[Job Michael Mathew is a 4th year BA.LL.B (Hons) student at NALSAR University of Law. He may be reached at [email protected]]
This post examines the question whether proxyholders appointed under section 105 of Companies Act, 2013 (the “Act”) and corporate representatives appointed under section 113 are required to vote according to the specific instructions given to them by their appointers.
Section 105(1) of the Act allows any member of a company entitled to vote at a meeting of the company to appoint another person as proxy to attend and vote on her behalf. A proxy has a right to vote only on a poll conducted on any resolution. A proxy has no right to audience or of being heard at the meeting and hence she is only a representative for voting. Courts in India, Australia and the United Kingdom[1] have held that the relationship between the member (appointer) and proxyholder is that of a principal and agent. A direct consequence of such a finding is that an agent is bound to act according to the instructions of the principal, in this case the member. The instructions of the principal will take the form of either voting for or against a resolution. The important question relates to how and where will these instructions be given and how can they be made binding as regards the company whose meeting the proxy is attending.
Section 105(6) of the Act requires that the instrument appointing the proxy should be in writing and be signed by the appointer or his duly authorized attorney. Rule 19(3) of the Companies (Management and Administration) Rules, 2014 (the “Rules) state that the appointment of proxy shall be in the Form No. MGT.11. Interestingly, the form does not make a provision for the appointer to provide voting instructions to the proxy. This constitutes a departure from the Companies Act, 1956 which provided for two sets of forms which could be used for appointing a proxy. The first, a “General Form” (I) which simply provides for the appointment of a proxy with respect to the relevant meeting and, the second, a “Form for affording members an opportunity of voting for or against a resolution” (II) which, along with the appointment of the proxy, also provides for how the vote of the proxy is to be exercised, i.e. for or against. Form II specifically states that, unless otherwise instructed, the proxy will act as he thinks fit. Such a conclusion is in line with the law of agency, as when a power is conferred to an agent and there are no words limiting the power, the power to vote in accordance with the discretion of the proxyholder can be implied. A proxy appointed by a member under section 105 through Form No. MGT.11 will have the absolute discretion to vote in the way he thinks fit and the principal will be bound by such a vote. Private instructions issued by the principal to an agent are not binding on a third party (for example, the company) unless the latter has notice.
However, this does not mean that members cannot limit the discretion of proxyholders appointed under section 105 and make the proxyholder and company bound to follow the instructions and record the vote corresponding to the instruction. The proxy form set out under Rule 19 is not mandatory and any instrument maybe issued to appoint a proxy as long as the instrument contains all the requisite particulars as set out in Form No. MGT. 11. A common instrument that is used to appoint proxies outside of forms provided in the Act is a power of attorney. A power of attorney must be construed strictly and the authority conferred by the power must be firmly adhered to. Thus, if a proxy is appointed under a power of attorney and voting instructions are also explicitly stated then, on depositing the instrument with the company in accordance with section 105(4), it will be incumbent on the company to not recognize any vote by the proxy which is in contravention with the voting instructions of the appointer. This is because a third party who has knowledge of the limitations imposed on the agent will not be able to bind the principal with an unauthorized action on part of the agent. Therefore, members who wish to provide voting instructions to proxies and make such instructions binding on part of the company should eschew Form No. MGT. 11 and appoint the proxy under a power of attorney in consonance with Form No. MGT. 11.
Moving to corporate representatives, section 113 of Act allows a company that is a shareholder in another company to authorize any person it deems fit to act as its representative at any meeting of the second company. A company can appoint a corporate representative by resolution of its board of directors. A representative appointed under this section is a member personally present for the purpose of quorum and voting by show of hands, and is not in the position of a proxy appointed by a shareholder. The question that needs to be answered is whether there is a principal-agent relationship between the company and the corporate representative. To be sure, there are differences between the scope of authority of proxy and representative as noted above. In fact, the Calcutta High Court observed that the corporate representative embodies the shareholder as if the corporate shareholder were present in the meeting. However, the authority of the representative does not extend further than representing the body corporate at the general meeting. Thus, the author is of the opinion that the corporate representative is for this purpose akin to an agent of the company, with a much wider mandate than that of a proxy. The wider mandate of a corporate representative does not take away from the fact that the representative at the end of the day acts on the bidding of the company.
Even though the author has not found any judicial decisions in India finding a principal-agent relationship between corporate representative and company, the Supreme Court of North South Wales in a 2013 judgment did not contest the argument that the corporate representative was its agent and refused to bind the principal as regards an unauthorized action on part of the representative. Section 250D(2) of the Corporations Act, 2001 in Australia specifically states that restrictions on the power of the corporate representative maybe stated on the instrument of appointment. Section 250D(4) states that if the instrument of appointment does not limit the power in any way, the representative may exercise all the powers that a member may exercise in a meeting.
