Conducting Virtual Shareholder Meetings in India – Changes in Law & Practical Challenges

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Conducting Virtual Shareholder Meetings in India – Changes in Law & Practical Challenges

Nitin Mittal, Harvinder Kumar | May 2020

“Berkshire Hathaway Inc. held its 2020 annual meeting of shareholders as a livestream-only event originating from its headquarters city of Omaha, Nebraska on May 2. In stark contrast to the 2019 meeting, when a record 40,000 visitors attended, this year social distancing orders sparked by the COVID-19 coronavirus crisis limited in-person participants to 89-year-old Chairman and CEO Warren Buffett and 57-year-old Vice Chairman of Non-Insurance Business Operations Greg Abel, plus several other employees who assisted in running the meeting”

“We are now getting ready for a virtual AGM” Sanjiv Mehta, CEO & MD, Hindustan Unilever (Excerpt from an Interview with Jefferies, dated 29th May 2020)

“Necessity is the mother of invention” – Holding virtual AGM’s or e-AGM’s is the new way to conduct shareholder meetings and will not only be a legal mandate but also a necessity that will continue in 2020 & beyond for all shareholders meetings. In India, shareholder meetings are by nature, a grand event in itself, held once in a year serving as a sole platform for the shareholders to question the board, celebrate success, to be informed on key strategic decisions of the company, to approve mandatory resolutions and most importantly the chance to interact face to face with the board of directors of the Company. Shareholders look forward to such a yearly physical event with zeal and anticipation.

Shareholders are the owners of the company and under the Companies Act, 2013 and rules framed thereunder, are vested with the sole authority to vote and decide upon certain key matters after the Board of directors have accorded their approval and recommendation. Shareholders meeting in India and abroad are typically attended in person by millions of shareholders- the annual general meeting of Reliance Industries is one such example in India and Berkshire Hathaway Inc, USA is an international example attended last year by 40,000 shareholders.

As with other business activities, the spread of COVID-19 pandemic and the resulting restriction on travel, meeting and social distancing, various representations were made before the Ministry of Corporate Affairs (MCA) seeking relaxation in the provisions related with general meeting since several ordinary and special resolutions were pending for approval from members. In response to this, MCA for the first time paved the way for concept of e-general meeting by allowing all companies to hold their Extra-Ordinary General Meeting (EGM) through video conferencing (VC) or other audio-visual means (OAVM) vide their circular dated 8th April, 20203. The MCA thereafter also allowed all companies to hold e-Annual General Meeting (e-AGM) for the calendar year 2020 vide their circular dated 13th April, 2020.

CURRENT POSITION

The Companies Act, 2013 (the Act) and rules made thereunder mandate physical meetings and do not enumerate any provisions for holding e-general meetings. However, certain provisions of the Act provide for e-voting and postal ballot for certain resolutions, apart from ordinary business, of certain class of companies to facilitate the meetings for shareholders who are not located near the registered office of the Company. The chapter VII of Act, titled “Management and Administration” the Companies (Management and Administration) Rules, 2014 (the Rules) deal with physical shareholders’ meetings.

Section 96 contains provisions relating to AGM prescribing the norms for deciding the day, time and place for holding AGM, minimum gap between two AGM’s, etc. Section 96 clearly states that every annual general meeting shall be called during business hours but not on a National Holiday and shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated.

Section 100 deals with EGM and its procedure. Section 101 provides the procedure for sending notice calling general meetings, which shall not be less than 21 clear days’ notice. Further section 102 to 110 deals with various matters related with AGM/EGM such as explanatory statement, quorum, Chairman, proxy forms, voting including e-voting, postal ballot and so on.

Keeping in view the challenges being faced by the companies and its different stakeholders in finalization of yearly accounts and also on the logistics to hold physical shareholder meetings, the MCA acted promptly and issued the cited circulars to enable companies to plan and hold their general meetings virtually. The MCA had in anticipation of the challenges faced by the companies, had already extended the period of holding of AGM of those companies whose financial year ended on 31st December, 2019 till 30th September, 2020.

