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Quorum: Rationality behind it under corporate law

BY: KISAN | Category: Others | Post Date: 2008-05-26
 



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   KISAN
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1. Introduction
In a Democratic State, all people are equal before law and given equal protection of all laws of the land. It is said that two people are better than one. In other words, it means two or more views or opinions are of better understanding over the subject matter in issue or question and the decision or solutions forwarded or made will focus on the better side or darker side of the subject or object. If there is burning issue and which involves welfare of the people or institution or the minority then only one person cannot decide over the matter because it requires more brains and guts decide. A single individual cannot think in many and different ways, what many people collectively can do. So there is need for more brains to discuss over the issue and come to a reasonable resolution. It is the majority opinion shall prevail.

To decide over a matter there must be some minimum number of persons. This is called quorum. There must be a number which can be divided as majority and minority by their opinions and stance. This minimum number is called quorum. For instance, if there are fifteen members in an association, if the prescribed quorum is fixed to five members for a meeting. It means that to commence a meeting there must be minimum five members. These five members can be divided in 3:2. Three is the majority opinion and two is the minority opinion. And the decision taken in the meeting which had quorum is valid and binding on the other members of the association. If the decision is passed without a quorum then it is null and void. So the concept quorum is must for every association, assembly, meetings and others where people assemble to decide over a matter with an interest in mind to reach over a reasonable resolution. The law also recognizes the quorum. Without a quorum a meeting, assembly does not commence to transact its business. So quorum is must and inevitable.
The Constitution of India prescribes 1/10th quorum for both houses of the Parliament to decide over its matters. As similar to this the Indian Companies Act prescribes a quorum for the company's meeting to decide over its matters.
2. Meaning of Quorum
The word quorum is the Latin term which means -of whom-. The word quorum denotes the number of members of any body of persons. Whose presence is requisite in order that business may be validly transacted by the body, and that its act may be legal.
The term is derived from the wording of the commission appointing justices of peace, which runs -we have assigned you, and every two or more of you, and every two or more of you [of Whom (quorum) anyone of you shall be one] our justice to inquire the truth more- whence the justices so named were usually called justices of the quorum .
Quorum means the number (as a majority) of officers or members of a body that when duly assembled is legally competent to transact business. In other words, quorum means existence of a body of persons of whom a certain specified number are competent to transact the business as a whole.
According to Oxford Dictionary, the term quorum means, number of members that must be present to constitute a valid meeting.
According to Stroud's Judicial Dictionary, -where a quorum of directors or shareholders is prescribed that means, imperatively, that no business shall be transacted unless the prescribed number, at least present-.
Wharton's Law Lexicon says, quorum means, -the number of members of an administrative or judicial body whose presence is necessary for the acts of the body to be valid-.
Quorum is a Latin term which means ‘minimum number of members who must be present at a meeting as required by law or rule'. The main purpose of having quorum is to avoid decisions being taken at a meeting by a small minority which may be found to be unacceptable to the vast majority members .
In Punjab University v. Vijay Singh Lamba , Justice Chandrachud observed as -quorum is the minimum number of members of any body of persons whose presence is necessary in order to enable that body to transact its business validly so that its acts may be lawful…..-
Quorum is the minimum number of members, on whose attendance any validly called meeting can commence its deliberations. It must be noted that such a number of effective members, i.e. members qualified to take part in and to decide upon the questions brought before the meeting, constitute a quorum.
The term quorum is not specifically defined under the Indian Companies Act, 1956. But the term is referred in section 174 of Act.
Section 174 of the Companies Act speaks of quorum for a meeting -----
1) Unless the articles of the company provide for a larger number, five members personally present in the case of public company other that a public which has become such by virtue of section 43 A and two members personally present in the case of any other company shall be the quorum for a meeting of the company.

2) Unless the articles of the company otherwise provide, the provisions of the sub-sections (3), (4) and (5) shall apply with respect to the meetings of a public or private company.

