In today’s evolving corporate governance landscape, companies must stay abreast of regulatory changes to maintain compliance and transparency. Recently, the Institute of Company Secretaries of India (ICSI) revised Secretarial Standards SS-1 and SS-2, which govern the conduct of board and general meetings, respectively.
Effective from April 1, 2024, these revisions are set to enhance the efficiency and effectiveness of corporate gatherings significantly. By allowing shorter notice periods, refining quorum requirements, and embracing modern practices such as e-voting, these updates aim to align meeting procedures with the demands of contemporary corporate governance.
Let’s examine the principal amendments introduced by these revisions, conduct a comparative analysis, and evaluate each modification’s impact on the core principles of corporate governance.
Comparative Secretarial Standards
Secratarial Standard 1: Meetings of the Board of Directors
(Effective from April 1, 2024)
Applicability:
This standard applies to companies of all types, whether private or public, listed or unlisted.
Key Amendments and their Impact:
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Participation through Electronic Means:
This provision allows participation in meetings via electronic means, provided individuals give advance notice to the company at the start of the calendar year. This proactive notification helps the company prepare in advance, ensuring smooth operations for all involved. Once given, this notification remains valid for the entire year, simplifying the process for everyone.
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Discussion on Restricted Items by Directors:
This provision restricts directors from participating in meetings through electronic means when discussing restricted items. However, they can participate in meetings if there is a quorum present through the physical presence of directors.
The requirement of physical presence of directors in a meeting has allowed other directors to become a part of the electronic meeting on any matter. This will promote flexibility in decision making for everyone present at the meeting.
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Meeting of Independent Directors:
This provision requires independent directors to conduct at least one meeting in a financial year without addressing non-independent directors and members of management.
A meeting of only independent directors will enable them to have open discussions. They will make decisions without any influence or bias, which can lead them to enhance confidence in the board’s governance.
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Disclosure of Interest by Director:
As per this provision, if a director is interested in a business item being discussed at a meeting, they are neither counted in the Quorum nor allowed to participate. However, in private companies, if the director discloses their interest, they are counted and permitted to join the meeting.
A director disclosing their interests ensures transparent decision-making by eliminating potential biases. In private companies, this promotes efficient operations during meetings among the attending members.
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Casual Vacancy:
The provision states that directors appointed to fill a casual vacancy must receive subsequent approval at the next general meeting.
This practice ensures continuity in board operations, with member approval at the subsequent general meeting. It enhances accountability among members and includes shareholders in the decision-making process.
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Exemptions for specific companies:
Certain exemptions are available to Section 8 and private companies, provided they have maintained a clean record of filing their financial statements (Section 137) and annual returns (Section 92) with the Registrar of Companies.
If Section 8 and private companies fulfil their obligation of filing financial statements and annual returns with the Registrar, they become eligible for exemptions. This ensures compliance and grants them the benefits associated with these exemptions.
Secretarial Standard 1: General Meeting
(Effective from April 1, 2024)
Applicability:
This standard applies to companies of all types with specific provisions tailored for listed companies.
Key Amendments:
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Exemptions:
The exemption for Section 8 companies, private companies, and Government companies will only apply if they have not defaulted in filing their financial statements (Section 137) or annual returns (Section 92) with the Registrar of Companies.
This exemption enables these specific companies to comply with the act’s provisions, ensuring adherence that they might not have been able to fulfil otherwise.
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Conduct of AGM and EGM:
This provision allows for:
2.1. Annual General Meetings (AGMs) of unlisted companies to be held anywhere in India if all members consent in writing or electronically beforehand.
2.2. Extraordinary General Meetings (EGMs) to be conducted anywhere in India. EGMs can also be held outside India for wholly owned subsidiaries of foreign companies.
Allowing AGMs of unlisted companies to take place anywhere in India enhances operational flexibility for members. Furthermore, EGMs being conducted at various locations, including overseas for wholly owned foreign subsidiaries, promotes international coordination among companies.
3.3. Meetings held at shorter notice period:
This provision states that meetings can be held at shorter notice if consent is obtained in writing or by electronic mode provided:
1.1. In case of an Annual General Meeting, 95% or more members are entitled to vote at the meeting.
1.2. In case of any other general meeting by members of the company-
- If the company has a share capital, members who represent 95% or more of the company’s paid-up share capital can vote at the meeting.
- If the company has no share capital, members having 95% or more of the total voting power are exercisable.
This flexibility in notice periods ensures operational agility. It safeguards shareholder rights by counting only relevant members for the meeting.
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Related Party:
The new provision states that related party members cannot vote on resolutions approving contracts or arrangements except in specific circumstances:
- If 90% or more members are relatives of promoters or are related parties. • For wholly owned subsidiaries, the holding company can enter transactions by passing a special resolution.
Impact: This restriction prevents conflicts of interest and promotes sound decision-making. The amendment also addresses unique situations in companies with high related-party memberships or wholly owned subsidiaries, maintaining governance standards.
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Appointment of Proxy:
The new provision for Private Companies requires the meeting notice to inform members that they can appoint a proxy to attend meetings.
This allows proxies to vote and influence decisions at meetings. They will count towards the quorum and be legally recognized as representatives of the members.
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Transact Business Items Through Postal Ballot:
The new provision states that companies with more than 200 members must conduct business through postal ballots instead of at a General Meeting. However, if a company offers e-voting, it can still conduct business at a General Meeting.
This change will ensure greater participation in larger companies by allowing members to vote remotely, leading to wider shareholder involvement without needing to attend the meeting in person.
The revised Secretarial Standards mark a new step towards enhancing corporate governance in India. By permitting shorter notice periods, refining quorum requirements, and mandating e-voting, these standards aim to enhance flexibility, transparency, and shareholder engagement. Understanding and implementing these revised standards are crucial for company secretaries, corporate legal advisors, and compliance officers. Over time, these changes will improve decision-making processes and establish a robust corporate governance framework, fostering stakeholder trust and confidence.