In any company, general meetings or shareholder meetings are a tool for the owners or shareholders to interact with the managers or directors. The Companies Act, 2013 (the Act) provides for three types of shareholder meetings:
- Annual General Meetings (Section 96),
- Extraordinary General Meetings (Section 100),
- Class Meetings (Section 48),
Shareholder meetings are of importance because the company’s administrative and financial decisions such as fundraising, investment, employee appointment, and restructuring take place during these meetings. These meetings are usually held by a:
- Show of Hands (Section 107)
- Poll (Section 109)
- Postal Ballot (Section 110)
- Electronic voting (Section 108 read with Rule 20 of the Companies Rules, 2014).
In recent times, a need for voting from home in shareholder meetings has been observed. One of the reasons that have amplified this need is the COVID-19 pandemic that hit the world in the year 2019. The Companies Act, 2013 does not have a specific provision for voting from home in shareholder meetings, but since it has become difficult to hold shareholder meetings physically, companies are compelled to look at the option of voting from home. As the COVID-19 pandemic grips the world in each and every aspect of life, the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI) has provided companies the option of conducting shareholders meetings through video conferencing (VC) and other audio-visual means (OAVM).
Origin/history of the vote from home
The concept of virtual meetings is not foreign to Indian corporate law. It was provided not only in the 2013 Act but also in the erstwhile 1956 Act. The 2013 Act provides shareholders the option to vote electronically without being physically present at the meeting. The Securities and Exchange Board of India (SEBI) requires listed companies with more than 1,000 investors to provide electronic voting facilities. But the idea or concept of the vote from home in shareholders meetings seems to have originated mainly in the backdrop of the COVID-19 pandemic. Due to the COVID-19 pandemic, conducting shareholder meetings physically has become difficult, impractical, and even illegal in some cases. Companies cannot afford to suspend shareholder meetings because most decisions require the approval of the shareholders. The COVID-19 pandemic resulted in a worldwide lockdown which made it practically impossible to hold shareholders’ meetings physically. This is where vote from home comes into the picture. Companies are compelled to rethink their mode of conducting shareholder meetings. In view of this situation, the Ministry of Corporate Affairs (MCA) issued its circular General Circular No. 14/2020, dated 8th April 2020 permitting companies to conduct extraordinary general meetings (EGM) through video conferencing (VC) or other audio-visual means (OAVM) and General Circular No. 20/2020, dated 5th May 2020 permitting companies to conduct Annual General Meetings (AGM), if such meetings are unavoidable. Since then, the MCA has issued further circulars modifying the procedure of conducting such meetings.
What are the key circulars issued by the MCA?
- General Circular No 14/2020, dated 8th April 2020 – Provides for the procedure of conducting EGMs through VC or other audio-visual means OAVM.
- General Circular No 17/2020, dated 13th April 2020 – Provides for the procedure issuance of notice for EGMs, voting by show of hands and postal ballot.
- General Circular No. 18/2020, dated 21st April 2020 – Allows companies whose financial year has ended on 31st December 2019 to conduct their AGM by 30th September 2020.
- General Circular No. 20/2020, dated 5th May 2020 – Allows AGMs to be held through VC or OAVM.
- General Circular No. 10/2021, dated 23rd June 2021 – Extends timeline up to 31st December 2021 to conduct EGM through VC or OAVM.
Need for and importance of vote from home in shareholders meetings
The need for voting from home in shareholders’ meetings has been felt time and again due to geographical, logistical, and time constraints. In the light of the COVID-19 pandemic, these constraints have turned into even bigger challenges for companies. In many cases, government-imposed lockdowns have made it impossible for companies to conduct shareholders’ meetings physically. Moreover, key personnel such as directors, managers, owners, and shareholders required for such meetings may be quarantined or self-isolated making it impossible for them to attend the meetings physically. Companies do not have the option of suspending such meetings since crucial decisions on matters regarding the companies’ finance, administration, and appointments, etc, are taken during these meetings, thus making virtual shareholders’ meetings and voting from home indispensable.
Procedure and protocol to conduct vote from home in shareholder meetings
General Circular No. 14/2020 and General Circular No. 20/2020 contain the procedure and guidelines to conduct EGMs and AGMs for two categories of companies, viz., Category A., companies required to provide e-voting facility or have opted for e-voting (According to Section 108, Companies Act, 2013 and Companies (Management and Administration) Rules, 2014, every listed company and company having at least 1,000 members must mandatorily provide e-voting facility) and Category B., companies that have not opted for e-voting facilities.