3) If within half an hour from the time appointed for holding a meeting of the company, a quorum is not present, the meeting, if called upon the requisition of members, shall stand dissolved.

4) In any other case, the meeting shall stand adjourned to the same day in the next week, at the same time and place, or to such other day and at such other time and place as the Board may determine.

5) If at the adjourned meeting also, a quorum is not present within half an hour from the time appointed for holding the meeting, the members present shall be a quorum.
The provision contained in this clause may be overridden by the articles. This clause seeks to remove a practical difficulty in respect of section 43 A public companies where there may be less than 5 members. It is therefore, proposed to modify section 174 and provide for 2 members to a form a quorum.
Some companies may provide the definition and meaning of quorum in their articles.
3. Necessity for Quorum
Quorum for a public company
The Quorum for a public company the quorum is 5 members personally in attendance at the meeting. No proxy is counted in forming the quorum. On the language of the section 174 it appears that these 5 members may be entitled to vote on all resolutions or only in respect of one resolution on none at all. If the Chairman finds that the minimum number of 5 members is present, he can proceed with the business of the meeting. At this juncture the question of taking part in discussion or voting for or against any motion does not arise. But it has been held that the quorum must be effective members, members competent to take part in and to decide upon the questions brought before the meeting.
Quorum for a private company
The quorum at general meetings of private companies and section 43A public company is 2 members personally present, unless the articles of the company provide for a larger number.
Waiting period for Quorum
The articles of the company may provide as to how long from the appointed time the members will wait for quorum and if no quorum is present within the waiting time what will be fate of the meeting. But if the articles do not provide for such eventualities then the provision of this section will apply. The persons assembled at the appointed place shall wait for half an hour.
Rules regarding Quorum
As regards quorum at the general meetings, the following rules must be followed:
a) For the purpose of ascertaining quorum, only members present in person, and not by proxies, are to be counted. Even the Articles cannot provide for counting of proxies for the purpose of quorum. However, exception to this rule is there in sections 167 and 186.
b) Preference shareholders and equity shareholders without voting rights present in the meeting are not to be counted for the purpose of quorum except where the proposed business includes any item directly affecting preference shareholders or they have earned voting rights.
c) Joint shareholders are treated as single member for purposes of counting quorum.
In Transcontinental Hotel Ltd., In re , in this Australian case the articles of association of a limited company required that a quorum of two members should be personally present at a meeting of the company to pass a special resolution. It was held that the presence of two persons who were registered as joint holders was a sufficient compliance with the articles of association. In other words, for purpose of quorum, two joint holders were treated as two members of the company.
d) A member present in two or more capacities, for instance, as an individual member and trustee, may be counted as two members personally present for the purposes of the quorum.
e) If a company is a member of another company, it may authorize a person by a resolution to act as its representative at a meeting of the latter company, and then such a person shall be deemed to be a member present in person and counted for the purpose of quorum (section 187).
However, the donee of general power of attorney cannot be equated with that of a representative appointed under section 187. If the member concerned desires to appoint the donee as proxy, he can do so but in that case, the donee can act only in the same way as any other proxy. Where two or more companies being members of another company appoint a single person as their representative, then each of such companies will be counted in quorum at a meeting of the latter company.
f) Where the President of India or the Governor of a State holds shares in a company and appoints a person to act as his representative as a meeting of that company, then such person shall be deemed to be a member present in person and counted for the purposes of quorum (section 187A).
g) Where the total number of members of a company is reduced below quorum fixed by the Articles, the rule as to quorum will be deemed to be satisfied if all the members of the company attend the meeting in person.
One man meeting
If only one member turns up then can be called as a meeting was the question arose in Sharp v. Dawes , in this case there were several shareholders in a company. A meeting was called for the purpose of making a call. Only one shareholder attended the meeting. He, however, held the proxies of other shareholders. He took the chair and passed a resolution for making call and then proposed and passed a vote of thanks. In giving judgment in the Court of Appeal, Lord Coleridge said: -The word ‘meeting' prima facie means a coming together of more than one person…. This was not a meeting within the meaning of the Act-.
When the Central Government or the Tribunal calls a meeting under section 167 or 186 respectively it may be directed that one member of the company present in person or by proxy shall be deemed to constitute a meeting. This course was adopted in L. Opera Photographic Ltd., Re , in a company consisting of two members with 51:49 holding, the majority shareholder was not able to remove the other from directorship because under the articles a meeting without the other attending was not possible. So the majority applied for a court (here it would be CLB) order that a meeting should be called at which the attendance of one would be the quorum. Since the majority shareholder had a statutory right to remove the other from directorship his right could not be vetoed by quorum requirements and therefore, the court passed necessary orders.
In general, one person cannot validly constitute a meeting even if he holds all proxies for all members. On the other hand, in the following circumstances, one person shall form the quorum for a general meeting:
a) In case of a ‘class meeting' (i.e. a meeting of a class of shareholders) if all shareholders of a particular class are held by one person.

