Secretarial Standards – 1: Circulation of Signed Board Minutes

[The following guest post is contributed by Nivedita Shankar, Partner, Corporate
Law Division at Vinod Kothari & Co.]
Paragraph 7.6.4
of
Secretarial
Standards – 1
(“SS-1”) states that signed board
minutes have to be circulated to all directors within 15 days of their signing.
This is a novel requirement and is an addition to the already lengthy process
surrounding finalisation of board minutes. This post attempts to dissect the
provisions of paragraph 7.6.4 to examine how and when companies should comply
with paragraph 7.6.4, and if such a provision is at all in the best interests
of a company. Should corporate boards choose not to comply, is there a way out?
Genesis
of Paragraph 7.6.4 of SS-1
As much as the
secretarial standards were introduced with the noble intention of ensuring
uniformity of secretarial practices across companies, some of their provisions
seeming appear contrary to the provisions of Companies Act, 2013 (‘Act, 2013’).
More so, certain provisions defy the very intent behind certain provisions of
Act, 2013. A case in point is paragraph 7.6.4 of SS-1 which reads as follows:
A copy of the
signed Minutes certified by the Company Secretary or where there is no Company
Secretary, by any Director authorised by the Board shall be circulated to all
Directors within fifteen days after these are signed.
The intent
behind introduction of paragraph 7.6.4 was to ensure that board minutes are not
changed subsequently, i.e. after all the directors have affirmed to the
contents of the board minutes. This is mainly to weed out the possibility of
using minutes as a tool in cases of internal rivalry. For long, minutes have
been the most favoured tool to misstate facts in cases of mismanagement or
oppression. Hence, with the sole intention to thwart the plans of internal
factions to use minutes as a tool to concoct facts, paragraph 7.6.4 has been
introduced.
The
Downside of Para 7.6.4
Although there
is no doubt that the intent behind paragraph 7.6.4 is noble, it has led to a
peculiar situation for all companies. It is important to understand that the
secretarial standards were introduced with the intent to ensure uniformity of
secretarial practices across companies i.e. they were intended to be an add-on
to the provisions of Act, 2013. However they have stretched beyond the intent
behind their enforcement such that they have taken the task upon themselves to
prevent malpractices! By subjecting every company to paragraph 7.6.4, SS-1 has
taken to writing rules for every company based on some instances of
malpractices. In this pursuit, it has also threatened the sanctity of board
minutes.
Listed below are
certain pertinent provisions of Act, 2013 and SS-1:
1. On a reading of section 118 of
the Act, 2013 it is apparent that the minutes have to be maintained by the company.
In fact, section 118(11) makes the company liable to a penalty of Rs. 25,000
and every officer in default liable to a penalty of Rs. 5,000 in case of any
default in complying with the provisions of section 118;
2. Section 118 read with Rule 25 of
Companies (Management and Administration) Rules, 2014 and paragraph 7.1.7 of
SS-1 states that the minutes of board meetings have to be maintained at the registered
office of the company or at some other place as the board may decide;
3. Further paragraph 7.7.2 of SS-1
states that a director is entitled to receive copy of board minutes. Of course
the same has to be requisitioned for.
The Act, 2013
nowhere envisages the possibility of directors also maintaining copies of board
minutes with themselves. The reason behind the same is also obvious. Board
minutes record the management level decisions of a company. It is only the
directors who are privy to such discussions and decisions. In fact, the
sanctity of board minutes is even acknowledged by the provisions of paragraph 7.7.2
of SS-1 since it allows board minutes to be shared with the lone condition that
the same has to be requisitioned for. In fact, there is no provision in the
statute which allows complete copy of signed minutes to be provided to
directors. At best, directors can inspect the board minutes.
In fact neither
the UK Companies Act, 2006 nor the UK Corporate Governance Code, from which the
Act, 2013 and clause 49 of Equity Listing Agreement are largely borrowed, prescribe
circulation of signed copy of board minutes.
However, paragraph
7.6.4 has now led to a peculiar position wherein parallel minutes books could
be maintained by all the directors of the company. Considering the sensitive
matters contained in board minutes, the sanctity of board minutes book is
seriously jeopardised by paragraph 7.6.4. Further, what if any director was to
misuse the records of board minutes maintained with such director? Will such
director subjected to similar penal provisions in section 118(11) as the
