the company argued that the option to attend by video conferencing to a director arises only if the company provides such right. The NCLAT, however, held that the right was really with the director. Thus, if the director makes the choice of attending by video-conferencing, the company will have to conduct the meeting accordingly. The NCLAT observed, “...Section 173(2) gives right to a director to participate in the meting through video-conferencing or other audio-visual means and the Central government has notified rules to enforce this right and it would be in the interest of the companies to comply with the provisions in public interest.”

The company then argued that the relevant secretarial standards stated that board meetings could be attended by video conferencing only if the company had so decided to provide such facilities. The NCLAT rejected this argument saying that in view of the clear words of the Act, such standards could not override the Act and provide otherwise.

The NCLAT finally showed the positive aspect of video conferencing. It said it could actually help avoid many disputes on the proceedings of the board meeting as a video record would be available.

It is to be emphasised that the requirements of Section 173 apply to all companies – listed, public and private. Hence, the implications of this decision are far reaching. If even one director demands the facility of video conferencing, all the requirements will have to be complied with by the company.

Rules three and four of the Companies (Meeting of Board and its Powers) Rules, 2014, provide for greater detail of the manner in which the meeting through video conferencing should be held. Directors should be able to see each other, there should be formal roll call including related compliance, among other things. There are elaborate requirements for recording decisions and the minutes in proper digital format.

In these days, meetings so held can help cut costs and time, particularly when the director is in another city or town or in another country. However, there are attendant costs too. If one director could insist on attending by video conferencing and the result is that the whole proceedings would have to be so conducted and much of the costs would be borne by the company.

Certain resolutions such as approval of annual accounts, board report, among other things, cannot be passed at a meeting held by video-conferencing. However, a new proviso inserted into Section 173(2) by the Companies (Amendment) Act, 2017, though not yet brought into force, states that if there are enough directors physically present to constitute the quorum, then, even for such resolutions, the remaining directors could attend and participate via video conferencing.

Thus, it is best if the government reviews the matter urgently and excludes particularly small companies – private and public – from the scope of these provisions.

The writer is a Mumbai-based chartered accountant.