Meetings of board held through Video-conferencing

12.1 Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014 lays down the manner of conducting meeting of the Board through video conferencing. It was suggested that the procedure in this regard needed to be simplified and the requirement of recording entire proceedings of the meetings held through video conferencing should be done away with. With a view to reduce the requirements, the Committee recommended that video recording may be preserved only until the minutes of the meeting are irrefutably confirmed by each of the Directors, as required under Rule 3(12)(b), and signed by the Chairman, as such minutes would be admissible evidence in the court of law. Further, the recording requirement of the meetings should be limited only to the summary of decisions taken at the meeting, as against the entire proceedings in line with the May 20, 2011 Circular of MCA. The Committee, however, feels that the provisions with regard to ensuring integrity, reliability, maintaining confidentiality, etc. are broad principles, and specific video conferencing services like Skype need not be mentioned in the Rules.

Audit Committee – omnibus approval

12.2 Attention was drawn to Regulation 23(3) of the SEBI (LODR) Regulations and proviso to Section 177(4)(iv) which empower the Audit Committee to give omnibus approval for related party transactions subject to prescribed conditions. It was indicated that the Act does not contain an explicit provision for granting omnibus approval for unforeseen transactions. The Committee noted that relevant provisions of the Act were notified on 14 December, 2015 and the relevant Rules also provide, inter alia, that where the need for related party transaction cannot be foreseen and aforesaid details are not available, the audit committee may grant omnibus approval for such transactions subject to their value not exceeding rupees one crore per transaction. The suggestion made, therefore, is already addressed.

Rule 6: Thresholds specified under section 177

12.3 Rule 6 prescribes class of companies, in addition to listed companies, as required under Section 177 where the Board of Directors should constitute an Audit Committee. Suggestions were received to revise the thresholds so that these requirements do not apply to smaller unlisted companies. The Committee recommended for reviewing the thresholds prescribed for independent directors, audit committees and nomination and remuneration committees keeping in view the suggestions already made by SEBI.

Related Party Transactions

12.4 The third proviso to Section 188(1) has reference to the terms, ‘ordinary course of business’ and ‘arm’s length basis’. It has been suggested that these terms may be clarified/defined since these terms would differ on case-to-case basis. The Committee felt that these terms are known in general commercial parlance and enough accounting guidance is also available. The Committee, therefore, did not recommend any change in the Act/Rules. It was noted that ICAI should also come up with suitable guidance note on these matters to guide its members on compliance with respect to Section 188 requirements.

Video-conferencing board meetings: recording limited to decision summaries until minutes are confirmed and signed under meetings rules. Recordings of video conferencing board meetings should be preserved only until minutes are irrefutably confirmed by each Director and signed by the Chairman, and recording may be limited to a summary of decisions rather than entire proceedings; integrity, reliability and confidentiality obligations remain. The Rules already permit audit committees to grant omnibus approval for unforeseen related party transactions subject to prescribed limits, and thresholds for constituting key committees should be reviewed to reduce burdens on smaller unlisted companies.