The Articles of Association of XYZ Limited fixed 3 as the quorum for a meeting of the Board. At a meeting of the Board, all the 5 directors were present. They allotted the shares of the company to 3 of the directors. Is

The provisions in regard to quorum for a Board meeting are contained in Section 174 of the Companies Act, 2013. It is provided therein that the quorum for a Board meeting shall be one-third of total strength of Board of Directors of a company (any fraction contained in that one-third shall be rounded of as one) or two directors whichever is higher. However, Article of Association can prescribe higher quorum. In the given case all the 5 directors were present at the Board Meeting where 3 directors are allotted with shares and the Articles of Association of the Company prescribes 3 as quorum for Board Meetings. The Directors to whom shares have been allotted shall be considered to be "Interested Directors" since the term Contract or Arrangement under Section 184(2) of the Companies Act, 2013 may not constitute a contract in strict sense. In the case of Seth Mohanlal v. Grain Chambers Ltd., AIR 1959 All 276 it was held that the word contract or arrangement is intended to cover transactions in which a director acquires some right or incurs some liability "qua" director, as a result of it. However, Section 174(3) of the Companies Act, 2013 provides that where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of Directors, the number of disinterested directors present at the meeting, being not less than two, shall form the quorum during such time. Thus, the Board Meeting conducted and the transaction of the business for allotment of shares to 3 Directors is valid, as other 2 Directors are not interested.