Rule Change for E-Voting

[The following guest post is contributed by Nidhi Bothra and Vinita Nair,
Vinod Kothari & Co, Corporate Law Services Group. The authors can be
contacted at nidhi@vinodkothari.com
and vinita@vinodkothari.com
respectively]
Under the erstwhile system of holding general meetings,
the resolutions were put to vote by way of show of hands or a poll could be
demanded. Since only such members who were present at the meeting either
themselves or through proxy could vote, the system demanded members to be
present themselves or through proxy.
The new refurbished rules however facilitated members
to vote on resolutions to be taken up at the general meeting without having to
be present themselves. They could now vote from the remotest location in the
country if they had internet access and exercise their right to vote.
With the introduction of the e-voting system for
specified class of companies, the concept of show of hands becomes irrelevant.
Members could vote through e-voting system and at the meeting the Chairman
could put the resolution to poll.
The rules on e-voting system posed challenges of the
own when introduced last year and the Ministry of Corporate Affairs (MCA) was
forced to make it optional considering the barrage of queries and
clarifications the rules demanded.  Although
the industry was nevertheless beginning to adhere to the rules on e-voting, the
MCA amended the rules on e-voting by way of the
Companies
(Management and Administration) Amendment Rules, 2015

issued on March 19, 2015 (the “new rules”) and the first reading of the
amendments has the potential of raising several further queries on the changes.
Rule 20 as applicable on e-voting has been substituted by the new provisions as
introduced by the amendment of 2015.
Eligibility for applicability of rules
The new rules on e-voting will have to be complied with
for all general meetings in respect of which notices are issued after the date
of commencement of this rule. That is to say, all notices issued for general
meetings after the publication of the rules in the official gazette will have
to comply with these rules. 
All companies with equity shares listed on recognised
stock exchange or companies having not less than thousand members will have to
provide its members the facility to exercise their right to vote on resolutions
proposed to be considered at general meetings by electronic means.
The new rule also states that it shall not apply to
companies referred to in Chapter XB or Chapter XC of SEBI (Issue of Capital and
Disclosure Requriements) Regulations, 2009 (the “ICDR regulations”) along with
companies with less than 1000 members. Chapter XB of the ICDR regulations deals
with the issue of specified securities by small and medium enterprises and
Chapter XC of the ICDR regulations relates to listing on the exchange made
possible without bringing an initial public offer by small-and-medium
enterprises (“SMEs”).
The rules seem to indicate that the new rule shall not
be applicable to listed SMEs. The rationale for this is unclear, although the
cost implications of such a requirement are understandable.
The provisions of e-voting will not be applicable to
listed SMEs, which means general meetings will be conducted by using means such
as show of hands, poll, ballot paper etc.
Concept of Remote e-voting and voting by electronic means
The new rules introduce voting through electronic
means and remote e-voting. Voting by electronic means includes remote e-voting.
Remote e-voting is where the members can exercise their vote from any remote
location, in case they are unable to attend the meeting.
Voting by electronic means is a facility that the
company may provide at the general meeting also. Hence, the members can now vote
on matters electronically either from the remote location or at the meeting
itself.
Sure enough, the rationale for e-voting at the meeting
cannot be understood as the member is physically present at the meeting to cast
the vote, discuss the resolution and air concerns. One benefit could be saving
the cost of polling process. The company needs to have two scrutinizers – one
for e-voting and one for poll. The concept of e-voting was introduced with an
intent to facilitate the members to vote even if they were unable to attend the
meetings. This enabled larger participation of members in resolutions and
removing the constraint of physical participation.
The new rule does seem to suggest that is optional for
the company to provide voting through electronic means at the meeting. This
also means additional cost burden for companies to introduce voting through
electronic means for members at the meeting – technologically enabling the
meetings to provide for the option and also explaining the modus operandi to
the members to put the option to use.
This was seemingly even suggested by Hon’ble Bombay
High Court in the matter of amalgamation of
Wadala Commodities Limited and Godrej Industries Limited,
where Justice G S Patel under Para 24 (a) stated the following:
“All
provisions for compulsory voting by postal ballot and by electronic voting to
the exclusion of an actual meeting cannot and do not apply to court-convened
meetings. At such meetings, provision must be made for postal ballots and
electronic voting, in addition to an actual meeting. Electronic voting must
also be made available at the venue of the meeting. Any shareholder who has
cast his vote by postal ballot or by electronic voting from a remote location
(other than the venue of the meeting) shall not be entitled to vote at the
meeting. He or she may, however, attend the meeting and participate in those
proceedings.”

