Section 174 Of Companies Act 2013: Quorum For Board Meeting

Section 174- Companies Act 2013 : Quorum for General Meeting

In the general sense, Quorum means the minimum number of people needed to hold meetings or make decisions during specific company meetings. The quorum is often considered the majority of members within a group or organization.

What is a Quorum? [sec-103]

‘Quorum’ means the minimum number of members who must be present to constitute a valid meeting and validate business at the meeting. If the quorum is not present, the meeting shall be considered invalid.

The Quorum for General Meetings

1. Public Company

• Five members are personally present if the number of members on the meeting date is not more than one thousand.

• Fifteen members are personally present if the number of members on the date of the meeting is more than 100 but up to 5,000.

• Thirty members are personally present if the number of members on the date of the meeting exceeds 5,000.

2. Any Other Company

• Two members personally present

Articles may prescribe a larger quorum than provided u/s 103.

When all company members are present in person, the quorum is present even if the quorum required by the articles is more than the number of members.

What is Section 174 of Companies Act 2013?

Section 174 of the Companies Act 2013 lays down that the quorum for a general meeting of the Board shall be:

1. 1/3rd of its total strength (any fraction contained in one-third being rounded off as one), or
2. Two directors, whichever is higher.

In calculating the total strength, any vacancy in the Board is excluded, and only the directors in office at the moment are taken into account. [sec174(2)]

Section 174 only indicates the minimum number of directors necessary to constitute a proper quorum. It is open to the company, by its articles, to show a higher, but not a lower, number is constituting a valid quorum.

[Amrit Kaur v. Kapurthala Flour Oil & General

Mills Co.(Pvt.) Ltd. (1984) 56. Comp Case 194]

Quorum – Disinterested Directors

The interested directors are not counted for the purpose of the quorum for a General Meeting. The quorum of disinterested directors is required for each business transacted at the Board meeting unless the articles provide for a higher quorum. Discussions or meetings would not be convened without the participation of a quorum of disinterested directors.

Disinterested Quorum means:

(A) a quorum of the Board consisting of directors who are not Parties to the subject Proceeding or any related Proceeding or

(B) if the quorum described in clause (A) cannot be obtained, a committee duly appointed by the Board and consisting solely of two or more directors who are not Parties to the subject Proceeding or any related Proceeding, provided that directors who are Parties to the subject Proceeding or a related Proceeding may participate in the designation of members of the committee.

Case in point: Y and D are two directors of a company who had made advances to the company in consideration of receiving debentures. The company had four directors, three of whom were quorum. A resolution was passed granting a debenture to Y. Y did not vote on the resolution. Another resolution was passed granting debentures to D, on which D did not vote. It was held that the issue of the two debentures formed one transaction in which Y and D were equally interested, and the two resolutions were invalid for want of quorum.

[Re. North Eastern Insurance Co. Ltd. (1919) 2 ch.198]

Quorum – Exception

No General meeting could take place without a quorum. However, due to circumstances beyond the control of the company or directors, the number of directors may be reduced below the minimum quorum. The reason for reduction could be death, registration, removal, automatic vacancy, or disqualification of a director. If the number of directors is reduced, the only exception is that a single director can either hold a board meeting to increase the number of directors to fix the minimum amount of quorum or summon a general meeting for a company.

A single director cannot hold a meeting for any purpose. This provision applies only if the number of directors is reduced to one. If there are only two continuing directors on the board, the condition of the quorum is fulfilled, and this exception will not be applicable.

Adjournment for want of Quorum

Suppose the meeting of the Board could not be held for want of quorum. In that case, unless the articles are otherwise provided, the meeting shall be automatically adjourned to the same day of the following week at the same time the meeting will be held on the next working day. If at the adjourned meeting there is no quorum, the meeting cannot transact any business.

[sec- 174(4)]