Working Committee Report

The Working Committee, constituted by the Department of Company Affairs in its report dated 12.02.1997 submitted to the Central Government, did not find favor with the introduction of postal ballot because of the status of the postal department at that time. Further the management often introduced amendments to a motion after hearing the views of share holders at the General meeting. Under the postal ballots this will not be possible. The Committee recommended that the role of proxies should be strengthened by permitting two rights-

• to vote in the show of hands; and
• to speak at general meeting.

Kumaramangalam Committee Report

The Committee on Corporate Governance, set by SEBI, in its report dated 07.05.1999 suggested that the Department of Company Affairs may implements its recommendations of postal ballot. The rationale behind the recommendation of postal ballot is that-

• a company is required to obtain the approval of its shareholders in case of-
• increase in authorized capital;
• shifting of registered office;
• change in the name;
• amalgamation and reconstruction;
• buy back of shares;
• further issues of shares etc.,
• the shareholders are scattered through the length and breadth of the country, they are unable to physically attend the general meeting of the company to exercise their rights to vote on matters of vital importance

Based on this an amendment to Companies Bill, 1997 for the postal ballot was brought. The Government agreed on the proposal of postal ballot. The provisions of postal ballot would be prescribed only on issues where the participation of every share holders is essential.

Postal Ballot in Companies Act, 1956

The concept of postal ballot was introduced by the Companies (Amendment) Act, 2000 vide Notification No. SO 532(E), dated 15.06.2001 by inserting Section 192A in the Companies Act, 1956. Section 192A provides that notwithstanding anything contained in the foregoing provisions of this Act, a listed public company may, and in the case of resolution relating to such business as the Central Government may, by notification, declare to be conducted only by postal ballot, shall, get any resolution passed by means of a postal ballot, instead of transacting the business in general meeting of the company.

Sub-section (2) provides that when a company decides to pass any resolution by resorting to postal ballot, it shall send a notice to all the shareholders, along with a draft resolution explaining the reasons therefore, and requesting them to send their assent or dissent in writing on a postal ballot within a period of 30 days from the date of passing of the letter.

Sub-section (3) provides that the notice shall be sent by registered post acknowledgement due, or by any other method as may be prescribed by the Central Government in this behalf and shall include with the notice, a postage pre-paid envelope for facilitating the communication of the assent or dissent of the shareholder to the resolution within the said period.

Sub-section (4) provides that if a resolution is assented to by a 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.

Sub-section (5) provides if a shareholder sends under sub-section(2) his assent or dissent in writing on a postal ballot and thereafter any person fraudulently defaces or destroys the ballot paper or declaration of identity of the shareholder, such person shall be punishable with imprisonment for a term which may extend to 6 months or with fine or with both.

Sub-section (6) provides that if a default is made with sub-sections (1) to (4), the company and every officer of the company, who is in default shall be punishable with fine which may extend to Rs.50,000/- in respect of each such default.

Explanation to this section provides that ‘postal ballot’ includes voting by electronic mode.

The Government has also promulgated the Companies (Passing of the Resolutions by Postal ballot) Rules, 2001 to regulate voting by share holders by postal or electronic mode, with effect from10.05.2001 vide Notification No. GSR 337 (E).

Postal ballot under new Companies Act, 2013

Section 2(65) of the Companies Act, 2013 (‘Act’ for short) defines the ‘postal ballot’ as voting by post or through any electronic mode. Section 110 of the Act provides that-

• Notwithstanding anything contained in this Act, a company-
• Shall, in respect of such items of business as the Central Government may, by notification, declare to be transacted only by means of postal ballot; and
• May, in respect of any item of business, other than ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting, transact by means of postal ballot, in such manner as may be prescribed, instead of transacting such business at a general meeting.
• 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.

Rule 22 of the Companies (Management and Administration) Rules, 2014 prescribes the procedure to be followed for conducting business through postal ballot. Rule 22(16) provides that the following transactions shall be transacted only by means of voting through a postal ballot:

• Alteration of the objects clause of the memorandum and in the case of the company in existence immediately before the commencement of the Act, alteration of the main objects of the memorandum;
• Alteration of articles of association in relation to insertion or removal of provisions which under Section 2(68) are required to be included in the articles of a company in order to constitute it a private company;
• Change in place of registered office outside the local limits of any city, town or village as specified in Section 12(5);
• Change in objects for which a company has raised money from public through prospectus and still has any unutilized out of the money so raised under Section 13(8);
• Issue of shares with differential rights as to voting or dividend or otherwise under Section 43(8) (ii);
• Variation in the rights attached to a class of shares or debentures or other securities as specified under Section 48;
• Buy back of shares by a company under Section 68(1);
• Election of a direction under Section 151 of the Act;
• Sale of whole or substantially the whole of an undertaking of a company as specified under Section 180(1)(a);
• Giving loans or extending guarantee or providing security in excess of the limit specified under Section 186(3).

