WHAT IS A QUORUM?
The Companies Act, 2013 (hereinafter alluded to as the Act) mandates that an organization set up under the Act needs to hold General meetings just as Board meetings occasionally. To certify that the organizations follow this guideline and that such meetings are held appropriately, it requires a majority to be met for it to be considered as a legitimate meeting.
A ‘Quorum’ in basic words implies the base number of individuals that must be available. Under the Act, the Quorum for a General Meeting, a Board Meeting and an Extraordinary General Meeting is listed inside its provisions.
Why quorum is necessary?
A proper quorum, or a minimum number of members who must be present before any business can be transacted and its act may be legal, is required for any meeting of any organization or body. The term “meeting” refers to the lawful gathering of the number or percentage of members required to form a quorum; thus, the terms “meeting” and “quorum” are interchangeable.
The purpose of a quorum in a board meeting is to prevent one or two directors from acting in bad faith. If a quorum was not required, even one director might act in bad faith or two directors could have held board meeting without having other directors’ presence.
As a result, the most basic and fundamental purpose of having a quorum is to allow a specified percentage of members to transact the organization’s or body’s business, recognizing the impossibility of ensuring the attendance of all members at any of its meetings.
According to the Companies Act, 2013 the minimum amount of members need in a board meeting or in a general meeting. Following are the provisions given under the Companies Act, 2013:
- SECTION 103 OF COMPANIES ACT: This section states the minimum requirement of quorum in general meetings under Public Company as well as in Private Company.
- In Public Company
- In a case where the members are less than one thousand present in a company, then five members must be present at the time of the meeting being held.
- In a case where the members are more than one thousand but less than five thousand then fifteen members must be present.
- If more than five thousand members, then thirty members must be present.
- In Private Company- Two members must be present physically for the meeting.
(2) If a quorum is not present within half an hour of the meeting’s scheduled start time, the following options exist:
- The meeting will be adjourned, and it will be held the following week on the same day and at the same time, or on any other date and time determined by the Board.
- The meeting, whenever called by requisitionists under Section 100, will be canceled.
- States that, if again the quorum is absent at the canceled meeting, the members which are present at that time will be the quorum.
- Section 174 of Companies Act,
- The majority for a gathering of the Board of Directors of an organization will be 1/3rd of its all-out strength or two directors, whichever is higher, and the cooperation of the chiefs by video conferencing or by other general media shall also be counted for the purposes of quorum under this section.
- The continuing directors may act despite any vacant seats on the Board; however, if and for as long as their number goes below the quorum set by the Act for a meeting of the Board, the continuing directors or director may act only to increase the number of directors to the quorum set by the Act, or hold a general meeting of the company, and for no other purpose.
- Where whenever the quantity of interested directors surpasses or is equivalent to 2/3rd of the all-out strength of the Board of Directors, the number of directors who are not interested directors and present at the gathering, being not low than two, will be the majority during such time.
- Where a meeting of the Board couldn’t be held for need of quorum, then, unless the articles of the corporate otherwise give, the meeting shall automatically stand adjourned to a similar day at a similar time and place within the next week or if that day may be a legal holiday, until following succeeding day, that is not a legal holiday, at a similar time and place.
Every company, whether public, private, or one person company (section 174 does not apply to One Person Companies with a single director (refer to section 173(5) of the Companies Act, 2013), must have a quorum of 1/3rd of its total strength or two directors, whichever is higher.
As explained under Companies Act, 2013 “If there is a company naming ABC Pvt. Ltd. which has 10 directors, for doing a general meeting they have to make a quorum. So for this, they have to calculate 1/3rd of 10 which brings 3.33, but according to Section 174 of this Act, that any fraction of a number shall round of as one i.e. 4 directors (10/3= 3.33 i.e. 4).
Hence it is necessary to have the quorom for board of meeting.