[Gaurav Pingle is a Practising Company Secretary and Renucka Vaiddya a Research Associate at Gaurav Pingle & Associates]
The Companies Act, 2013 has, at the outset, provided for conducting board meetings through video conferencing. In Achintya Kumar Barua v Ranjit Barthkur [2018] 91 taxmann.com 123, the National Company Law Appellate Tribunal (NCLAT) held section 173(2) of the Act read with the Companies (Meetings of Board and its Powers) Rules, 2014 to be a ‘progressive step’, as the said provisions confer the right upon a director to participate in a meeting through video-conferencing or other audio-visual means, and the Central Government has notified the aforesaid rules to enforce this right. The NCLAT observed that it would be in the interest of the companies to comply with the provisions in public interest.
In view of the present extra-ordinary circumstances caused by Covid-19, which require social distancing, the Ministry of Corporate Affairs (MCA) has allowed companies to conduct shareholders meetings (i.e. extra-ordinary general meetings (EGMs) and annual general meetings (AGMs)) through video-conferencing (VC) or other audio-visual means. The year 2020 is the first in which the shareholders meetings are being conducted virtually. In the recent times, quite a few listed companies have conducted their AGMs through VC.
This post discusses some key points about the future of shareholders meetings and amendments that would be required to the Act and the Rules for effective implementation.
Advantages and disadvantages of virtual shareholders meetings
Some advantages of shareholders’ virtual meetings are maximum participation in the corporate decision-making process at their convenience with no cost. Listed entities too have saved significant cost by not printing their annual reports, avoiding bookings on venues and also the additional cost of directors and officers attending the meeting.
There are some disadvantages of such virtual meetings. There is no face-to-face communication between shareholders and company management, which may lead to a lack of discussion, given the restrictive nature of the question-and-answer session in a virtual meeting. Shareholders are likely to get unsatisfactory replies or inadequate explanations to valid questions they may raise at such virtual meetings. There could be technological challenges for the company’s management and shareholders: in certain cases, there could be technical glitches in recording the meeting.
The transition for the companies from in-person shareholders’ meetings to virtual meetings is a challenging exercise and has given rise to differing experiences for various stakeholders, which include directors, chairpersons, company secretaries, scrutinizers, statutory auditors, secretarial auditors and, most importantly, shareholders. Nevertheless, taking into consideration the advantages of such virtual meetings and their inevitability in the present circumstances, it may very well become the ‘new normal’.
Voting by shareholders in listed entities
From April 1, 2014, ‘voting by show of hands’ has become a redundant concept for listed entities. According to section 107 of the Companies Act, at any general meeting, a resolution put to the vote shall, unless a poll is demanded or the voting is carried out electronically, be decided on a show of hands. With an objective to ensure maximum shareholders’ participation, listed entities are required to offer a remote e-voting facility. Such facility shall remain open for not less than three days and shall close on the date preceding the date of the general meeting. Once shareholders have cast their votes on a resolution, they it will not be allowed to change them subsequently or cast the votes again. However, shareholders may participate in the general meeting even after exercising their right to vote through remote e-voting, but they shall not be allowed to vote again. In case of virtual meetings, the MCA has stated that only those members who are present in the general meeting through VC and have not cast their vote on resolutions through remote e-voting, and are otherwise not barred from doing so, shall allowed to vote through e-voting system.
Quorum for virtual meetings of listed entities
According to the Companies Act and the relevant rules, in case of a public company, the quorum shall be: (a) five members personally present if the number of members as on the date of meeting is not more than 1,000, (b) 15 members personally present if the number of members as on the date of meeting is more than 1,000 but up to 5,000, (c) 30 members personally present if the number of members as on the date of the meeting exceeds 5,000. For virtual meetings, there is no change in the said provisions. However, taking into consideration the remote e-voting facility for shareholders and virtual presence of shareholders, the quorum requirement may be waived or a lesser requirement provided.
Proxy
These provisions enable members to appoint proxies in their place to attend and vote at the meeting. In view of e-voting and virtual meetings, the facility of proxy has become redundant and could be completely done away with.
Venue of meeting
Generally, meetings are held and conducted at a specified physical venue. In case of virtual meetings, the MCA has not provided any clarification regarding such a venue for the meeting. In practice, such a venue for a virtual meeting would be out of the question as the chairperson, directors and shareholders are attending the meeting virtually. According to the Companies Act, companies are required to maintain certain documents and statutory registers at the venue of the meeting. Therefore, certain listed entities have mentioned a ‘deemed venue of the meeting’ in the notice of the meeting for the purpose of compliance of maintenance of certain documents and statutory registers. If virtual meetings are likely to be the new normal, it is desirable that the MCA clarifies on the venue of such meetings.