LET US EXAMINE IN DETAIL HOW MCA ENABLED VIRTUAL EGM’S/AGM’S:

General Circulars; e-general meetings (for holding EGM’s):

MCA issued the first General Circular on 8th April, 2020 (EGM Circular- I) for passing pending ordinary and special resolutions, which were urgent in nature. It also directed the passing of resolutions through mechanism of postal ballot/evoting without holding a general meeting, which requires physical presence of members at a common venue. However, MCA allowed companies to hold e-EGM, if it is considered unavoidable by following the procedure given in the circular for conducting such a meeting on or before 30th June, 2020, in addition to any other requirement provided in the Act.

It is to be noted that the circular broadly divides the companies in two categories.

CATEGORY – A

(Para 3A of EGM Circular- I)

For Companies, which are required to provide facility of e-voting under the Act, or any other company which has opted for such facility.

This category is meant for the companies which are mandatorily required to give e-voting under rule 20, which includes all listed companies and other companies who have not less than 1000 shareholders (known as widely held public limited companies) and other small companies.

CATEGORY – B

(Para 3B of EGM Circular- I)

For Companies, which are not required to provide facility of e-voting under the Act.

This category is meant for those companies where neither e-voting is compulsory, nor they opt for e-voting. In simple words, private limited companies, where shareholders can’t cross 200 limit and closely held public limited companies, whose number of shareholders are less than 1000.

In the “Category – A”, listed companies along with largely held unlisted public companies are broadly covered. In this category, the legal requirements when an e-EGM is required to be held are:

The recorded transcript is required to be made available on website of the company, if any.
VC/OAVM facility which allows two-way teleconferencing/webex must be ensured so that it allows at least 1000 shareholders to participate in the meeting on first-cum-first-served basis. However, promoters and larger shareholders (holding 2% or more shares), auditors, directors are exempt from first-cum-first-served basis.
Only those members, present in the e-general meeting and have not cast their vote on resolutions through remote e-voting can vote through e-voting system or by a show of hands in the meeting. Further, depending upon the number of members present in such meeting, the voting shall be conducted, where there are less than 50 members, through e-voting or show of hands and unless the demand for poll is made and other cases, only e-voting. This is to be noted that voting by show of hands has been done away with by subsequent circulars.
At least one independent director, if required to be appointed, and the auditor or his authorized representative are required to attend such meeting.
Proxies are not allowed to participate in such meetings. However, this is not applicable on representatives appointed under section 112 and 113 of Act.
The notice for the general meeting is required to make disclosures with regard to the manner in which framework provided in this Circular shall be available for use by the members and also contain clear instructions on how to access and participate in the meeting.
The company also needs to provide a helpline number for queries related with e-general meeting. A copy of the meeting notice is also required to be prominently displayed on the website of the company, if any and due intimation may be made to the exchanges in case of a listed company.

“Category – B” is intended for closely held public limited company and private limited company, where all procedures for holding EGM through VC/OAVM are similar to category -A companies, except for certain conditions arising due to nonrequirement of e-voting facility. Since this category covers those companies, which are not required to provide e-voting, hence, voting through email addresses have been introduced. In the category:

It is to be ensured that the companies shall provide a designated email address to all members at the time of sending the notice of meeting so that the members can convey their vote, when a poll is required to be taken during the meeting on any resolution, at such designated email address.
If demand for poll is made, then the members shall cast their vote by way of email communication.
In case of less than 50 members are present, then the chairman can decide to conduct a vote by show of hands unless demand of poll is made, otherwise, voting through email shall be conducted.
It must be ensured that VC/OAVM allows at least 500 members to participate in the meeting on first-cum-first-served basis.

In the EGM Circular dated 8th April, 2020 – there were a few questions left unanswered, and to fill this gap, MCA issued another circular on 13th April, 2020 (EGM Circular- II) clarifying on serving and receiving notice of such meetings since postal services have been disrupted due to the lockdown. These changes can be further categorized in the two categories:

FOR THE “CATEGORY – A” COMPANIES,

The notice may be given only through e-mail addresses registered with the company or with the depository/depository participants.
The public notice shall include a statement that the EGM has been convened through VC/OAVM, the date and time of the EGM, availability of notice on the website of the company and the stock exchange.
It is also required to specify the manner in which the members who are holding shares in physical form or who have not registered their email addresses with the company, can cast their vote through remote e-voting or through the e-voting system during the meeting and manner of registration of email addresses of the members, if not registered.

