SECTION 174: QUORUM OF MEETING

SECTION 174: QUORUM FOR MEETING OF BOARD

A quorum is the minimum number of directors who must attend the proceedings in order to transact business validly at a duly convened Board meeting. The directors must not be disqualified to participate in the meeting. Unless the quorum is present at the meeting, it shall not be deemed to have been properly held.

Section 174 of the Companies Act, 2013 contains provisions in respect of quorum required for the meetings of the Board of Directors. These provisions are discussed as under:

(i) Quorum for a Board Meeting [Section 174 (1)]: In respect of quorum for Board meeting following points are noteworthy:

•  The quorum for a Board Meeting shall be one-third of its total strength or two directors, whichever is higher.
•  While calculating the quorum, any fraction of a number shall be rounded off as one.
•  The total strength shall not include those directors whose places are vacant.
•  The quorum needs to be present throughout the meeting.
   

It may be noted that the articles of a company cannot specify a quorum which is less that prescribed by Section 174 (1). However, there is no bar in fixing a higher quorum than required statutorily.

Modification

In case of a Section 8 Company, Section 174 (1) stands modified to state that quorum shall be either eight members or 25% of its total strength whichever is less, provided that the quorum shall not be less than two members.

The above modification is applicable subject to the condition that the Section 8 company has not committed a default in filing its financial statements under Section 137 or Annual Return under Section 92 with the Registrar. [Notification No. G.S.R.466(E), dated 5th June 2015 as amended by the Notification No. G.S.R.584 (E), dated 13th June 2017.)

(ii) Participation through electronic means to be counted for Quorum: The directors who participate by video conferencing or other audio-visual means shall also be counted for the purpose of determining the quorum at the meeting unless they are to be excluded for any items of business under any provisions of the Act or the rules.

(iii) In case when there is vacancy in the Board [Section 174 (2)]: In case there is any vacancy in the Board (i.e. strength is less than that mentioned in the Articles), the continuing directors may act irrespective of such vacancy.

However, the problem will arise when due to such vacancy/ies the number of directors is reduced below the quorum fixed by the Companies Act, 2013.

If this is the situation, the continuing directors or director may act for the following purposes only and nothing else:

1. to increase the number of directors to that fixed for the quorum i.e. appoint additional
   director; or
2. to summon a general meeting of the company.

(iv) Quorum in case of interested directors [Section 174 (3)]: Where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of Directors, the quorum shall be the number of non-interested directors who are present at the meeting; but their number must not be less than two. While calculating the quorum, any fraction of a number shall be rounded off as one.

Meaning of Interested Director: The term “Interested director” for the purposes of Section 174 (3) means a director within the meaning of Section 184 (2).

According to Section 184(2) “interested director” means every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into—

1. with a body corporate in which such director or such director in association with any other director, holds more than two per cent shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or
2. with a firm or entity in which, such director is a partner, owner or member, as the case may be.

Exception: In case of a Private Company which has not committed a default in filing its financial statement under Section 137 or Annual Return under Section 92 with the registrar, the provisions of Section 174(3) shall apply with the exception that the interested director may participate in such meeting after disclosure of his interest pursuant to Section 184.

(v) Adjournment of meeting which could not be held for want of quorum: As we have noticed that a Board meeting cannot be validly held if there is no quorum present. Thus, where a meeting of the Board could not be held for want of quorum, then, unless the articles of the company otherwise provide, the meeting shall automatically stand adjourned to the same day at the same time and place in the next week or if that day is a national holiday, till the next succeeding day, which is not a national holiday, at the same time and place.

(vi) Exemption to OPC: According to Proviso to Section 173 (5), the provisions of Section 174 relating to quorum are not applicable to such One Person Company (OPC) which has only one director on its Board.