Column: Legal

LEGAL
Going By The Book

A chairman can adjourn the board meeting only if authorised by the articles of association and in accordance with the procedures prescribed in the same.

By Diljeet Titus, Titus & Co. Advocates

At our last board meeting, the chairman without regard to the wish of the majority of the other board members, adjourned the meeting. Is his action valid?

It is settled law that once the board meeting of a company is called, the chairman cannot arbitrarily stop or adjourn the meeting. Its continuance or dispersal rests entirely on the will of the majority directors present at the meeting. The chairman can adjourn the meeting only if authorised by the articles of association of the company and in accordance with the adjournment procedure prescribed. The chairman can, however, adjourn a meeting in exercise of general powers of proper conduct and preservation of order where circumstances of violent interruption make it unsafe or seriously difficult for the business of the meeting to proceed. If the articles of association do not authorise the chairman to adjourn the board meetings, he may only adjourn with the consent of the majority of the board. If a chairman adjourns the meeting of the board regardless of the wish of the majority, the remaining members of the Board have the right to appoint one of their members as the chairman for the meeting and proceed with the business of the meeting left untransacted by the former chairman. Therefore, the action of your chairman was improper and can be challenged.

What rights do we have as shareholders to inspect the books of account of the company?

Under the Companies Act, 1956, there are no provisions either specifically permitting or prohibiting a shareholder from asking for information regarding the company, including bank statements, and/or specifically permitting or prohibiting shareholders from inspecting the books of the company, including books of account. However, if your company has adopted regulations contained in Table A of Schedule I to the Companies Act, 1956, shareholders, may, in terms of Regulation 95 thereof, by ordinary resolution or by a resolution of the Board, give a shareholder the right to inspect the books of account of the company. Also, as directors have a statutory right under Sub-section 4 of Section 209 of the Companies Act, 1956, to inspect the books of account and other books of the company during business hours. A shareholder can always inspect the books of accounts and other books of the company through its nominee directors, if any, on the Board of Directors.

We are a joint venture private limited company. The share transfer regulations contained in the shareholders' agreement amongst our shareholders differ in crucial respects from the share transfer provisions in the articles of association of our company. Can the shareholders agreement prevail over the articles of association as our company was formed pursuant to the shareholders' agreement?

In your case, the share transfer provisions as contained in the articles of association will prevail as under Indian law, the articles of association of a company are considered the primary contract amongst the shareholders and the company and have a binding effect upon the company and its members. The intention of the articles of association of a company are to fix the rights and liabilities of the shareholder as such in the company. This is because, by definition, under the Companies Act, 1956, the articles of association of a private company must contain restrictions on the right to transfer shares, and must be contained in the articles of association if such restrictions are to be enforced by the company against the shareholders or vice-versa. Therefore, you must amend your articles to properly reflect the share transfer restrictions as contained in your shareholders agreement so that enforcement of these share transfer restrictions vis-a-vis the other shareholders in the company is ensured.

The view expressed here should not be construed as legal opinion and is for reference only. Business Today and/or the author will not be responsible for any decision taken by readers on the basis of these views. Please send in your queries to legal.bt@intoday.com or Going By The Book, c/o Business Today, F-26, Connaught Place, New Delhi-1

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