FOR “CATEGORY – B” COMPANIES,

Specifically mandating this category to ensure all members are aware about convening of e-EMG.
The companies shall contact all members whose email addresses not registered with the company for registration of their email addresses before sending the notice. If contact details are not available, it shall publish a public notice in newspapers immediately and the notice through email needs to be sent at least three days from the date of public notice.

However, simply enabling virtual EGM’s would not serve the purpose as the main concern of the shareholders was on holding of AGM’s. To obviate this difficulty, MCA issued another general circular on 5th May, 20205 allowing e-AGM’s. It retains the basic framework for e-EGM’s, enumerated in earlier circulars and continues with the bifurcation of companies in categories A and B.

For “Category -A” companies, the framework provided in EGM Circular – I and the manner and mode of issuing notices provided in EGM Circular – II shall be applicable mutatis mutandis for conducting the e-AGM. In such meetings, other than ordinary business, only those items of special business, which are unavoidable, may be transacted.

What is distinct to e-AGM’s are the following additional requirements:

Notice, directors’ report, auditors report and financial statement is required to be sent through email addresses to the members and other entitled persons, whose email addresses are registered with the company.
A public notice in a vernacular and a English newspaper having a wide circulation in that district of the registered office, needs to be published containing details like day and time of meeting, availability of notice on website, if any and stock exchanges, if listed company, procedure of e-voting, procedure for updating email addresses, procedure for instruction for electronic transfer and any other information necessary by the Company.
In case of Companies, which are unable to dispatch dividend warrants/ cheque due to non-availability of bank details of the members; upon normalization of postal service, dividend warrants/cheque can be dispatched.
In case a company has received the permission from the relevant authorities to conduct its AGM physically, the company may in addition to holding such meeting with physical presence of some members, also provide the facility of VC or OAVM, so as to allow other members of the company to participate in such meeting.

For “Category – B” companies, AGM through VC/OAVM has been now permitted, if they have in their record, email address of the at least half of the shareholders, who;

In case of a Nidhi, hold shares of more than one thousand rupees in face value or more than one per cent. of the total paid-up share capital, whichever is less; or
In case of other companies having share capital, who represent not less than seventy-five per cent. of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or
In case of companies not having share capital, who have the right to exercise not less than seventy-five per cent. of the total voting power exercisable at the meeting.

Further, the Company is also required to take all necessary steps to register email addresses of all the shareholders. In the event, the details of any member are not available or could not be obtained, then the company is required to issue a public notice containing information as specified.

Apart from the above, all other requirements are similar to category A companies.

Companies which are unable to hold general meeting in accordance with the framework provided in the circulars, they can file application for extension of AGM at suitable point of time before the Registrar of Companies.

A NEW BEGINNING; E-GENERAL MEETINGS OR VIRTUAL MEETINGS. THERE ARE CERTAIN DISTINGUISHABLE ADVANTAGES OF HOLDING GENERAL MEETING VIRTUALLY, WHICH ARE:

Giving an opportunity to all the shareholders to participate in the general meeting, especially those who could not earlier attend physical AGM’s due geographical distance (including investors located in other countries) making it difficult for them to raise queries directly to the Board of Directors of the Company. This will increase shareholder participation and activism.
Enabling shareholders to directly participate since proxies are not allowed for joining virtual shareholders meeting.
Allowing companies to send the meeting notice and the Annual Report containing directors’ report, auditors report and financial statement through electronic means i.e. to the email addresses of the respective shareholders whose email addresses are registered with the company. This is also environmentally friendly. However, a public notice one in vernacular and one in English newspapers is required to be published containing certain information as given in the circular itself. This provides financial and operational relief especially to the listed and unlisted largely- held-public-limited companies, where printing and dispatch is an expensive and time-consuming task, particularly when postal services are disrupted.
Allowing for dividends to be paid electronically to those whose bank details have been provided and relaxation for dispatching of dividend warrants/cheque has been granted if no bank details are available with the companies.

