Decoding The Updated Secretarial Standards – Shareholders

This article discusses the key changes introduced in the
updated Secretarial Standard on Meetings of the Board of Directors
and the Secretarial Standard on General Meetings which are
effective from 1 April 2024.

The Secretarial Standard on Meetings of the Board of Directors
(SS-1) and the Secretarial Standard on General
Meetings (SS-2) issued by the Institute of Company
Secretaries of India (ICSI) set out guidelines
that companies must adhere to when conducting meetings of their
board of directors (Board) and
shareholders.¹

In February 2024, the ICSI issued revised drafts of SS-1 and
SS-2 which will come into effect from 1 April 2024. This article
delves into the key changes introduced by the revised secretarial
standards.

Board Meetings

Not-for-Profit Companies and Exemptions to Other Classes of
Companies

At present, SS-1 does not apply to one-person companies with
only 1 director and not-for-profit companies registered under
Section 8 of the Companies Act, 2013 (Act). There
are also specific exemptions for private companies and government
companies under the Act. However, with effect from 1 April 2024,
the exemptions available to not-for-profit companies, private
companies and government companies will not be available if such
companies have defaulted in filing their financial statements or
annual returns with the Registrar of Companies. This amendment
addresses the concerns of the Ministry of Corporate Affairs
(MCA) with regard to companies’ continued
failure to satisfy annual compliance requirements.

Participation in Meetings Through Electronic Mode

Under SS-1, directors are prohibited from participating in
meetings electronically where the agenda includes the approval of
financial statements, the Board’s report, prospectus,
amalgamation, merger, acquisition, demerger or
takeover.²

Section 173 of the Act, as amended in 2017,³ provides
that directors may participate in meetings where such matters were
being approved through electronic mode as long as the directors
physically present at the meeting constituted a quorum.

SS-1 has now been amended to permit electronic attendance of
Board and committee meetings at which restricted items are to be
approved provided that the directors present in person constitute a
quorum.

In addition, from April 2024, notice from a director of their
intention to attend meetings through electronic mode will be valid
for the entire financial year.⁴ Directors who have
provided such intimations may nonetheless attend meetings in person
after providing sufficient notice of their physical attendance to
the company.

Definition of Unpublished Price Sensitive
Information:

At present, under SS-1, ‘unpublished price sensitive
information‘ includes information pertaining to:

1. financial results;




2. dividends;




3. change in capital structure;




4. mergers, de-mergers, acquisitions, delisting, disposals and
   expansion of business and such other transactions;




5. changes in key managerial personnel; and




6. material events in accordance with the listing agreement.

The definition has now been aligned with that in the Securities
and Exchange Board of India (Prohibition of Insider Trading)
Regulations, 2015, and, as a consequence, no longer includes
‘material events in accordance with the listing
agreement‘.⁵

Frequency of Board Meetings for Start-Ups

All companies, other than one-person companies, small
companies⁶ and dormant companies,⁷ must hold
4 board meetings annually, and the gap between 2 meetings should
not exceed 120 days.⁸

From April 2024, registered start-ups⁹ may hold only
1 board meeting in each half of the calendar year, provided that
the gap between the 2 board meetings is not less than 90 days. This
is consistent with the Government’s position as reflected in
Section 173(5) of the Act and the MCA exemption notification dated
13 June 2017.

Meeting of Independent Directors

SS-1 provides that, where a company is required by the Act to
appoint independent directors, the independent directors shall hold
at least 1 meeting every calendar year. The amendments to SS-1 have
changed this requirement to 1 meeting in every financial year. The
amendment also clarifies that non-independent directors and members
of management cannot attend these meetings. This is consistent with
the amendments made to Schedule IV to the Act (Code for
Independent Directors) in 2017.

Quorum for Board Meetings of Private Companies –
Interested Directors

SS-1 permits a director of a private company to participate in
respect of an item in which they are interested, after disclosing
their interest but is silent as to whether they will be considered
for the purpose of determining quorum.

Although Section 174(3) of the Act provides that the quorum for
a private company would be constituted by the presence of at least
2 non-interested directors, the MCA has since
clarified¹⁰ that an interested director of a private
company who has disclosed their interest may be counted towards
quorum. From April 2024, SS-1 will be aligned with the MCA’s
position in that a director who has disclosed their interest may be
considered towards quorum. The same will also be true for
chairpersons of private companies who have disclosed their
interest.

Proof of Sending and Delivery of Draft
Resolutions

SS-1 requires that proof of sending and delivery of draft
resolutions and the necessary papers be maintained for 3 years from
the date of the meeting or such longer period as decided by the
Board. To account for resolutions passed through circulation, SS-1
has now been amended to require that these documents be preserved
for at least 3 years from the date of circulation of the
resolution.

Filling Casual Vacancies

SS-1 provides that, subject to the articles of association of
the company, a casual vacancy cannot be filled by passing a
circular resolution, and such vacancy should be filled at a Board
meeting. Once the amendments to SS-1 become effective, a vacancy on
the Board may be filled only by a board resolution passed at a
board meeting provided that the appointment is approved by the
shareholders at the next general meeting.

Section 161(4) of the Act provides that if the office of any
director appointed by the company in general meeting is vacated
before his term of office expires in the normal course, the
resulting casual vacancy maybe filled at a meeting of the board, if
allowed under the articles and such appointment shall be approved
in immediate next general meeting. Therefore, the position in
Revised SS-1 is now aligned with the Act.

