1. Requirement of minimum two members :-
We all have learnt that in case of a private limited company, minimum two members personally present are required to constitute a quorum to convene a general meeting. Minimum two members are required to incorporate a private limited company. We all know these basic provisions about a private limited company. Some sections of the Companies Act, 2013 (hereinafter referred to as “the Act”), possibility of one member constituting quorum is mentioned. These provisions we can find under section 97 and 98 of the Act.
2. Situations where One member quorum is allowed as per the Act:-
A. Section 97 of the Act:-
- Section 97 of the Act gives right to member or director of the company to apply to tribunal for convening a annual general meeting.
- This right they can exercise only when there is a default made in holding the annual general meeting under section 96 of the Act.
- Tribunal can give such directions including that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
- Tribunal has the power to give such ancillary or consequential directions as it thinks expedient.
- This is applicable irrespective whether it is private limited or public limited company.
B. Section 98 of the Act
- Tribunal has power to order a meeting other than annual general meeting to be called, either suo motu or on application made by director or member who would be entitled to vote at meeting.
- Application can be made for any reason it is impracticable to call a general meeting
- Tribunal may give such ancillary or consequential directions as it thinks fit
- Tribunal can give such directions including that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
- This is applicable irrespective whether it is private limited or public limited company.
3. We will discuss one genuine situation of a private limited company, which had only two members. One member died leaving one member and one director only in a company. The articles of the company were having following clause for adjourned meeting of members
“If at the adjourned meeting also, a quorum is not present within half-an-hour from the time appointed for holding meeting, the member present shall be the quorum.”
We will discuss this situation once we go through section 103 of the Act and various views which can be taken irrespective of the above situation.
4. Let’s read section 103 of the Act
“103. Quorum for meetings.
[(1) Unless the articles of the company provide for a larger number,—
(a) in case of a public company,—
(i) five members personally present if the number of members as on the date of meeting is not more than one thousand;
(ii) fifteen members personally present if the number of members as on the date of meeting is more than one thousand but up to five thousand;
(iii) thirty members personally present if the number of members as on the date of the meeting exceeds five thousand;
(b) in the case of a private company, two members personally present, shall be the quorum for a meeting of the company.
(2) If the quorum is not present within half-an-hour from the time appointed for holding a meeting of the company—
(a) the meeting shall stand adjourned to the same day in the next week at the same time and place, or to such other date and such other time and place as the Board may determine; or
(b) the meeting, if called by requisitionists under section 100, shall stand cancelled:
Provided that in case of an adjourned meeting or of a change of day, time or place of meeting under clause (a), the company shall give not less than three days notice to the members either individually or by publishing an advertisement in the newspapers (one in English and one in vernacular language) which is in circulation at the place where the registered office of the company is situated.
(3) If at the adjourned meeting also, a quorum is not present within half-an-hour from the time appointed for holding meeting, the members present shall be the quorum.”
5. Lets analyse section 103 of the Act. There can be three possibilities to take a view that one member can constitute a quorum for Private Limited :-
- Applying interpretation principles – purposive interpretation
- By analysing the exemption notification no. G.S.R. 464(E) dated 5th June 2015 amended from time to time.
- The precedent in the form of judgement available in favour of one member quorum
6. Lets look at the first one- Purposive Interpretation:-
- The first point which strikes our mind is, sub-section (1) provides for minimum number of members who shall form quorum for both private limited and public limited companies.
- If there is adjournment, sub-section (3) states that if quorum is not present within half-an-hour from the time appointed for holding meeting, the members present shall be the quorum.
- In case of public company, minimum five members are required to be personally present to constitute quorum for general meeting. As per sub-section (3) of section 103 of the Act, any number below five can constitute quorum at adjourned meeting. The said adjourned meeting members present shall be the quorum. It indicates even if the number is below five but above one because it uses word “members”, it will be valid.
- In case of private limited company, the minimum number for quorum itself is two members personally present.
- As per the interpretation principles sometimes addition or alteration of words is permissible when a statutory provision is ambiguous or to avoid patent absurdity, repugnancy or inconsistency. The Privy Council in Corporation of the City of Victoria V Bishop of Vancouver Island AIR 1921 PC 240 has laid down thus:-“In the construction of statutes their words must be interpreted in their ordinary grammatical sense, unless there be something in the context, or in the object of the statute in which they occur, or in the circumstances with reference to which they are used, to show that they were used in a special sense different from their ordinary grammatical sense”
- In case of private company, if the minimum number to form a quorum itself is two then considering that for adjourned meeting also intention is to have minimum 2 under sub-section (3) will become absurd.
