Ministry of Corporate Affairs: Relaxation of Rules Pertaining to Conduct of Statutory Meetings

In view of the ongoing travel restrictions to restrict the spread of COVID-19, multiple stakeholders, including the Institute of Company Secretaries of India (“ICSI”), had made representations to the Ministry of Corporate Affairs (MCA) requesting a relaxation in the applicability of certain provisions of the Companies Act, 2013 (“Act”) pertaining to the conduct of board and shareholder meetings.

Section 173 of the Act permits directors to attend board meetings through video/audio-visual conference and Section 174 states that attendance through video/audio-visual conference counts as quorum. Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014 discusses procedures to be followed if any director elects to attend a board meeting through audio-visual/video conference.

However, Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 states that the following matters shall not be dealt with in any meeting held through audio-visual /video conferencing provided that where there is quorum presence in a meeting through physical presence of directors, any other director may participate conferencing through video or other audio visual means:

(i)             the approval of the annual financial statements;  

(ii)           the approval of the board’s report;  

(iii)         the approval of the prospectus;  

(iv)    the audit committee meetings for consideration of financial statement (including consolidated financial statement if any), to be approved by the board; and  

(v)           the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover

On 18 March 2020, the MCA issued a notice granting in-principle approval for relaxation of the requirement of physical presence of directors in board meetings until 30 June 2020. On 19 March 2020, the MCA notified the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 – to insert the following in Rule 4:

“(2) For the period beginning from the commencement of the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 and ending on the 30 June 2020, the meetings on matters referred to in sub-rule (1) may be held through video conferencing or other audio visual means in accordance with rule 3”

This is a welcome step indeed and will provide some much needed relief to companies whose directors do not operate out of the same geographic location. However, it must be noted that no relaxation has been made for the conduct of shareholders’ meetings.

Simultaneously, the MCA also issued an “Advisory on Preventive Measures to Contain the spread of COVID-19”. Here, the MCA affirmed that it was examining the Act to ascertain other relaxations that would increase the ease of functioning for companies under the pandemic. The MCA also stated that companies and LLPs are “expected and strongly advised” to institute work from home policies at least until 31 March 2020, to help propagate social distancing as a weapon against the spread of COVID-19. The MCA also recommended the institution of staggered shifts for essential workers.

To adjudge corporate preparedness, the MCA stated that a web-form CAR (Companies Affirmation of Readiness towards COVID-19) would be made available from 23 March 2020 onward. This form will need to be filed by every company and LLP. The format of web-form CAR (available here) requires each company and LLP to self-declare its compliance with COVID-19 guidelines, including the availability of a work-from-home policy.

However, web-form CAR does not appear to need any attachments (such as a copy of a COVID-19 Preparedness Policy or a work from home policy. Further, the consequences of non-compliance have not been outlined. This is probably because, as on date of writing, no binding rule or mandate has been issued by MCA obligating companies and LLPs to institute a work from home policy – it remains a strong suggestion. 

As India enters a rigorous lock-down phase across large swathes of the country, it may be necessary for MCA to bolster this requirement, at least for those enterprises where some or all of the employees can work remotely.