b) If there is only one creditor or debenture holder, he shall constitute quorum for the creditors/ debenture holders meeting.

c) Company Law Board (now Central Government/ Tribunal) may issue directions under section 167 or section 186 that one member, present in person or by proxy shall constitute a quorum.
Quorum for Meetings of Directors (Section 287)
The quorum for a meeting of the Board of Directors is one-third of its total strength (any fraction to be rounded off as one) or two directors, whichever is higher. If, at any time, the number of interested directors exceeds or is to 2/3rd of the total strength, the remaining directors, that is to say, the number of directors who are not interested, present at the meeting, being not less than two, shall be the quorum of such meeting. Interested directors are not taken for quorum according to section 300. However, this does not apply to private company. It should be noted that in case of Board meetings, quorum is required throughout the meeting.
If a meeting cannot be held for want of a quorum, it stands adjourned till the same day in the next week. If that day is a public holiday, the meeting will be held at the next succeeding day which is not a public holiday. The quorum requirement does not become dispensed with because one out of two directors is abroad. A meeting attended by only one director was held valid in case of Hood Sailmakers Ltd., v. Axford.
4. Rationality behind the quorum
The rationality behind the quorum can be explained by the below reasons---
1) Quorum validates the meeting and the resolutions passed

2) Quorum in meeting proceeds the business

3) Avoids minority decisions

4) Quorum dissolves the meeting

5) To avoid one present passing resolutions

6) To differentiate persons in meeting
1) Quorum validates the meeting and the resolutions passed
Without a quorum a meeting is invalid. The quorum must be in attendance before a meeting can advance to business. Any resolution conceded at a meeting will be invalid. Regulation 49 of Table-A of the Act provides that no business should be transacted unless a quorum of members is present at a general meeting at the time when a meeting proceeds to business. In such a case, the quorum need not be present throughout the meeting. Quorum at the beginning will validate all decisions. Without the quorum the meeting will be invalid so the quorum should be present.
2) Quorum in meeting proceeds business
The quorum must be present in a meeting to proceed to business. This means if there are some adequate members in a meeting then a business can be transacted. So that everyone should know the affairs of the meeting of the company and it is a natural justice that he should be made note of the business being transacted. No business can be transacted at any meeting unless a quorum of members is present at the time when the meeting proceeds to business.
In Re Hartley Baird , at a meeting of a class of ordinary shareholders called to agree to a proposed reduction of capital, the necessary quorum was present when the meeting began, but before the vote was taken the number of members present was reduced below the quorum because one member, who opposed to the resolution, had left the meeting. It was held on the true construction of Articles 52 and 53 (England Companies Act) is sufficed that a quorum was present at the beginning of the meeting, when it proceeded to business, and the subsequent departure of a member reducing the number below that required for a quorum did not invalidate the proceedings of the meeting after his departure.
In Henderson v. Louttit , it was said that it would be a highly inconvenient, not to say unnatural, meaning…. To hold that all that is necessary to the validity of the proceedings is that, at the earliest stage of the meeting, a quorum should be present, but that after the real business of the meeting is started and under consideration the quorum might go away.
3) Avoids minority decisions
The major rationale of having quorum is to avoid decisions being taken at a meeting by a small minority which may emerge to be objectionable to the vast majority members . It offends the interest of the majority members.
4) Quorum dissolves the meeting
