The meetings convened pursuant to a first motion order under Section 230(1) are not ordinary general meetings. They are class meetings, constituted by the Tribunal's order, and they operate under a procedural code that is distinct from the code that governs AGMs and EGMs. The chairperson, the quorum, and the voting threshold are the three variables that determine whether the meeting is valid and whether the scheme is approved.
The Chairperson: Appointment and Role
The first motion order appoints a chairperson for each meeting. The chairperson is typically a retired judge, a senior advocate, or a practising professional. The chairperson's role is not ceremonial. The chairperson must ensure that the meeting is conducted in accordance with the Tribunal's directions, that the members or creditors have a reasonable opportunity to speak, that the voting is properly conducted, and that the report submitted to the Tribunal is accurate.
The chairperson's report is the evidentiary basis for the second motion. It must set out the notice served, the quorum, the deliberations, the votes cast in favour and against, and the chairperson's recommendation. A report that is incomplete or that does not reconcile the votes is a report that invites the Tribunal's scrutiny.
The Quorum: Prescribed by the Tribunal
The quorum for a scheme meeting is prescribed by the Tribunal in the first motion order. The quorum is not the quorum prescribed by the Act for general meetings; it is a case-specific requirement. The NCLAT has held that a quorum that is impractical or unworkable may be set aside, particularly where it imposes a disproportionate burden on a class that represents a small fraction of the value. The Tribunal must balance the need for participation against the practical realities of the class.
The quorum is typically expressed as a number of members or creditors, or as a percentage of the class. Where the quorum is not met, the meeting is adjourned, and the adjourned meeting may proceed with the persons present, subject to the Tribunal's directions.
The Voting Threshold: Three-Fourths in Value
The scheme must be approved by a majority of persons representing three-fourths in value of the members or creditors present and voting. The threshold is computed on the value of the shares or the debt, not on the number of persons. A single large creditor can outvote a large number of small creditors if the large creditor's value meets the three-fourths threshold.
The voting may be by show of hands, by poll, or by electronic means. The chairperson must ensure that the votes are recorded accurately and that the scrutinizer's report reconciles the votes. The three-fourths threshold is the statutory expression of the class's consent, and a scheme that does not meet the threshold cannot be sanctioned.
A valid scheme meeting requires a chairperson who is independent, a quorum that is workable, and a voting record that is transparent.
Call to Action
Anuj Desai & Associates advises companies on the convening and conduct of scheme meetings—from the chairperson's appointment and the quorum design to the voting process and the chairperson's report. If you are navigating a contested scheme meeting, we can help you structure a process that meets the Tribunal's requirements.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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