General Meetings

Not-for-Profit Companies and Exemptions to Other Classes of
Companies

Like SS-1, from April 2024, the exemptions available to
not-for-profit companies, private companies and government
companies will only be available if such companies have not
defaulted in filing their financial statements or annual returns
with the Registrar of Companies.

Venue for General Meetings

SS-2 requires that the annual general meeting
(AGM) be held either at the registered office of
the company or at some other place in the same city as the
registered office. SS-2 does not mandate the location for
extra-ordinary general meetings
(EGM).¹¹ From April 2024, SS-2 will
provide that:

1. An unlisted company may hold its AGM at any place in India if
   all shareholders have provided their consent prior to before the
   meeting. this consistent with Section 96 of the Act which permits
   the holding of AGMs anywhere in India with the prior approval of
   all shareholders;¹²




2. An EGM may be held at any place within India. This is
   consistent with the position under the Act; and




3. The wholly-owned subsidiary of a company incorporated outside
   India may hold its EGMs outside India.

Consent to Shorter Notice

SS-2 permits the holding of a general meeting¹³ on
short notice with the prior consent of 95% of the shareholders
entitled to vote. Once the amendments become effective, the
requirements for holding AGMs and EGMs at shorter notice will
differ:

1. AGMs may be held at shorter notice if consent is given by not
   less than 95% of the shareholders entitled to vote; and the
   financial statements and other documents required to be annexed in
   the notice for the AGM may be given at a shorter period of time if
   written consent is obtained from of shareholders in writing is
   obtained from the majority of shareholders entitled to vote,
   representing not less than 95% of the paid-up share capital
   allowing voting at the meeting , or, in the case of a company
   without a share capital,, from shareholders holding not less than
   95% of the total voting power at the meeting; and




2. EGMs may be held at shorter notice with the prior written
   consent of the majority of shareholders entitled to vote,
   representing not less than 95% of the paid-up share capital
   allowing voting at the meeting , or, in the case of a company
   without a share capital.

Voting Rights of Related Party Shareholders

SS-2 proscribes shareholders from voting on resolutions
approving contracts where they are related parties. However, this
restriction does not apply to:

1. Private companies; and




2. Government companies where the contract is between 2 or more
   government companies, and, or, where a contract is being entered by
   an unlisted government company with prior approval of the competent
   authority.

From April 2024, the proscription on voting on related party
transactions will not apply to the approval of related party
contracts where than 90% of the shareholders are relatives of the
promoters or related parties. The amendments also clarify that, in
case of wholly-owned subsidiaries, a resolution passed by the
holding company shall be sufficient for entering into the
transaction with the holding company.

Voting through Postal Ballot and E-voting
Facilities

At present, a company with more than 200 shareholders must
transact certain prescribed items of business only through postal
ballot and not at general meetings. However, from April 2024, such
companies will be permitted to transact those matters at general
meeting if they are required by law to provide e-voting
facilities.¹⁴ Under SS-2, a resolution passed by postal
ballot may be rescinded only by a subsequent resolution passed by
postal ballot. However, from April 2024, companies which are
required to provide e-voting facilities may also rescind
resolutions passed by postal ballot at general meetings.

Looking Ahead

The amendments to the secretarial standards reflect a focused
effort to enhance corporate governance practices. This is
particularly evident from the fact that exemptions will not be
available to companies who default on filing their financial
statements and, or, annual returns with the Registrar of Companies.
The revised secretarial standards also align with the amended
provisions of the Act, facilitate ease of doing business and faster
decision making, and will bring in efficiency, and
accountability.

It is important that companies and other stakeholders adapt to
the changes and stay proactive to ensure effective implementation
from April 2024.

Footnotes

1. Section 118(10) of the Companies Act,
2013 mandates adherence to the secretarial standards.

2. Similar restrictions also applied to
meetings of the audit committee for approval of annual financial
statements and consolidated financial statements.

3. By the Companies (Amendment) Act,
2017.

4. Currently, such notice is valid for
the entire calendar year.

5. The reference to the listing agreement
was deleted from the Securities and Exchange Board of India
(Prohibition of Insider Trading) Regulations, 2015 with effect from
1 April 2019.

6. A small company is a private company
with a paid-up share capital of INR 4 crores or less and turnover
of INR 40 crores or less but does not include a holding company,
subsidiary company, a not-for-profit company, or a company governed
by any special legislation.

7. A dormant company is a company
registered under the Act, incorporated for a future project or to
hold an asset or intellectual property and has no significant
continuing transaction and has made an application to the Registrar
of the Companies under Section 455 of the Act.

8. One-person companies, small companies
and dormant companies need only hold 1 board meeting in each half
of the calendar year, provided there is a gap of at least 90 days
between the meetings.

9. An entity will be considered a
start-up: (i) for the first 10 years following its incorporation if
it is incorporated as a private limited company or limited
liability partnership, or established as a registered as a
partnership firm; (ii) if its turnover in any previous financial
years does not exceed INR 100 crores; and (iii) if the entity is
working towards innovation, development or improvement of products
or processes or services, or if it is a scalable business model
with a high potential of employment generation or wealth
creation.

10. By its notification of 13 June
2017.

11. That said, the Act stipulates that
EGMs must be held in India.

12. Through electronic mode.

13. Whether AGM or EGM.

14. Under Rule 20 of the Companies
(Management and Administration) Rules, 2014, listed companies and
companies having more than 1,000 members are required to provide
e-voting facilities to its members.

Originally published 12 March 2024

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.