In India, the instrument of appointment of a corporate representative is a board resolution. As in the case of appointment of proxyholder, unless the instrument of appointment limits the power of the representative, the principal will be bound by all actions of the representative. Therefore, companies desirous of limiting the authority and the manner of exercise of authority of a corporate representatives should set out the limitations and restrictions on the power of the representative in the board resolution itself. If the representative then goes on to carry out an unauthorized act which is allowed to take effect by the company, it will be open for the appointer company to bring an action to contest the unauthorized act of the representative.
Appointers should therefore take due care to use the right instrument of appointment and set out voting instructions as regards proxies and set out the powers and manner of exercise of such powers as regards corporate representatives, in each case to ensure that the proxies and corporate representatives act in accordance with the wishes of the appointers.
– Job Michael Mathew
[1] Second Consolidated Trust v. Ceylon Amalgamated Ests. [1943] 2 All ER 567
Comment inputs by Avinash Gautam and myself.
In the article it is opined that:
“A proxy appointed by a member under section 105 through Form No. MGT.11 will have the absolute discretion to vote in the way he thinks fit and the principal will be bound by such a vote. Private instructions issued by the principal to an agent are not binding on a third party (for example, the company) unless the latter has notice.”…
…“Therefore, members who wish to provide voting instructions to proxies and make such instructions binding on part of the company should eschew Form No. MGT. 11 and appoint the proxy under a power of attorney in consonance with Form No. MGT 11”
In our opinion the instructions as to say yes or no need not be mentioned directly in the Form MGT 11.
Ramaiya notes that “without following any particular formality, a shareholder is entitled to change his instructions to his proxy-holder at any time before the vote is cast.” This leads us to a conclusion that if any written instructions are given with a singular answer to the voting to be conducted, it may be changed without any particular formality, i.e. with new oral or written instructions. This in no way affects the power given to the proxy holder to cast the vote. It only changes the vote to be cast. The power of the proxy holder can be withdrawn only through revocation and which is to be compulsorily communicated to the company (Swadeshi Polytex Ltd v. VK Goel). (https://indiankanoon.org/doc/1524506/)
Furthermore, the appointer is anyway bound by the votes cast by the proxy holder unless the power of proxy is revoked. A proxy appointer is entitled to revoke the power and is supposed to communicate the same to the company only before the conducting of the meeting. (Secretarial Standard on General Meeting, 6.7.3) This was also held in an old case (Spiller v. Mayo (Rhodesia) Development Co.). It was stated that if the revocation was communicated not before the meeting but before the poll, the appointer would be bound by the vote cast by the proxy as the revocation was too late.
Contd.
Under Section 105 an agent is entrusted with a ministerial duty, i.e. duty void of discretion and any outcome of his actions are necessarily binding upon the appointer. Thus, in cases where the vote is claimed to have been cast against the specific instructions of the appointer, it is either a lapse on the part of appointer to clearly communicate the instructions to the proxy holder or it is due to malice on the part of the proxy holder. In the latter case, the principal is not bound by the actions provided sufficient proof is produced before the court of law. Section 214 of the Indian Contract Act imposes a duty on the part of the agent to consult using all reasonable diligence and obtain specific instructions from his principal in case of difficulty. Thus, in case a meeting leads the proxy holder to confusion where despite having specific instructions, he is unable to case the vote, he ought to consult the appointer before exercising his power.
Further, appointing a proxy using power of attorney makes little sense. A power of attorney, as is understood in common parlance, entails a grantee to exercise discretion on behalf of the grantor and to take decisions in the best interest of the grantor and which is the case, for instance, under Section 113.
Moreover, appointing a proxy with a singular answer to be cast specifically defeats the purpose of a proxy since the company already has knowledge of the vote to be cast before the meeting. Further, if the agenda so discussed leads to a conclusion contradictory to the expectations of the appointer, he cannot change the vote but be bound by it. Instead, keeping sufficient room for the proxy to decide the answer based on the specific instructions with reasons to arrive at such yes or no is certainly more desirable. The duty still remains ministerial since the proxy has already been instructed with possible outcomes of the meeting and given power to cast votes according to the situation. The proxy ought to consult the appointer in case a completely new situation arises and which was not anticipated in advance by the appointer.
Contd.
The essential point which the author of the original article has missed is the necessity of appointing a proxy at any meeting. If the intention of the member was to vote a yes or no merely by considering the ordinary and special list of businesses provided along with the notice of the meeting then the voting exercise is effectively reduced to merely filling Form MGT 12 (Polling Paper). (https://taxguru.in/wp-content/uploads/2014/03/MGT-Forms-taxguru.in_.pdf)
However, a divergent practice has been noticed from the samples collected from the websites of various companies. While some companies only enumerate the agendas in their MGT 11, others along with enumerating the agendas also provide an option to say a yes or no to the specific entries.
For reference, see form MGT 11 of the following companies,
Bharat Bijlee, Colgate Palmolive India Ltd., Yuken India Ltd, Reliance Industries Ltd, Jindal Steel Works Ltd., Jubilant Food Works Ltd.