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Bombay High Court rules on meeting requirements

23 May, 2014

Even as the new Companies Act continues to unfold slowly, issues of interpretation and conflicts have started to appear. Deciding on an application by Godrej Industries in CSD/256/2014 dated 8-5-2014, the Bombay High Court held that the new companies Act does not totally do away with the requirement of meetings.

Electronic voting is sufficient as a meeting, an opportunity to participate

The applicant raised a question whether in view of provisions of Companies Act 2013 (new Act), a resolution for amalgamation can be passed if majority of the shareholders cast their vote by postal ballot. This would include electronic means of voting and thus without actually gathering where the shareholders can express their views. The entire argument of the companies proposing the scheme of amalgamation was that, Section 110 of the new Act begins with a non-obstante clause and hence all previous provisions were irrelevant. Further under Section 110 it is provided that if a resolution is assented to by the requisite majority of the shareholders by means of postal ballot, it shall be deemed to have been duly passed at a general meeting convened in that behalf.

Participation and voting

By being able to vote it cannot be said that the shareholder has exercised his right to participate in the affairs of the company. The court brought out the distinction between being able to say yes or no and questioning, forming and changing opinion. It stated that participating in a meeting is a right. It quoted Clause 49(I)(A) of the SEBI’s Circular dated 17-4-2014 which states that it is the shareholder’s right to participate in and be sufficiently informed on decisions concerning fundamental corporate changes.

Mere receipt of written notice of meeting, the agenda of which may change, the share holder may initially agree with but have questions later, can hardly be called exercise of a right. Further the mode of voting - electronic, postal, etc., is only the method of exercising the right. Thus participation in a meeting is very different from voting on an issue.

Grey areas in statute, apparent conflicts

It is not clear if Section 110 extends to any matters of scheme like amalgamation. The relevant Rule 22 of the Companies (Management and Administration) Rules, 2014 has not yet been gazetted and hence it cannot come into force. In any case, substituting a meeting with mere vote where there is little or no discussion and things are pre-decided violate the requirement of a quorum which is insisted upon in law (Section 103 of the new Act). The court did not find force in the submission that the non-obstante clause eliminated the requirement of quorum. Moreover, Section 230 (on restructuring) is worded as ‘calling of a meeting’ and not merely ‘putting matter to vote’.

Court convened meeting and other meetings

The Bombay High Court opined that the method of voting may be altered in a court convened meeting but the meeting itself cannot be replaced with a ballot. Section 110 applies to meeting called by the company and in schemes of merger, amalgamation, acquisition, etc., the meeting is not convened by the company.

Emphasis on golden mean

The court observed that that postal ballot is a mechanism to ensure greater participation from shareholders who are geographically dispersed and who may not be able to attend the meeting in person but nevertheless are entitled to attend the same and express their views. Thus, a golden mean between the need for greater inclusiveness while yet retaining invaluable shareholders’ rights must be found. Further, even in a meeting (physical), person present may exercise their ballot by electronic means or by using an internet portal. The electronic or postal ballot requirement is still satisfied without sacrificing the right of the share holder to participate.

While rejecting the company petition to replace meeting with postal ballot, the court also directed that it would be desirable to obtain view of a mass of stakeholders before a final view of the matter is taken. The court said “What corporate governance demands is the government of the tongue, not the tyranny of a finger pressing a button.”  
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