If within half an hour from the time of a meeting a quorum is not present the meeting shall dissolved if it was called upon requisition. But in other cases the meeting is automatically adjourned to re-assemble on the same day in the next week. And if at the re-assembled meeting also a quorum is not present a quorum is not present within a half an hour, as many members as are actually present shall constitute the quorum. So if the quorum is not present the meeting is automatically dissolved.
5) To avoid one person passing resolutions
The quorum prescribed for a meeting avoids one person to constitute a meeting and passing resolutions. Because one person cannot constitute a meeting and it is against the purpose of meeting. Actually meeting means meeting of 2 or more persons, how a single person can constitute a meeting. There must be at least two faces and two voices in the meeting, and then the purpose of the meeting is fulfilled. So by observing quorum a single person constituting a meeting can be avoided. The authority of this statement has been to a certain extent undermined by London Flats Ltd., a meeting was attended by two members. The chairman was the majority shareholder. The other member proposed a name for appointment as liquidator. The chairman moved an amendment and proposed himself. Thereupon the other member left. The chairman by his majority votes confirmed his appointment. The court refused to uphold the appointment on the ground the any further proceedings, after the other member had left, were a nullity. Their decision is good inasmuch as it provided to the company an independent liquidator, but the reason advanced may lead to wrong results. It should not be the law that minority shareholders, realizing that they cannot defeat a resolution by the constitutional process of voting against it, should be able to frustrate the wishes of the majority by walking out of the meeting.
6) To differentiate persons in meeting
The quorum always differentiates the persons who are present at a meeting. It differentiates the proxies, representatives, interested directors etc, for the sake of commencement of the meeting. The quorum wants certain persons to be present at the meeting to form a quorum and transact the business.
5. Conclusion
In the present study, an effort has been made to understand the concept of quorum and how rational it is to observe the quorum in the company meetings. It is the quorum which validates the meetings and resolutions passed and decisions taken in the meeting. By observing quorum the resolutions passed and decisions of meeting shall be meaningful and effective and will receive acceptance of all the members who intended so. The quorum plays a very vital role in the company's meeting, because the company's object is to carry on the business and make profits. To fulfill this object it has to undergo meetings of directors, members, creditors and contributories, and lastly the Annual general body meeting. These meetings are very essential for the company's business transactions and a road ahead to the progress of the company. For these meetings of the company all the required persons should be present to commence the meeting, but at all the times it need not be possible to a person to be present all the time. So a minimum numbers of members to be present is fixed to start the proceedings, if there is no minimum number of persons then the meeting shall stand adjourned, because to avoid decisions to be taken by a minority. So observing a quorum in a meeting of a company is rational and justiciable.



1) Datta C.R., ‘Company Meetings and Resolutions', Eastern Law House, Calcutta, 19712) Datta, ‘The Company Law', 5th edn., Orient Law House, New Delhi, 1991 3) Dr. Avtar Singh, ‘Company Law', 14th edn., Eastern Book Company, Lucknow, 20044) Frank Shackleton, ‘The Law and Practice of Meetings', 5th edn., Sweet & Maxwell, London, 19675) London, 19796) Majumdar A.K.& Dr..Kapoor G.K, ‘Taxmann's Company Law and Practice', Taxmann Publications (P) Ltd., New Delhi, 20037) Paul L. Davies, -Gower's Principles of Modern Co. Law., 6th ed., , Sweet and Marwell Ltd., London, 19978) Secretarial Practice Series-4, ‘Meetings', 1st edn., Institute of Company Secretaries of India, Rakesh Press, New Delhi, 1982

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About Author / Additional Info: I am a Attorney working in a legal company. I wrote this article when i was in college.

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