Companies Act Section 98

Companies Act, Section 98: Power of Tribunal to Call Meetings of Members, etc.

Section 98 of the Companies Act provides the Tribunal (typically the National Company Law Tribunal, or NCLT) with the authority to call and conduct meetings of a company, including those other than the Annual General Meeting (AGM), when it is not feasible to hold or convene a meeting in the manner prescribed by law or the company's Articles of Association. This provision is designed to address situations where technical, logistical, or other significant challenges prevent a company from conducting its meetings in the usual manner. The Tribunal is granted wide-ranging powers to intervene in such cases, ensuring that meetings are still held in a manner that complies with the spirit of the law, protecting shareholders’ rights and ensuring corporate governance remains intact. Below is a comprehensive breakdown of Section 98, its provisions, and its implications for companies and their stakeholders.

Subsection (1): Authority of the Tribunal to Order the Calling and Conducting of Meetings

1. Impracticality of Calling or Holding a Meeting:

Section 98(1) addresses the situation where it becomes impracticable to call or hold a meeting of the company in the usual manner, as prescribed under the Companies Act or the company’s Articles of Association. This may arise due to a variety of reasons such as logistical difficulties, legal constraints, lack of quorum, or other exceptional circumstances that prevent the meeting from being held in accordance with the prescribed process.

The word “impracticable” refers to circumstances where meeting the formalities required for the meeting, such as giving notice, ensuring quorum, or adhering to specific procedural rules, is either impossible or unreasonably difficult.

2. Tribunal’s Power to Intervene:

In such circumstances, the Tribunal has the power to intervene and ensure that a valid meeting is still held. The Tribunal may act suo motu (on its own initiative) or at the request of a director or member of the company who is entitled to vote at the meeting. This means that the Tribunal can either take the first step on its own or respond to an application from concerned parties within the company who are directly impacted by the failure to hold the meeting.

The Tribunal is then empowered to order the calling, holding, and conducting of the meeting in a manner that it deems appropriate. This is an important provision because it allows the Tribunal to take corrective action in situations where normal procedures are unworkable, ensuring that corporate decisions can still be made and that shareholders retain their right to participate in the company’s governance.

3. Ancillary or Consequential Directions:

In addition to the primary order to call and conduct the meeting, the Tribunal may also issue ancillary or consequential directions. These directions are additional instructions that may modify or supplement the operation of the provisions of the Companies Act or the company’s Articles in relation to the calling and conducting of the meeting.

For example, the Tribunal may allow the meeting to take place in a non-traditional format (such as via video conference or other electronic means), amend the notice period for the meeting, or even allow the meeting to proceed without a quorum if necessary. These directions give the Tribunal the flexibility to adapt to unusual circumstances while ensuring that the core requirements of the meeting, such as shareholder participation and decision-making, are still met.

4. Direction Regarding Quorum and Participation:

One key aspect of the Tribunal’s authority is its power to issue a direction that a single member present, either in person or by proxy, may be deemed to constitute a meeting. This is especially useful when the company is facing difficulties in achieving quorum due to various reasons, such as members being unable to attend the meeting in person or other logistical challenges.

This provision helps ensure that the meeting can still proceed and that critical decisions can be made, even in situations where full shareholder participation is not possible. The Tribunal’s power to make such a determination reflects its role in balancing procedural requirements with the practical needs of the company.

Subsection (2): Legal Status of Meetings Held Under Tribunal’s Direction

1. Deemed Valid Meeting:

Any meeting that is called, held, and conducted under the Tribunal’s direction is, for all legal and practical purposes, deemed to be a meeting of the company. This means that the meeting, despite being held under special orders from the Tribunal, will be treated as if it were held in full compliance with the standard requirements under the Companies Act and the company’s Articles.

The resolutions passed, decisions made, and actions taken during the meeting will all be considered legally valid, provided the meeting follows the directions set forth by the Tribunal. This provision ensures that there is no ambiguity or challenge to the validity of the meeting simply because it was held under special circumstances or with modified procedures.

2. Legal Certainty for Shareholders and Management:

The status of the meeting as a valid corporate event is important for ensuring legal certainty. Shareholders and company management can rely on the decisions made at such meetings without fear of them being overturned due to procedural irregularities or challenges to their legitimacy. This provision provides reassurance that the Tribunal’s intervention will lead to meetings that are legally sound and effective in achieving their purpose.

Purpose and Implications of Section 98

1. Ensuring Shareholder Rights:

One of the primary objectives of Section 98 is to protect the rights of shareholders and ensure that they continue to have the opportunity to participate in corporate governance. Even if the company faces challenges in convening a meeting in the usual way, the Tribunal’s powers ensure that shareholders can still engage in decision-making and hold the management accountable.

2. Promoting Corporate Governance:

By giving the Tribunal the authority to ensure that meetings are called and held properly, Section 98 helps to uphold good corporate governance practices. It ensures that the company operates transparently and that key decisions, such as the election of directors or approval of financial statements, are made in accordance with the law and best practices.

3. Flexibility in Exceptional Circumstances:

The provision provides flexibility in exceptional circumstances, allowing the company to function and continue its operations even when normal meeting procedures are not feasible. This flexibility can be crucial in cases where there are external disruptions, internal issues, or other extraordinary events that make it impossible to hold a meeting in the usual manner.

4. Prevention of Mismanagement:

Section 98 prevents mismanagement and neglect by ensuring that there are mechanisms in place to hold meetings, even in challenging circumstances. It discourages companies from avoiding meetings or failing to make important decisions due to internal difficulties or disagreements, thus maintaining a check on management’s actions.