Directors and Shareholders of Indian Companies are Permitted to Attend Board Meetings and Shareholder Meetings via Video Conference

June 6, 2011

On May 20, 2011, the Ministry of Corporate Affairs, Government of India ("Corporate Affairs Ministry"), issued two general circulars ("Circulars") permitting attendance of meetings of the Board of Directors ("Board") and general meetings of the shareholders of an Indian company by using an electronic mode of communication. The Circulars were issued by the Corporate Affairs Ministry as part of its "green initiative in corporate governance" and are a long-awaited change to the means of attending Board and shareholder meetings. The first circular[1] ("Circular 1") clarified that shareholders of an Indian company can participate in general meetings of the shareholders by using video conferencing facilities. The second circular[2] ("Circular 2") clarified that directors of an Indian company can participate in meetings of the Board using video conferencing facilities and also clarified that directors who participate via video conferencing facilities will be counted towards the quorum of such Board meetings.

Circular 1 – Shareholder Meetings

Circular 1 clarifies that shareholders of an Indian company may participate in general meetings through "electronic mode" although it confines the term "electronic mode"[3] to video conferencing facilities. While shareholders are permitted to attend general meetings through the use of video conferencing facilities, the quorum for a general meeting as required under the India Companies Act, 1956, as amended, will be constituted only from the shareholders physically present. Therefore, a shareholder participating in a general meeting through the use of video conferencing facilities will not be counted for the purpose of such meeting’s quorum.

Circular 2 – Board Meetings

Circular 2 clarifies that directors of an Indian company may participate in a meeting of the Board, or in a meeting of a committee of directors through "electronic mode", although it confines the term "electronic mode" to video conferencing facilities. Importantly, Circular 2 clarifies that a director participating in a meeting through the use of video conferencing facilities will be counted for the purpose of the Board’s quorum.

Circular 2 stipulates that every director of a company must attend at least one Board/Committee meeting personally in a financial year and requires that draft minutes of the meeting are circulated in soft copy not later than 7 days of the meeting for comments/confirmation to the directors who attended the meeting to dispel all doubts on matters taken up during the meeting.

Impact

Participation in Board and general meetings of the shareholders by using video conferencing facilities will ease attendance of such meetings by foreign investors who have invested in Indian companies. 

The quorum requirement at Board meetings is important in the context of foreign investors who have invested in Indian companies where a quorum cannot be formed without the presence of the nominee director of such foreign investor. Prior to Circular 2, it was typical to address the problem of physical presence by passing circular resolutions (which had the limitation of dealing only with specific matters since Indian law requires certain matters to be addressed only in physical meetings) or by appointing alternate directors. Circular 2 now enables directors to participate in Board meetings via video conference and to be counted towards the Board’s quorum.