- Further, Section 13 of the General Clauses Act, 1897 provides that in all (Central Acts) and Regulations, unless there is anything repugnant in the subject or context, words in singular shall include the plural and vice versa. This also supports the view taken above.
- Hence, if we apply the purpose interpretation, a view can be taken that in certain genuine situations one member quorum can be valid.
7. Now let’s also analyse the exemption notification for Private Limited Companies:-
- Private limited companies enjoy certain exemptions vide notification G.S.R. 464(E) dated 5th June 2015 amended from time to time. The relevant extract is stated below :-“Section 101 to 107 and 109 shall apply unless otherwise specified in respective sections or the articles of the company provide otherwise.”
- If we refer the above exemption, section 103 related to quorum is falling under the exemption notified for private limited company.
- The opening statement of sub-section (1) of section 103 of the Act states that “Unless the articles of the company provide for a larger number”. Hence in case of private limited companies, the articles cannot prescribe otherwise than mentioned both under sub-section (1) and sub-section (3). Sub-section (1) of Section 103 states the minimum members required to be personally present to form a quorum and sub-section (3) states that in case of adjourned meeting the members present form a quorum. Hence articles of public company cannot have any other clause which is going below the minimum stated.
- But in case of private limited company, if it is eligible to claim exemption as per the notification no G.S.R. 464(E) dated 5th June 2015 amended from time to time, the articles can state otherwise than provided in sub-section (3) of section 103 of the Act.
- There are lot of judgements available on this subject where courts have held that minimum 2 members are required to conduct a valid meeting.
- Now the question arises when the meeting is adjourned for want of quorum and the company as availed the exemption under section 103 of the Act stating following for adjourned meeting quorum “If at the adjourned meeting also, a quorum is not present within half-an-hour from the time appointed for holding meeting, the member present shall be the quorum.”
- As per the exemption notification, articles of private company can state otherwise. If we also consider circumstances where only one member is left in the Company due to death of another member. Transmission of shares will take some time due to legal formalities. In such case only a member entered into register of member can vote on the resolutions by way of show of hands or in person or by proxy in case of poll.
- In such situations, can it be said that article may provide otherwise than mentioned in sub-section (3) even to have a member present as quorum?
8. Let’s see the Judgement where one member quorum is accepted by the Court
- In case of Jarvis Motors (Harrow) Ltd V Carabott and another (1964) 34 Comp Cas 921 in the Chancey Division (before Ungoed-Thomas, J) .It was a private company. It was having only two shareholders, Mr. Carabott and Mr. Jarvis. There was dispute between them. The general meeting was convened. One shareholder refused to attend to prevent a quorum. The Articles of Association adopted Regulation 54 of Table A (Companies Act, 1948, UK), which stated:“If at the adjourned meeting a quorum is not present within half an hour… the members present shall be a quorum.”
- Further, there were restrictions on transfer of shares too that the shares shall be transferred to existing members only. Hence there was a deadlock situation.
- The meeting was adjourned due to lack of quorum. At the adjourned meeting, only one shareholder (holding 50% shares) was present.
- He declared himself the quorum and passed resolutions. The absent shareholder challenged this, citing Sharp v. Dawes (that one man cannot constitute a meeting).
- Thomas J. reasoned that if the adjournment clause also required two members, it would be repetitive and effectively useless (otiose). It would allow a dissenting shareholder to permanently stall the company’s business simply by not showing up. To give the Articles “business efficacy,” the single member must be allowed to form a quorum.
- There is no such judgement in favour of one member quorum in India yet.
9. Summary
- If sub-section (1) uses the words minimum 2 members personally present to form a quorum and if the sub-section (3) also gives the same requirement of having minimum 2 to form a quorum in case of adjournment too, then that will lead to absurdity. As per the rules of interpretation, we must read the act harmoniously.
- Section 13 of the general Clauses Act, 1897 provides that in all (Central Acts) and Regulations, unless there is anything repugnant in the subject or context, words in singular shall include the plural and vice versa. If we apply the purposive interpretation to the term “members” used in sub-section (3) then in this context it can be considered as “member”.
- Exemption notification G.S.R. 464(E) dated 5th June 2015 amended from time-to-time exemption private limited companies from certain sections or provisions, exempts from section 101 to 107 and 109 unless otherwise provided in respective sections or the articles of the company provide otherwise. If the private limited company is eligible for availing exemptions and its articles provides otherwise for sub-section (3) of section 103 of the act, then it shall prevail.
10. Conclusion
It can be stated that looking at the difficulty and genuine situation of each case, the court/tribunal may accept that in case of private limited companies at adjourned meeting a single member present can constitute a valid quorum.
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