The minutes of a meeting is considered a formality. But it is the most important document to understand the decision taken by the Board. Read on to know more the significance of the minutes for the directors in the event of boardroom conflicts.
You may be a sharp and successful business leader. Yet, as a nominee director on the Board of a company, you may probably be making silly mistakes you are not even aware of. One such blind spot for nominee directors is minutes of Board meeting. It is a common mistake that many smart business professionals as a nominee director make. This happens because of different reasons such as overconfidence, tendency to undervalue the compliance matters in general, they think that this is not really a nominee director’s job and that someone else has to do this for you (a company secretary, in-house compliance team or may be their junior colleague),lack of knowledge or lack of time to read.
The minutes of a meeting is an official record of the proceedings of a meeting. They are “official” because they are required to be signed by the chairman of the meeting. They are a “record” because the company is obligated to keep them and preserve permanently. They are intended to be a fair and correct account of proceedings of a Board meeting and to convey why, how and what conclusions or decisions were arrived at in relation to each business transacted at the Board meeting.
As per the Companies Act 2013, every company is required to prepare and keep (in the minute book maintained for that purpose) minutes of the proceedings of every meeting of its Board or committees thereof within thirty days of the conclusion of every such meeting or passing of resolution by postal ballot. Each page of the minutes should be initialled or signed and the last page of the minutes shall be dated and signed by the chairman of the said meeting or the chairman of the next succeeding meeting. The minutes books of the Board and committee meetings should be preserved permanently and kept in the registered office or such other place as the Board may decide in the custody of the company secretary of the company or any director duly authorised by the Board for that purpose.
“Chairman of the meeting has absolute discretion to decide inclusion or non-inclusion of any matter in the minutes if such matter is defamatory to any person, immaterial or irrelevant to the proceedings or is detrimental to the interest of the company. The decision of the chairman whether to record or not the comments of the directors in the minutes shall be final. These are wide and absolute discretionary powers which may cause a direct conflict in certain situations involving the chairman, such as in cases where the chairman is also a CEO or MD of the company and key matters relating to his employment (e.g. performance, removal, etc.) must be decided by the Board. For example, in the event a chairman can be removed only through the Board’s decision, there is a possibility of misuse of these discretionary powers by the chairman.”
The minutes prepared and kept in accordance with the procedure prescribed under the Companies Act constitute prima facie evidence of proceedings of the Board. In case the minutes have been properly maintained then, until proved otherwise, the meeting shall be deemed to have been duly called and held, and all proceedings threat to have been duly taken place, and the resolutions passed by postal ballot to have been duly passed in particular, all appointments of directors, key managerial personnel, auditors or company secretary, shall be deemed to be valid.
Therefore, technically speaking, if the minutes are not duly maintained, validity of any decision taken by the Board or any key appointment made by the company (as stated above) could be challenged.
Chairman of the meeting has absolute discretion to decide inclusion or non inclusion of any matter in the minutes if such matter is defamatory to any person, immaterial or irrelevant to the proceedings or is detrimental to the interest of the company. The decision of the chairman whether to record or not the comments of the directors in the minutes shall be final. These are wide and absolute discretionary powers which may cause a direct conflict in certain situations involving the chairman, such as in cases where the chairman is also a CEO or MD of the company and key matters relating to his employment (e.g. performance, removal, etc.) must be decided by the Board. For example, in the event a chairman can be removed only through the Board’s decision, there is a possibility of misuse of these discretionary powers by the chairman. In order to create a nuisance in the decision making process by the Board, it could be possible that the chairman may either tamper with the contents of minutes (to his favour) or not cooperate with timely signing of the minutes. Probability of this happening is more in cases where the company secretary is also connived with the chairman or the other directors are not vigilant towards the fine prints of minutes of meeting.
In any dispute involving the decisions taken by the Board or a director, minutes of the meeting is an useful document to refer to in order to understand the genesis of such dispute. It can help to understand how, when, why, what and by whom decisions were made. One can strongly argue that if an action is not recorded in the minutes, it did not happen.
A dissenting shareholder can use the minutes to ring-fence individual liability if its nominee director has appropriately recorded his objections on the minutes. Same applies for other directors as well. However, if such objections are not expressly recorded in the minutes of the meeting, it may be presumed that you have voted for any such matter. Minutes can also serve as valuable evidence that the company or its directors have fulfilled their obligations under Companies Act or under the laws governing a particular activity or industry sector (such as health and safety or environment sensitive sectors).
“As per the Companies Act 2013, every company is required to prepare and keep (in the minute book maintained for that purpose) minutes of the proceedings of every meeting of its Board or committees thereof within thirty days of the conclusion of every such meeting or passing of resolution by postal ballot. Each page of the minutes should be initialled or signed and the last page of the minutes shall be dated and signed by the chairman of the said meeting or the chairman of the next succeeding meeting.”
An important element of minutes is that they provide an opportunity for the shareholders (through their nominee directors) and other directors to create a record of compliance with their contractual, legal and fiduciary obligations and protect themselves from any potential liability for any non-compliance of such obligations. Unfortunately, the reality is that as a nominee director you are not much bothered about routine secretarial matters like minutes of meeting. Mainly because either you do not have time to look at them or you are simply not interested. In today’s era of heightened scrutiny on corporate governance and the actions of Board members in both public and private companies, it is critical for the nominee directors to ensure that a complete and accurate minutes of proceedings of the Board is maintained. Doing so will help the shareholder, nominee directors as well as the company in mitigating any undesired liability or conflict in future.
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