company? This pertinent question remains unanswered.
Waiver
of Provision by Corporate Boards
Before discussing
the possibility of doing away with the need to circulate, it is first necessary
to understand the repercussions of circulation of board minutes. By circulating
board minutes, where on one hand parallel board minutes will be maintained with
all directors, the sensitivity and security of board minutes is also at risk.
This is because there is nothing in law which prescribes the method of
maintaining minutes by the director. Hence, once the director is served with
the copy of board minutes, there is the risk that multiple persons may have
access to it. The sanctity of board minutes may be well known to directors of a
company. But one cannot expect similar maturity from non-board members. Hence,
the sensitive matters contained in board minutes run the risk of being misused.
Herein arises
the question – can the provisions of paragraph 7.6.4 be waived by corporate
boards? The only pre-requisite when it comes to waiver is that it must be an
intentional act done with knowledge about the right that the individual has.
The same has also been discussed by Mulla on the Contract Act at page 198 to say that “agreements which seek to waive an illegality are void on grounds of
public policy
”. Simply put, doctrine of waiver is applicable to such cases
where a right has been bestowed by law. Hence where any right or protection has
been bestowed by law, the same may be waived.[1]
In the instant
case, the obligation cast upon the company to circulate signed copies of minutes
cannot be said to be statutory obligations as the statutory obligation is
limited to recording of the minutes as laid down in section 118. The additional
requirement of the SS-1 to circulate the minutes once signed may merely be said
to be for unauthorised alterations thereof, or for the ready reference of the directors
and therefore, it is not a statutory obligation. Looking at the sensitivity of
board minutes, the directors of corporate boards may choose to waive the
requirement of paragraph 7.6.4. The waiver of such a requirement will not be
construed to mean waiver of a statutory right – and hence, the waiver will not
be void. In any case there is no public policy issue involved here. Further,
the obligation to circulate board minutes is the obligation of the company
towards the directors and not towards law. Hence waiver of requirement of paragraph
7.6.4 is an option that corporate boards may explore.
Period
of Applicability of Paragraph 7.6.4
SS-1 came into
force from July 1, 2015. Now consider the following scenarios:
1. Board meeting of A Ltd was held
on 2 July 2015. The minutes were confirmed and signed at the board meeting held
on 1 September 2015.
2. Board meeting of X Ltd was
convened on 20 June 2015. The draft minutes were circulated on 2 July 2015. The
minutes were then confirmed and signed at the board meeting held on 1 August 2015.
3. Board meeting of Y Ltd was
convened on 24 May 2015. The draft minutes were circulated and confirmed within
30 days. However they were signed after placing the minutes in the board
meeting held on 1 August 2015.
Will these
companies have to comply with paragraph 7.6.4? In the first scenario, the
answer is clearly in the affirmative. However for the remaining two scenarios,
one is tempted to answer in the negative. This is because SS-1 was made
effective from 1 July 2015. Both the board meetings were held prior to 1 July
2015. However considering the provisions of section 118(11), one may take a
view that paragraph 7.6.4 have to be complied with by X Ltd and Y Ltd.
Additional
Compliance Requirements
Not only does paragraph
7.6.4 require the certified copy of signed board minutes to be certified by the
company secretary or an authorised director, it also requires a copy of the
signed minutes to be circulated to all directors within 15 days after these are
signed. This is in addition to the draft minutes being anyway circulated to all
directors (paragraph 7.4) and also being placed in the ensuing board meeting following
the date of entry (paragraph 7.3.5). Additionally, paragraph 1.3.8 of SS-1 also
requires the draft resolution to be circulated as a part of notes to agenda or
be placed at the meeting itself. Hence paragraph 7.6.4 is another addition to
the already mundane clerical work pertaining to circulation of minutes.
Conclusion
With SS-1 already
been implemented, companies are also gearing up to convene board meetings to
approve quarterly results. Considering the enormity of the provisions of para
7.6.4, it is time that corporate boards take note of the same and act fast.
– Nivedita
Shankar



[1]
Held in the case of Jaswantsingh
Mathurasingh & Anr. v. Ahmedabad Municipal Corporation & Ors
(1991
AIR 385)

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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