Importance of Extra-Ordinary General Meeting
In corporate governance, decision-making cannot be left to individual opinions or informal discussions. A company, being an artificial legal person, can act only through collective decisions taken in a lawful manner. This is where meetings play a vital role. Meetings ensure participation, transparency, accountability, and legality in company affairs. Among various meetings recognized under Company Law, the Extra-Ordinary General Meeting (EGM) holds special importance as it addresses urgent and exceptional matters requiring immediate shareholder approval.
This essay explains the concept of a meeting and highlights the legal and practical importance of an Extra-Ordinary General Meeting under the Companies Act, 2013.
Meaning and Concept of a Meeting
Definition of a Meeting
Although the Companies Act, 2013 does not provide an express definition of the term “meeting,” it is generally understood as:
A lawful assembly of persons who are entitled to attend, convened at a proper time and place, to discuss and decide matters relating to the company.
In simple terms, a meeting is a gathering where company members or directors come together to make decisions in accordance with law.
Essential Elements of a Valid Meeting
For a meeting to be valid under Company Law, the following essentials must be present:
- Two or more persons – A meeting cannot be held by one person alone.
- Proper authority – The meeting must be convened by a competent authority.
- Lawful purpose – The matters discussed must be within the scope of company law.
- Notice – Proper notice must be given to entitled persons.
- Quorum – Minimum required number of members must be present.
- Decision-making – Decisions must be taken by voting or consensus.
Without these elements, a meeting may be declared invalid.
Types of Company Meetings
Company meetings are broadly classified into:
- Meetings of Shareholders
- Annual General Meeting (AGM)
- Extra-Ordinary General Meeting (EGM)
- Class Meetings
- Meetings of Directors
- Board Meetings
- Committee Meetings
Among these, the Extra-Ordinary General Meeting is unique because it is convened to deal with urgent matters that cannot wait until the next AGM.
Meaning of Extra-Ordinary General Meeting (EGM)
An Extra-Ordinary General Meeting is a meeting of shareholders held between two Annual General Meetings to transact special or urgent business.
Legal Provision
Section 100 of the Companies Act, 2013 governs Extra-Ordinary General Meetings.
An EGM may be called:
- By the Board of Directors
- By the requisitionists (members)
- By the National Company Law Tribunal (NCLT)
When is an EGM Required?
An EGM is required when:
- A matter is urgent
- The issue cannot be postponed till the next AGM
- Shareholder approval is mandatory by law
Examples include:
- Alteration of Memorandum or Articles
- Removal of a director
- Approval of mergers or amalgamations
- Issue of further share capital
- Change in registered office outside the city
Importance of Extra-Ordinary General Meeting
The Extra-Ordinary General Meeting plays a crucial role in ensuring democratic control and legal compliance in corporate management. Its importance can be understood under the following heads:
Enables Urgent Decision-Making
The most significant importance of an EGM is that it allows the company to take quick decisions on urgent matters. Certain situations demand immediate shareholder approval, and waiting for the AGM may cause delay or financial loss.
Thus, an EGM ensures flexibility in corporate decision-making.
Protects Shareholders’ Rights
An EGM acts as a powerful tool for protecting the rights of shareholders. Members holding at least one-tenth of paid-up share capital can requisition an EGM if they feel the management is acting unfairly.
This prevents misuse of power by directors and strengthens corporate democracy.
Ensures Legal Compliance
Many actions under Company Law require approval by special resolution, which can be passed only in a general meeting. An EGM helps the company comply with statutory requirements without delay.
Failure to convene an EGM when required may attract penalties under the Companies Act, 2013.
Facilitates Transparency and Accountability
By calling an EGM, the Board is compelled to explain its actions to shareholders. This promotes:
- Transparency in management
- Accountability of directors
- Informed decision-making
Shareholders can question, debate, and vote on important proposals.
Useful in Exceptional Situations
EGMs are especially useful during exceptional or crisis situations such as:
- Sudden resignation of key directors
- Corporate restructuring
- Takeovers or acquisitions
- Financial distress
In such cases, immediate approval through an EGM safeguards the interests of the company and stakeholders.
Tribunal-Ordered EGM Safeguards Justice
If directors fail to call an EGM despite a valid requisition, the National Company Law Tribunal (NCLT) may order the meeting. This ensures that management cannot suppress shareholder voices.
Thus, the EGM mechanism upholds fairness and justice in corporate governance.
Procedure for Calling an EGM (Brief Overview)
- Board passes a resolution to convene EGM
- 21 days’ notice is given to members
- Statement of material facts is attached
- Quorum must be present
- Resolutions are passed by voting
This procedure ensures legality and transparency.
Judicial Recognition
Courts in India have consistently held that Extra-Ordinary General Meetings are an essential mechanism for shareholder control and corporate governance. The right to requisition an EGM is considered a statutory right and cannot be taken away by Articles of Association.
Mnemonic Sentence to Remember the Answer
“MEETING GIVES VOICE; EGM SAVES TIME, RIGHTS, LAW, AND CRISIS.”
Explanation:
- Meeting – Collective decision-making
- Gives Voice – Shareholder participation
- EGM – Extra-Ordinary General Meeting
- Saves Time – Urgent decisions
- Rights – Shareholder protection
- Law – Statutory compliance
- Crisis – Exceptional situations
