Virtual Shareholder Meetings: The Future of Shareholder Meetings Post Covid-19

Ashuthosh V., Law student, Institute of Law, Nirma University

Introduction

A Shareholder meeting is a meeting between the management of the company and the owners and shareholders of the company. During the meeting, decisions are made concerning the day-to-day operations of the company. The purpose is to ensure that the shareholders are provided with an opportunity to discuss and deliberate upon affairs concerning the company. In a pre-Covid-19 situation, shareholder meetings were conducted in a physical venue and in accordance with the procedures under Section 96 of the Companies Act, 2013 (hereinafter “the Act”). It must be held at least once in a financial year, but not more than 15 months from the date of the previous one.  

Shareholders’ meetings are important for the company as the shareholders’ approval is required to sanction certain crucial decisions such as issue of new shares, appointment of directors, declaration of dividend, etc. Further, section 99 of the Act renders that a company that does not hold an Annual General Meeting (AGM) shall be punishable with fine up to one lakh rupees, and in case of continuing default, further fine may extend to five thousand rupees for every day the default shall continue.

On one hand, it seems impossible to conduct physical shareholder meetings right now but companies still ought to hold them to ensure that business continuity is maintained during such difficult times.

Response provided by the Ministry of Corporate Affairs

Several representations were made by companies to the Ministry of Corporate Affairs (MCA) to provide clarification on the dilemma or certain relaxations on the norms governing the conduct of shareholders’ meetings by companies. MCA responded by issuing circulars permitting shareholders’ meetings to be held virtually through electronic means. These circulars allowed companies to hold such general meetings and take decisions of urgent nature through electronic voting or postal ballot following with the Act, the Rules and other measures prescribed under the circular

It is imperative to understand that before this juncture, the Act did not provide for shareholder meetings to be held virtually. However, Section 108 of the Act and Rule 20 of the Companies (Management and Administration) Rules, 2014 (hereinafter “the Rules”) allow e-voting to pass resolutions in case of general meetings.

The MCA circulars no. 14/2020 dated 8th April 2020 and 17/2020 dated 13th April 2020 permits companies to hold Extra-Ordinary General Meeting (EGM) through video conferencing (VC) or other audio-visual mechanisms (OAVM). The MCA has set certain requirements that need to be met while holding such meetings. They are different for those who have opted for e-voting facility and those who have not. Some of the key requirements are[i]:

  1. The recorded transcript of the meeting shall be maintained in safe custody by the company and in case of a public company, the same shall be made available on the website.
  2. It is a two-way conference and participants are allowed to pose questions via e-mails. At least 1000 members must be able to participate on a first-come-first basis except for large shareholders (those who hold 2% or more shareholding), promoters, auditors, directors, investors, etc.
  3. Attendance of members through VC or OAVM shall be counted for a quorum under section 103 of the Act.
  4. As there is no requirement for physical attendance of members, proxies under section 105 of the Act shall not be available. However, concerning sections 112 and 113 of the Act, representatives of the members may be appointed for voting through the decided mechanism.
  5. All resolutions passed by the company through such mechanism shall be filed with the Registrar of Companies within 60 days of the meeting indicating that the requirements along with other provisions of the Act and rules were duly complied with during the duration of the meeting.

Holding an EGM through VC or OAVM is allowed if it is unavoidable. The above relaxation is provided till June 30th,2020 which was later extended to September 30th, 2020.

With respect to AGM, the MCA circulars 18/2020 dated 21st April 2020 and 20/2020 dated 5th May 2020 permits companies to hold AGM through VC or OAVM during the calendar year 2020. Moreover, those companies whose financial year (other than the first financial year) has ended on 31st December 2019 are allowed to hold their AGM within nine months from 31st December 2019, i.e. 30th September 2020. The same shall not be deemed as a violation to section 96 of the Act which warrants for the same to be held within six months from 31st December 2019. The requirements mentioned for conducting EGM apply mutatis mutandis for conducting AGM.

Virtual Meetings: The Possible Future?