1. How is EGM to be conducted?
EGMs, wherever unavoidable, can be conducted through VC or other audio-visual means OAVM.
2. How are AGMs to be conducted?
AGMs, wherever unavoidable, is to be conducted for items of ordinary business and special business, through VC or OAVM.
For companies under category B, AGM may be conducted through VC or OAVM, if the company has email addresses of at least half of its members, who:
- In the case of Nidhi companies, hold shares of more than Rs 1,000 in face value or 1% of total paid-up capital, whichever is less.
- In the case of companies having the share capital, who represent at least 75% of such paid-up capital with voting rights.
- In case of companies not having the share capital, they have the right to exercise at least 75% of total power.
3. The time frame of meetings
The VC or OAVM facility shall be open 15 minutes prior to the scheduled time of opening of the meeting and 15 minutes after the closing of the meeting.
4. Is a ‘show of hands’ accepted for casting votes in such meetings?
For companies under category A, the responsibility is fixed on the Chairman for ascertaining the e-voting facilities available during the VC or OAVM. For companies under category B, it is accepted unless the number of members is more than 50 and unless a demand for a poll is made in accordance with Section 109 of the Act.
5. How is a poll conducted for casting votes during such meetings?
For companies under Category A, the poll is to be conducted during the meeting through e-voting. For companies under Category B, the poll is to be conducted by receiving emails at the designated email address. Such a designated email address should be sent to the members when sending the notice of the meeting. Privacy issues such as confidentiality of passwords and due safeguards with regard to the authenticity of email addresses shall be maintained by the company at all times.
6. How is the chairman to be elected?
The chairman shall be appointed in accordance with Section 104 if less than 50 members are present at the meeting unless the articles of the company require a specific person to be appointed as chairman. If more than 50 members are present at the meeting, the Chairman shall be appointed by-poll through e-voting, in case of companies under Category A and through the poll, in case of companies under Category B.
7. Sending out notices and content of the notice
The notice for the meeting shall be sent by email and must contain the procedure provided in the circular and instructions on how to access and participate in the meeting. A copy of the notice should be prominently displayed on the company’s website. In case, of a listed company, the notice should be notified to the stock exchanges.
For a company under category A, at least 1,000 members should be allowed to attend the meeting on a first-come-first-serve basis. For a company under category B, at least 500 members or members equal to the total number of members, whichever is lower, should be allowed to attend the meeting on a first-come-first-serve basis.
Large shareholders (shareholders holding more than 2% of shareholding), promoters, institutional investors, directors, key managerial personnel, chairpersons of committees, and auditors must be allowed to attend the meeting without the first-come-first-serve-restriction. At least one independent director and an auditor or his authorized representative must attend the meeting. Members’ attendance at the meeting shall be counted for quorum requirements under Section 103 of the Act.
9. Are proxies allowed?
Under Section 105 of the Act, a proxy is allowed to attend and vote at the meeting on behalf of a member who is not able to attend the meeting physically. However, proxies are not permitted in a meeting through VC or OAVM since the physical attendance of members has been dispensed with. However, under Section 112 and Section 113 of the Act, representatives of members may be appointed to vote through remote e-voting or voting in the meeting held through VC or OAVM.
10. Transcript of the meeting
The recorded transcript of the meeting shall be kept in safe custody by the company. In the case of a public company, the recorded transcript shall be made available on the company’s website.
The company must provide a helpline number through the registrar and transfer agent, a technology provider for those members who require assistance with VC or OAVM technology before or during the meeting.
12. Filing of resolution
Resolutions and agreements are to be filed in accordance with Section 117 of the Act. All resolutions passed under this framework of the circular shall be filed with the Registrar of Companies within 60 days of the meeting indicating compliance with provisions of the circular and the Companies Act.
Permission to conduct shareholders’ meetings through VC and OAVM and permitting members to vote from home is a welcome move by the MCA amid the COVID-19 pandemic. Apart from its need in the backdrop of the COVID-19 pandemic, vote from home will not only help in reducing the organizational costs of conducting physical meetings but will also help companies to transact business in a timely and efficient manner. The Government should consider making virtual shareholders’ meetings permanent, as the corporate world becomes more inclusive of foreign shareholders and investors. It is important to review certain policies to overcome technological challenges and privacy concerns that virtual meetings might pose.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join: