Prof R Balakrishnan – [2023] … Continue reading “[Opinion] Holding Mandatory Board Meetings for Compliance Still Necessary in the Current FY”
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Prof R Balakrishnan – [2023] 149 taxmann.com 331 (Article)
1. The Preamble to the article
The issue in this case revolves around the calendar year v/s the financial year. Hence, we shall try to examine at the first place, the term “year” refers to the calendar year or financial year in the first place. The term “year” is not defined in the Companies Act 2013 and therefore the definition needs to be referred to under the General Clauses Act, 1897 in this respect.
The Companies Act 2013 relating to meetings of the board states that every company shall hold the first meeting of the board of directors within thirty days of the date of incorporation and thereafter hold a minimum number of four meetings of its board of directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the board. (Section 173(1) of the Companies Act 2013).
Here, one could note that the Act talks about a year and does not say specifically calendar year or financial year. It may also be noted that the stipulation in the Companies Act 2013 in case of a one-person company, small company or Dormant and private company, if such private company is a start-up company, it shall hold at least one meeting of the board in each half of a calendar year also clarifies the intention of lawmakers to mean calendar year and not the financial year. (Section 173 (5) of the Companies Act 2013).
In view of the above, the calendar year has been prescribed in the secretarial standard -1 relating to meetings of the board of directors for reckoning a minimum number of meetings to be conducted by the companies as per the provisions of the Companies Act 2013.
At this stage, we could conclude by saying that the board meetings provisions relating to the minimum number of meetings to be conducted are required to be reckoned with reference to the calendar year and not with reference to the financial year.
2. Brief about this case
M/s ETSYSTORE Private Limited had conducted the mandated minimum of four meetings in a financial year within the maximum interval not exceeding one hundred and twenty days between any two consecutive meetings as prescribed in the Act and they were under the impression that they had adhered the requirements of the provisions of the Companies Act and they were fully compliant.
However, when the meetings were reckoned with reference to the calendar year – the company had committed default with respect to one of the board meetings and the regulator had initiated penal proceedings and the company and its directors were penalized for this non-compliance to a tune of rupees 1.64 lakhs.
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