Removal of directors & auditors of company
In its General Circular, the MCA has stated that agenda items that confer upon a person the right to be heard cannot be discussed in such virtual shareholders’ meetings. In such a case, the company would be required to call and conduct an in-person meeting of the shareholders, which is not a possibility in the present circumstances. If virtual meetings are to be the new normal, it would be desirable that the MCA allows companies to discuss such agenda items virtually.
Reporting formalities of the virtual meetings
According to the MCA Circular, all resolutions passed in accordance with the prescribed electronic mechanism shall be filed with the Registrar of Companies within 60 days of the meeting, indicating therein that the company has complied all relevant provisions during such meeting. Such compliance is required for all types of resolutions – ordinary resolution or special resolution. The MCA has not prescribed any specific e-form for reporting compliance relating to virtual meetings. Here again, the MCA ought to introduce an e-form for ensuring proper and timely compliance of said provisions.
Role of scrutiniser
According to the Companies Act, the board of directors shall appoint one or more scrutinisers, who may be a chartered accountant in practice, cost and works accountant in practice, a company secretary in practice, an advocate, or any other person who is not in employment of the company and is a person of repute who, in the opinion of the board, can scrutinise the voting and remote e-voting process in a fair and transparent manner. The scrutiniser shall, immediately after the conclusion of voting at the general meeting, first count the votes cast at the meeting, thereafter unblock the votes cast through remote e-voting in the presence of at least two witnesses not in the employment of the company and make, not later than three days of conclusion of the meeting, a consolidated scrutiniser’s report of the total votes cast in favor or against, if any, to the chairperson or a person authorised by him in writing who shall countersign the same.
Under the extant provisions, the scrutiniser shall be provided with the register of members, specimen signatures of the members, attendance register and register of proxies. The scrutinisers are provided with corporate representation letters, proxy forms, and other similar documents. The scrutinisers shall arrange for the polling papers and distribute them to the members and proxies present at the meeting. The scrutinisers shall keep a record of the polling papers received in response to the poll, by initialing it. The scrutinisers shall lock and seal an empty polling box in the presence of the members and proxies. They shall open the polling box in the presence of two persons as witnesses after the voting process is complete. In case of ambiguity about the validity of a proxy, the scrutinisers shall decide the validity in consultation with the chairperson. The scrutinisers shall ensure that if a member who has appointed a proxy has voted in person, the proxy’s vote shall be disregarded – most of the said provisions are not applicable in case of virtual meetings.
If virtual meetings are to be the new normal, it would be desirable that the MCA amends relevant provisions of the Companies (Management and Administration) Rules, 2014 and introduce a different role for the scrutiniser that is consistent with the revised mode of conducting shareholders’ meetings. It would also be necessary to change the format and content of the scrutiniser’s report.
Maintaining transcripts of the proceedings of meetings
The MCA requires that the transcript of the general meetings be uploaded on the website of the company for the benefit of members. This is in addition to maintaining the minutes of the meeting under section 118 of the Act. It would be desirable if MCA clarifies the time limit for maintaining and inspection of such transcripts of meetings.
Guidelines for digital platforms
The MCA could come up with specific provisions for digital platform providers with regards to the technical specifications, security requirements, format for providing transcripts, hosting documents for inspection and other possible areas of disputes that may arise in the new form.
Conclusion
Taking into consideration the technological developments and advantages to the company and shareholders, the Government should, in the long run, permit companies to conduct general meetings through video conferencing or other audio-visual means. This would require an amendment to the relevant provisions of the Companies Act and related rules as also to the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. The amendments would indeed be in the interest of stakeholders and effective management of companies.
The revised rules shall provide for the specific role of company, service providers (generally, the registrar and share transfer agent and depositories), scrutiniser, and other corporate actors. Interestingly, on March 5, 2020, the Securities and Exchange Board of India (SEBI) had introduced consultative paper on e-voting facility provided by listed entities. Though the consultative paper was only in relation to e-voting, SEBI may overhaul the entire overall voting process for shareholders in general meeting and postal ballot. Considering the advantages, convenience and participation of shareholders, in our view, the shareholders’ virtual meetings should be not merely a temporary solution, but also a long-term initiative.
– Gaurav Pingle & Renucka Vaiddya