NCLT’s ‘Singham’ act affirms Director’s right of digital presence in Board Meetings

The New Delhi Bench of the newly constituted NCLT, by its order pronounced on 22^nd June, 2016, in the matter of Mr. Rupak Gupta & Anr, versus M/s U.P. Hotels Limited & Ors [LSI-1130-NCLT-2016-(NDEL)],stayed the operation of the resolution passed by the Board of the Respondent Company (i.e U.P. Hotels Limited) to select a Company Secretary and to appoint an Independent Director. The said resolution was stayed primarily on the ground that preventing the applicant and his mother (who were also the directors of the Respondent Company) from participating in the Board Meeting, was unfair.

Facts of the case:

The Applicant, in the present case, is one of the Joint Managing Director of the Respondent Company. The other Joint Managing Director (hereinafter referred to as the “Respondent Director”) held a Board meeting of the Respondent Company on 4^th June, 2016 and passed a resolution to select a Company Secretary and to appoint an additional Independent Director, in the absence of the applicant and his mother, who have been continuing as the directors of the Respondent Company.

The Applicant received a notice of the Board Meeting to be held on 4^th June, 2016 to select a Company Secretary and to deal with any other matter with the permission of the Chair, on 28^th May, 2016. The Applicant informed the Respondent Director that he would be unable to be physically present in the meeting since he would be travelling overseas from 1^st June, 2016 till 14^th June, 2016 and suggested that the meeting should be either convened on 1^st June, 2016 or after 14^th June, 2016. Pursuant to the suggestion made by the Applicant, the Respondent Director rescheduled the meeting to 1^st June, 2016. However, on 30^th May, 2016, the Respondent Director informed the Applicant that the Board Meeting was rescheduled on 4^th June, 2016 since the candidates who had applied for the post of Company Secretary would not be able to come for an interview on 1^st June, 2016. The Applicant requested for facility to participate in the Board meeting through video conferencing and the Respondent assured that the same would be provided. The Applicant and his mother, trusted the Respondent Director’s assurance, and left for their scheduled trip. The Respondent Director, on 3^rd June, 2016, sent the Applicant an email informing him that he would not be permitted to participate in the meeting through video conferencing in order to comply with Rule 3 of Companies (Meetings of Board and its Powers) Rules, 2014. Even though Applicant sent his staff to arrange for video conferencing through Skype, the Respondent Director disconnected the Skype facility to prevent the Applicant and his mother from participating in the Board Meeting.

Decision of the NCLT:

The NCLT was held that:

a) If anybody acts on the assurance given by the other side, the other side (i.e. the Respondent Director, in the present case) cannot later back out from the assurance given by it. If the person to whom an assurance was given acts on it and if the person giving such an assurance retracts the said assurance, such statement is hit by the doctrine of estoppel.

b) It is the duty of the director convening the Board meeting to inform the other directors about the option available to them to participate in the meeting through video conferencing mode.

c) Sub Rule 3(e) states that intimation given at the beginning of a calendar year will remain valid for the entire year. It is not said anywhere that if an intimation to participate in a meeting through video conferencing or any audio visual mode is not given at the beginning of the year, the directors are not entitled to participate in the said meeting through video conferencing. The said sub rule has to be read wholly and there is no merit in the Respondent Director’s contention that video conferencing was nit provided since no intimation was given at the beginning of the year.

d) Holding a Board meeting and passing Board resolution by preventing the Applicant and his mother from participating in the said meeting was unfair. The NCLT, therefore, stayed the operation of the said Board resolution which was passed to select a Company Secretary and to appoint an Independent Director.

Analysis

The provisions relating to participation in a Board meeting through video conferencing or other audio visual means are extracted herein under for ease of reference-

• The notice of the board meeting shall inform the directors regarding the option available to them to participate through video conferencing mode or other audio visual means, and shall provide all the necessary information to enable the directors to participate through video conferring mode[1].                                                                                                                                                             
• A director intending to participate through video conferencing or audio visual means shall communicate his intention to the Chairperson or the Company Secretary of the company[2]. Per the facts of the present case, the Applicant had communicated his intention to participate through video conferencing to the Joint Managing Director of the Respondent Company.
• If the director intends to participate through video conferencing or other audio visual means, he shall give prior intimation to that effect sufficiently in advance so that company is able to make suitable arrangements in this behalf. In the absence of any such intimation, it shall be assumed that director shall attend the meeting in person[3].
• The director, who desires to participate, may intimate his intention of participation through the electronic mode at the beginning of the calendar year and such declaration shall be valid for one calendar year[4]. It is important to note that sub Rule 3(e) of Rule 3 uses the word ‘may’ and does not use the word ‘shall’. The use of the word ‘may’, as a general rule[5], indicates that a provision is directory and not mandatory. Therefore, it can be concluded that a director merely has an option to submit a declaration to the company in which he is a Board member, specifying his intention to participate in Board meetings through video conferencing. However, such a declaration is valid only for a period of one year. This provision, in our view is merely an enabling provision, and if a director fails to give such a declaration, he cannot be prevented from participating in the Board meetings through video conferencing and audio visual means.

The interim order, in the present case, reinforces the fact that the NCLT has been clothed with far reaching powers to safeguard the interests of a company and its stakeholders. This order sends out a strong message to directors of companies that oppressive practices perpetrated by them, will not be tolerated or go unnoticed. The primary focus of NCLT is to serve as a forum for those aggrieved by actions of a company or its directors and to make a company and its directors accountable for their actions.