In the light of recent events, Virtual Shareholder Meetings (VSM) have been necessary to ensure that businesses can take crucial decisions to maintain business continuity along with safeguarding the health of the public. Numerous states in USA such as Delaware, Texas and California have bylaws that permit VSMs to be conducted by companies. In the European Market, UK and France have permitted VSMs and other countries like Austria, Spain, Italy, and Germany have laws for hybrid AGMs. These countries provide laws that allow companies to conduct VSMs through VS or OAVM or other medium of remote communication with certain procedures similar to Indian law.

In India, the use of VSM was not prevalent until the pandemic struck. MCA circular dated 5th May permits companies to hold AGMs through VC or OAVM throughout 2020. Although, it is a temporary decision, VSMs may be the possible future since they provide certain benefits to companies that would make decision making relatively convenient than physical meetings.

The possible benefits that a company shall receive while conducting a VSM are threefold:

  1. Accessibility: VSMs ensure that there is maximum participation amongst shareholders, directors, investors, promoters, etc. as there is no need for participants to travel across boundaries to reach a venue. Thus, information received shall be first hand. This may facilitate increased shareholder participation and also connect with international shareholders providing a globally connected meeting.
  2. Cost-Effective: VSMs ensure that the company saves costs concerning the planning and organizing of the physical meeting. Travel costs shall be saved. Further, the costs associated with printing and circulation of required documentation shall be saved.
  3. Innovation:VSMs ensure that shareholders can directly engage with the directors to deliberate and discuss prevalent issues that the business is currently facing. This would bring out fruitful and innovative ideas that would forward the brand image.

There are other incidental benefits attached with VSMs such as flexibility that the company and shareholders shall have in order to conduct the meeting and a significant reduction in proxies as a result of increased participation by the shareholders in such meetings.

The mode of asking questions would be either a pre-submitted set of questions to the company’s official e-mail address or live interaction through telephone or chat option on the desired platform of the meeting.

The critics would point out certain flaws that are attached to the virtual form of meetings. These flaws, in brief, are as follows[ii]:

  1. Companies can ignore or silence minority shareholders or shareholder activists who question the Board for their activities. The interests of minority shareholders are often ignored as shareholders are cherry-picked for questions during a meeting.
  2. Technical glitches may disrupt the meeting or its sessions at any particular time. This would eventually delay the decision-making process.
  3. The use of third-party online services may be harmful if the service provider is able to access sensitive information or company (trade) secrets discussed in the meeting and sell the same. This would hamper the position of the company in the market with the information out.

The issue of suppressing the minority voice presents a significant concern because of the possibility of such shareholders to be ignored during the meeting. This may lead to the oppression of minority shareholders at the hands of the majority and the board.

Analysis

Allowing companies to hold virtual meetings shall be a welcomed decision by the MCA. Although the same might be a temporary relief provided during the pandemic, there can be a strong recommendation to make such measures permanent.

To ensure that minority shareholders are not sabotaged by the majority, the management should ensure that good corporate governance is maintained at all times and the meeting duly complies with the necessary provisions of the Act and rules. Certain provisions such as Rule 20 of the Rules and Section 151 of the Act provide for the protection of interests of minority shareholders and prevent their oppression. Rule 20 provides for e-voting of shareholders with more than 1000 shares of a company in a meeting and Section 151 provides for appointment of directors elected by the minority shareholder.

VSMs shall provide cost-effective and expeditious decision-making to companies which shall eventually lead to an outcome of better-formed and effective decisions by the company. In the current environment where the economy of India is in a downturn, such healthy measures may aid to normalize the flow of the economy.

Several countries have adopted the use of virtual meetings or hybrid meetings providing statutory regulations over its conduct. In India, the scope is yet uncertain but considering the existence of the Covid-19 pandemic and development of technology, there would be a high possibility of regulations in Indian corporate law to conduct VSMs.


[i] MCA, Clarification on the passing of ordinary and special resolutions by companies under the Companies Act, 2013 and rules made thereunder on account of the threat posed by Covid-19, General Circular No. 17/2020 dated April 13, 2020, http://www.mca.gov.in/Ministry/pdf/Circular17_13042020.pdf.

[ii] Sambit Saha, Welcome to virtual AGM, The Telegraph (June 21, 2020, 3:05 AM), https://www.telegraphindia.com/india/coronavirus-lockdown-welcome-to-virtual-agm/cid/1774409.

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