Concept of cut-off date for
remote e-voting
The new rule refers to a cut-off date which is defined
to be a date not earlier than seven days before the date of the general meeting
for determining eligibility to vote by electronic means or in the general
meeting. Assuming the general meeting is on September 30, 2015, the cut-off
date cannot be beyond September 23, 2015
Rule 20(4)(v)(e) requires the company to state in the
public notice the manner in which the persons who have acquired shares and
become members of the company after the despatch of notice may obtain the login
ID and password. However, rule 20(4)(f)(D) states that a person whose name is
recorded in the register of members or in the register of beneficial owners
maintained by the depositories as on the
cut-off date only shall be entitled to avail the facility of remote e-voting as
well as voting in the general meeting.
Going by the aforesaid language, the Company cannot
follow the practice of keeping the same date for determining names of
shareholders for despatch of notice as cut-off date for e-voting. Companies will
be required to have a cut-off date (or determination date or record date) for
despatch of notice, for remote e-voting as well as mode of voting at the
meeting and one for dividend.
There would be no question of providing such facility
to persons who have become members after the cut-off date. If that were the
case, the concept of cut-off date and identification of members of the company
for attending the general meeting itself would become completely redundant. In
view of the above discussion, it would be a prudent step to have same record
date, which is fixed by the Company for the purpose of dividend, to be the record
date for the purpose of e-voting and voting by poll too. The agencies offering
e-voting platform shall refer the list of shareholders as on record date,
upload the same and generate user ID and password for such shareholders. The
shareholders as on cut-off date who are unable to vote electronically may
attend and vote at the shareholders’ meeting by way of poll or by electronic
means, as the case may be.
Modus operandi for remote
e-voting and e-voting at general meeting
Rule 20(4)(vi) states that the remote e-voting
facility will be open for not less than three days and shall close at 5:00 pm
on the date preceding the date of the general meeting. The rule seems to
indicate that the remote e-voting facility will be open until a day preceding
the general meeting.  Formerly, the rules
specified the minimum and maximum number of days for which the facility may be
offered. However, considering the cost and complexity, companies may consider
keeping open for maximum three days. Assuming the general meeting is on September
30, 2015, the remote e-voting facility may be kept open from September 27 to 29,
2015 thereby complying with both of aforesaid requirements.
The proviso to rule 20(4)(viii) indicates that the
remote e-voting facility will be blocked on the day preceding the general
meeting. However, if the same electronic voting system is being used for
providing voting through electronic means during the general meeting as well,
then the said facility shall be in operation until all resolutions are
considered and voted upon in the meeting. The facility may be used for voting
only by members attending the meeting and who have not exercised their right to
vote through remote e-voting.
The rule seems to fail to make distinction between
remote e-voting and voting at the meeting through electronic means. Remote
e-voting is to cease one day prior to the general meeting at 5 pm; however,
where the company opts to provide same electronic voting system will remain
operative for voting through electronic means. How will the company create a
distinction between those members who have voted from remote e-voting and those
who will be exercising the voting through electronic means at the meeting?  Sure enough, the system will have to close
for the company to make a note of such members who have exercised the right to
vote already. Rule 20(4)(xiii) seems to indicate that there will be a closure
period for remote e-voting and before commencement of general meeting for the
scrutinizer to make an account of all the shareholders who have exercised their
right to vote through remote e-voting. The voting through electronic means
shall re-open after the scrutinizer has taken account of the members who have
voted through remote e-voting. The company may consider re-opening the same on
commencement of e-voting at the general meeting.
Now comes the challenging part. How will the agency
ensure that while the e-voting has been allowed at general meeting, no member
is accessing the portal through remote e-voting and casting vote at the same
time? The agency providing the facility will have to ensure this possibly by
de-activating the login IDs of members other than those attending the general
meeting as the scrutinizer would have taken record of those who have already
voted through remote e-voting.
Issues with amending
resolutions
The new rules indicate that resolution cannot be
withdrawn where voting through electronic means is provided, but is ambiguous
on whether amendment to the resolution is possible or permissible. The rule
seems to be silent on the issue.
Voting at meetings
Rule 20(4)(xi) seems to indicate that at the meeting
voting through electronic means or using ballot or polling paper will have to
be allowed for all those members who are present at the general meeting but
have not exercised their voting rights already.
Considering the level of complexity and challenges
involved, it seems that the company may opt for the time tested method of
providing poll at the meeting, since it will be cumbersome to provide
electronic voting booths at the venue. Several shareholders who may not be
technologically sound will require guidance. Of course the shareholders’
meeting will turn into a long drawn process.
Announcing results
Oddly, unlike the current practice where the chairman
announces whether the resolution is passed or not, in future the results of the
resolution will be announced not later than three days from the meeting. Once
the scrutinizer gives the consolidated report of the total votes cast in favour
or against, within three days from the conclusion of the general meeting, the
chairman or a person authorised by him in writing, shall declare results
forthwith.
While the results of the voting on resolutions will be
announced three days from the general meeting, the resolution will be
considered to be passed on the date of the general meeting.This will surely
contradict with requirement of clause 35A of equity listing agreement where
companies are required to report the voting results within 48 hours of
conclusion of general meeting. This, in case of equity listed companies, the
results will be needed to be given within 2 days from conclusion of general
meeting.
Conclusion
The transformation of law relating to shareholder
voting was to be more facilitating and in harmony with the global developments
such that companies could carry out their governance activities with greater
ease. At this point of time, however, it appears that the legislative inteniton
is primarily to address loopholes in the existing system. Any change in law has
to have a vision as it has not a momentary impact but an one for times to
come. 
What could have been the intent of introducing voting
through electronic means at the meetings where the members are present
themselves to express their opinion on matters? Corporate houses with this
amendment certainly feel the burden and the pressure of costs for introducing
voting through electronic means at the meeting.
         
Nidhi Bothra & Vinita Nair

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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