Section 118 provides for the preparation of minutes of resolutions passed by postal ballot.

Issue

In respect of amalgamation and reconstructions the Company Court directs for the meeting of creditors etc., According to SEBI’s circular dated 21.05.2013a resolution for approval of a scheme of amalgamation can be passed by a majority of the equity shareholders casting their votes by postal ballot. The issue to be discussed in this article whether the procedure of postal ballot is applicable to the meeting convened as per the directions of the Company Court in the matter of amalgamation, merger etc., with reference to the decided case law.

Case law:

In re ‘Godrej Industries Limited’ – (2014) 120 CLA 62 (Bom) the petitioner submitted the following:

• The clear legislative mandate of the new Companies Act, 2013 is to do away altogether with all meetings other those required in certain limited circumstances;
• Shareholders must express their views only by voting through postal ballot or electronic voting;
• SEBI circular dated 17.04.2014 relating to clauses 35B and 49 of the Equity Listing Agreement made voting by postal ballot is mandatory.
• The non obstante clause in Section 110 eliminates the need for quorum in respect of postal ballot;

Observations of High Court

The High Court observed that the apparent legislative intent in providing for postal ballots and electronic voting is not only unexceptionable but entirely salutary. It is clearly directed toward greater inclusiveness and encouraging more shareholders to vote.

From the reading of Section 110 of the new Act it seems that it is an evolution of old Section 192A. Old Section 192A contains a non obstante clause relating to ‘foregoing’ sections of the 1956 Act i.e., sections before old Section 192A. Section 110 of the Act contains a broad and omnibus non-obstante clause. The frame of Section 110is that for such items of business as the Central Government notifies a company must transact that business only by postal ballot.

Section 110(1) (b) says that for any item of business, other than ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting, a company may transact by means of postal ballot in such a manner as may be prescribed to transact such business in such manner as may be prescribed instead of transacting it at a general meeting. Section 110(2) contains a deeming fiction which says that it is a requisite majority of share holders has assented to a resolution by postal ballot, it is deed to have been duly passed at a general meeting convened for that purpose.

In regard to SEBI’s circular regarding to vote by means of postal ballot, the High Court observed that clause 49(1)(A) of the SEBI circular speaks of the right of share holders. These include the right-

• to participate in and to be sufficiently informed on decisions concerning fundamental corporate change;
• the opportunity to participate effectively and vote in general shareholder meeting;
• the opportunity to ask questions to the Board;
• to place items on the agenda of general meetings; and
• to propose resolutions subject to reasonable limits.

The High Court observed that how these avowed rights can possibly be properly, validly or effectively exercised by postal ballot. 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.

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. He may hold strong views and may desire to convince others of his convictions. The right to persuade and the right to be persuaded are of vital importance. The High Court sees that the shareholder must cast his vote only basis of the information that has been sent to him by post to be completely contrary to the legislative intent and spirit to the express terms of the SEBI circular and amended Listing Agreement’s clause 35B and 49.

The new Companies Act provides for quorum. The High Court observed that if voting is to be done only by postal ballot, how is that statutory requirement of a quorum to be met? The High Court did not accept the contention of the applicant that the non obstante clause in Section 110 eliminates the need for any such quorum.

In respect of schemes of arrangement or compromise they are often amended at a meeting itself; again these amendments come from the floor or even perhaps from the Board itself. That amendment is then put to vote. In a postal ballot no such amendment is possible. If any amendment is restricted then the scheme would stand only in the original form. This is contrary to Section 230 and 232 of the new Act, which have not yet been notified. Therefore in respect of amalgamation the provisions of the old Act would attract. The non obstante clause in Section 110 will be applicable only to the new Act not for the old Act. All schemes that are put to the meeting of the shareholders are proposed schemes. They are subject not only to approval by voting but also possibly, to an amendment at the meeting itself.

Further Section 110 speaks of meetings called by the company. Meetings for the approval of schemes under Section 391/394 of the Companies Act, 1956 and Sections 230 and 232 of the new act not called by the company. They are ordered by the Court. These meetings are court convened meetings. A court may even dispense with such a meeting irrespective of any provision for a postal ballot. The High Court held that prima facie it appears that the provisions of Section 110 of the Act cannot and do not extend to any scheme matters.

The High Court further held that the postal ballot and electronic voting may be permitted or may even be required in addition to but not in replacement of an actual general meeting. Section 110 plainly speaks of transacting certain items of business by postal ballot instead of transacting such business at a general meeting. The Court held that it is doubtful whether section 110 or any SEBI circular mandating exclusive voting by postal ballot can apply to a court convened meeting. Therefore the High Court wanted the Central Government through its Additional Solicitor and SEBI to be heard.

The High Court held that till this issue is fully heard and decided, no authority or any company should insist upon such a postal ballot only meeting to the exclusion of an actual meeting.