Practical Issues in Conducting Virtual Meetings of Shareholders: A Case for Co-operation versus Activism

[By Gaurav Pingle]

The author is a practicing Company Secretary.

Corporate governance has always emphasized on building an environment of trust, transparency, and accountability necessary for fostering long-term investment, financial stability, and business integrity. This in turn contributes to supporting stronger growth and more inclusive participation of stakeholders, required especially when the global economy is badly hit due to the COVID-19 pandemic. From the perspective of accountability and transparency, it is desirable that there is regular communication between a company’s management and its shareholders.

MCA unveils framework for virtual general meeting

An integral aspect of corporate governance is to ensure that owners (i.e. shareholders, in case of companies) should have a right to participate in, and to be sufficiently informed of, decisions concerning fundamental corporate changes. The owners should also have an opportunity to participate effectively and vote in the general meetings. Taking into consideration the critical situation of COVID-19 and nation-wide lockdown where gathering of shareholders physically looks impossible, the Ministry of Corporate Affairs (“MCA”) has unveiled a framework for companies to conduct shareholders’ meeting through video-conferencing (VC) or other audio-visual means taking into consideration the aforementioned important aspects of corporate governance. MCA, through its several circulars and clarifications[i], has prescribed a procedure for conducting shareholders meetings and thereby obtaining their approval.

Sending of Financial Statements to shareholders

In case of an Annual General Meeting (“AGM”), companies are required to send the financial statements, Auditor’s Report, Directors’ Report to its members. Until now, the companies were sending it by registered post or courier. Owing to the difficulties due to COVID-19 pandemic, where courier services have been suspended owing to the nationwide lockdown, MCA has allowed companies to send the said documents by e-mail to the registered e-mail addresses of the shareholders. One of the major challenges for listed companies is communicating with its shareholders and getting their e-mail addresses registered. In most of the cases, the members are either not traceable or contact details are not updated. Taking into consideration such practical difficulties but at the same time ensuring effective participation, the depositories and registrars are also assisting listed companies in co-ordinating with the shareholders. Listed companies are ensuring that all the shareholders are served with the notice of general meeting. However, it is important to note that under Section 101 of the Companies Act, 2013 (“the Act”) any accidental omission to give notice to, or the non-receipt of such notice by any member shall not invalidate the proceedings of the meeting. MCA has also directed listed companies to publish notice by way of advertisement in two newspapers (preferably having electronic editions) and are also required to disclose necessary information of the AGM through video conference.

Voting at general meeting conducted via video-conferencing

According to the Securities and Exchange Board of India’s (“SEBI”) principles governing disclosures and obligations of listed entity, shareholders shall be informed of the rules, including voting procedures that govern general shareholder meetings. The shareholders have an opportunity to ask questions to the board of directors, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations. With this objective, the MCA has directed companies to ensure that such meetings of shareholders are conducted by two-way teleconferencing or Webex with a minimum capacity of at least 1,000 members to participate on a first-come-first-served basis. It would be a herculean task for listed companies in conducting such meetings of shareholders, especially, for the companies whose operations are largely affected by COVID-19.

Presently, companies and market intermediaries are developing an online system or platform to ensure that such proceedings of the AGMs are in the proper flow and at the same time shareholders are able to propose resolution(s) and ask questions. A secured system needs to be developed wherein the shareholder can ask questions/counter-questions in the general meeting for a limited time and company management provides their response to the same. The Chairman of the company would also need technical assistance in conducting the AGM through VC. The Chairman would also need the assistance of directors, company secretary, chief financial officer, chief executive officer, etc. in replying to the queries raised by the members. Taking into consideration the overall uncertainty due to COVID-19 and genuine curiosity of investors, it is expected that there would be active participation of investors in the AGM through VC than the regular AGMs convened years before.

Passing of resolution by postal ballot and e-voting for approving scheme of amalgamation

In one of the cases[ii] before the Bombay High Court, the issue was, “whether the resolution for approval of Scheme of Amalgamation can be passed by a majority of the equity shareholders casting their votes by postal ballot, which includes electronic voting, in complete substitution of an actual meeting.” The High Court observed that at the heart of corporate governance lies transparency and a well-established principle of indoor democracy that gives shareholders qualified, yet definite and vital rights in matters relating to the functioning of the company in which they hold equity. Principal among these is not merely a right to vote on any particular item of business, so much as the right to use the vote as an expression of an informed decision. That necessarily means that the shareholder has an inalienable right to ask questions, seek clarifications, and receive responses before he decides which way he will vote. It may often happen that a shareholder is undecided on any particular item of business. At a meeting of shareholders, he may, on hearing a fellow shareholder who raises a question, or on hearing an explanation from a director, finally make up his mind. Interestingly, the High Court also observed that greater inclusiveness demands the provision of greater facilities, not less, and certainly not the apparent giving of one ‘facility’ while taking away a right. Taking into consideration the observations of Bombay High Court, it will be difficult for corporate restructuring activities of listed companies during this period of COVID-19 and lockdown.

Passing of resolution by shareholders’ meeting through video-conferencing for approving scheme of amalgamation

Taking into consideration the COVID-19 situation and lockdown and MCA framework, National Company Law Tribunal (“NCLT”) Special Bench, Mumbai[iii] has directed the meetings of the equity shareholders (of both transferor and transferee company) to be conducted via video conferencing. The NCLT has also directed the Chairperson(s) to file a compliance report in not less than 7 days before the date fixed for the holding of the meetings provided that the directions regarding the issue of notices and the advertisement have been duly complied with[iv]. The NCLT has also directed the Chairperson(s) to email a copy of the electronic affidavit of service to a designated e-mail id within 7 days before the date fixed for the holding of meetings. The NCLT has directed the Chairperson(s) to file a duly signed, stamped and notarized affidavit of service and report as soon as the period of lockdown is lifted, and the Registry of this Tribunal commences operations in the normal course of business. Taking into consideration this NCLT order and MCA framework, there could be corporate restructuring activities of private companies and unlisted public companies even during this period of COVID-19 and lockdown.

Preference shareholders’ meeting and Debenture holders meeting

Preference shareholders and equity shares with differential voting rights are also shareholders of the company. Therefore, the framework laid down the MCA would be applicable for such class meetings. As creditors and debenture holders are not shareholders of the company, such class meetings cannot be called and conducted during the period of COVID-19 and lockdown. Over a period of time, the MCA may introduce a different framework for conducting such meetings.

The COVID-19 pandemic has definitely caused unusual circumstances and with the AGM season coming soon, the general meetings for the year 2020 should be ideally more of ‘shareholders co-operation’ than ‘shareholders activism’, except in exceptional circumstances.

End Notes

[i] MCA General Circular No. 14/2020 (dated April 8, 2020), General Circular No. 17/2020 (dated April 13, 2020), General Circular No. 18/2020 (dated April 21, 2020) and General Circular No. 20/2020 (dated May 5, 2020).

[ii] Wadala Commodities Ltd., In re (Co. Summons for Direction No. 256 of 2014, May 8, 2014).

[iii] In the matter of Scheme of Amalgamation of Anurudra Renewables Pvt. Ltd. and Vivid Solaire Energy Pvt. Ltd. (CA (CAA) No.19/C.II/2020).

[iv] As per Rule 12 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

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