WHILE THESE CHANGES HAVE BROUGHT IN OPPORTUNITIES, BUT HAS ALSO POSED CERTAIN DISTINCT CHALLENGES FOR DIFFERENT STAKEHOLDERS, FROM BOTH A TECHNOLOGICAL AND A LEGAL PERSPECTIVE:

The first challenge would be for small shareholders to update themselves on the latest technological methods to join such virtual meetings to contribute timely and effectively.
Systems in this field are still developing, technical glitches can be expected. This may disconnect the session or disrupt the flow of meeting which pose a serious question on the viability of holding such meetings especially since shareholders across the globe would be attending the meeting.
Not all shareholders are supposed to be tech-savvy, hence may struggle to join the VC/OAVM flatform. Further, there would be challenges as some may not be having required devices to join the meeting; and internet connectivity can be another spoiler for many.
It is likely that genuine concern of the shareholders might not be heard by the management due to concept of such platform where number of participants are high, and uncomfortable questions to the management can be easily avoided.
Another challenge is to identify the correct VC/OAVM facilitator, who can ensure data security which brings to the fore the questions of data security and privacy.
While a minimum criterion has been given for the “Category -B” companies, based on registered email addresses of the shareholders, for eligibility for holding e-AGM. However, no such criteria given for “Category – A” companies, all companies falling in this category may opt for e-AGM facility.
The circular on enabling e-EGM’s provides that in such meetings, other than ordinary business, only those items of special business, which are considered to be unavoidable by the Board, may be transacted. The term ‘unavoidable’ is not defined in the circular and the onus is left on the Board of Directors to differentiate between unavoidable and avoidable in special business. This may pose “interpretation” challenges. Practically, all matters as required under the Act requiring shareholders’ approval are usually deemed necessary, since holding another general meetings in near future, particularly in case of “Category – A” companies, does not seem prudent on account of time and resources expended.
Another additional requirement made by MCA is to upload recorded transcript of the e-general meetings on website. The minutes are the conclusive evidence of the proceedings of the meeting, uploading of the same on the website should be sufficient.
EGM Circular – I has mandated auditors to join e-EGM, which does not seem practical since approval of financials are not dealt in special business.
Holding AGM’s through video conferencing is not a time-tested mechanism. Companies will be experiencing this the first time; there are still some questions answered.

Conducting business meetings and now shareholder meetings virtually will be the new normal going forward. It is expected that the requirement of having virtual meetings, even after the pandemic has subsided will remain on account of its distinct advantages. A key question remains- will virtual shareholder meeting become a permanent feature in coming years? Well, it seems virtual meetings are here to stay, but they cannot totally obliterate the role of physical meetings and it is expected that a hybrid model will be the new norm. Only time will tell us- how effective virtual meetings are in furthering the role and expectation of our diverse shareholders in India.

About Author

Nitin Mittal

Nitin Mittal is currently a General Counsel for India/Pacific Region, Company Secretary and Region Systems & Services for Signify and part of South Asia/ Pacific Leadership team. He has rich and diverse experience of around 18 years in all areas of legal (also litigation), compliance, governance, risk management, and leading teams. As part of the regional team at Signify, he actively works on and leads projects and assignments having regional and international impact. He has travelled for work to several countries giving him insight into diverse cultures and practices. In addition to his professional passion, Nitin is also an ardent reader on both fiction and nonfiction and is equally passionate about expressing his views by publishing articles on various contemporary & intricate topics.

Harvinder Kumar

Harvinder Kumar is Manager - Compliance & Governance Signify Innovations India (earlier Philips Lighting) with over 8 years of experience. Prior to Signify, he was associated with Berger Paints Group as Asstt. Company Secretary. He is qualified Company Secretary, Law graduate and an MBA in finance. In his spare time, he enjoys reading books on social and cultural history.