E-Voting: Whether to Protect or Extinguish Corporate Democracy?

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Date added: 17-06-26

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  1. INTRODUCTION
In the contemporary age of technology, rights of the shareholders can be better protected. E-voting is one such example. E-voting process or postal ballot system has been introduced in order to secure wider participation of shareholders in the decision-making of the company. E-voting makes it more convenient for people finding it difficult to attend the meetings physically. This was suggested by the Second Naresh Chandra Committee Report and the J.J. Irani committee in as back as in the year 2004. The Companies act, 2013 (hereinafter referred to as the 2013 Act) has brought in Section 108 making e-voting matter of right for the shareholders in certain cases.
  1. RELEVANT LEGISLATIONS
Section 108 of the 2013 Act read with Rule 20 of Companies (Management and Administration) Rules, 2014 provides that every listed company or a company having not less than one thousand shareholders, shall provide to its members facility to exercise their right to vote at general meetings by electronic means. Section 110 of the 2013 Act is an evolution of old Section 192A of the Companies Act, 1956 (hereinafter referred to as the 1956 Act) which talks about postal ballots. Pursuant to Section 2(65) of the 2013 Act postal ballot includes e-voting. Where the old Section 192A contains a narrow non-obstante clause relating to only the foregoing sections of the 1956 Act, Section 110 of the 2013 Act contains a broader non-obstante clause meaning the whole Act. This means that the provision of postal ballots as given under the 1956 Act shall not be applicable to the subsequent provisions which include Schemes under Section 391 and 394. Therefore, before the 2013 Act the requirement of e-voting was not applicable to Schemes of amalgamation, compromise and arrangements. The frame of Section 110 of the 2013 Act is that for such items of business as the Central Government notifies, a company must transact that business only by postal ballot. Rule 22 of the Companies (Management and Administration) Rules, 2014 contains a very long list of ten items of business that, apparently, are intended to be transacted only by means of a postal ballot. This particular provision has given rise to the controversy as to whether the postal ballot system applies in addition to or in exclusion to the actual physical meetings which will be discussed ahead in this article.
  1. INTERNATIONAL PROVISIONS
E-voting might be a new development under the Indian Company Law but it is a very advanced form of shareholders meetings in most other developed countries. Delaware and many other States in the United States have amended their laws to permit electronic voting. Delaware has introduced the most developed form of virtual shareholder meetings by means of "remote communication" i.e. shareholders who are not physically present may participate in a meeting by remote communication and be deemed "present" in person to be counted for quorum and other voting purposes. In New Zealand also, by virtue of the 2012 amendment to Companies Act, 1993, companies now have increased flexibility to communicate with shareholders electronically and conduct virtual shareholders’ meetings. Section 249S of the Australian Corporations Act provides that a company may hold a meeting of the members at two or more venues using any technology that give the members as a whole a reasonable opportunity to participate. Though the above provision empowers companies to hold their general meetings electronically, there is still no express provision allowing a meeting to be held entirely virtual. In Malaysia, amended Section 145 A of Companies Act, 1965 has similar wordings as the Australian Law. U.K Companies Act 2006 provides the holding and conducting of a meeting in such a way that persons who are not present together at the same place may by electronic means attend and speak and vote at it. Further, Canada and Germany also provide for e-voting in their respective company legislations.
  1. IN RE GODREJ INDUSTRIES CASE[1] (hereinafter referred to as the Godrej Case)
In this case, Godrej Industries Limitedproposed to merge with its group company, Wadala Commodities in a scheme of amalgamation. In April 2014, it approached the High Court of Bombay for seeking to forego the court convened shareholder meeting under the provisions relating to mergers and amalgamations under the 1956 Act and pleaded that it may be allowed to conduct the voting entirely through postal ballot and electronic voting as permitted under the 2013 Act. Justice Patel while hearing this case identified many controversies regarding mandatory and exclusionary requirement of e-voting especially in court convened meetings. The High Court observed that meetings called under Section 391 of 1956 Act or Section 230 and 232 of 2013 Act for approval of a scheme of arrangement are not “called” by the company but are instead “ordered” by the court and hence, Section 110 of the 2013 Act is not applicable in case of schemes. It also held that the legislative purpose and intent behind Section 110 of 2013 Act is greater inclusiveness and participation of shareholders. However, the right to vote is not a mere right to vote but a right to make an ‘informed decision’ which would include right to debate, deliberate, and seek clarifications and amendments. After analysing the various aspects of the purpose and conduct of shareholders’ meetings, issues of corporate law and governance contained in the 2013 Act as well as various SEBI circulars, the High Court opined that ‘postal ballot’ is an additional facility which a company has to provide in order to improve shareholder participation and awareness but has left the matter for fuller consideration. In the backdrop of this case the authors enumerate the grey areas in the facility of e-voting or postal ballot system and its interplay with other rights of the shareholders.
  1. GREY AREAS IN THE LAWS ON VOTING BY POSTAL BALLOT
  1. Disregard for Clause 49 (I) (A) of the SEBI Equity Listing Agreement
The heart of corporate governance lies in giving the shareholders, who hold equity in the company, rights to participate in the management of the company. Clause 49 (I) (A) of the SEBI Equity Listing Agreement provides such rights as right to “participate in and to be sufficiently informed on decisions concerning fundamental corporate changes”; “the opportunity to participate effectively and vote in general shareholder meetings”; “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”, etc. In the Godrej Case, the Bombay High Court elaborated that the right to vote includes in its arena not only a mere formal vote but also right to ask questions, seek clarifications ,receive response and right to persuade and be persuaded. Moreover, it also includes the right to make an informed decision. A shareholder in a meeting by discussing and debating on the various consequences of the proposed move and hearing other members about how it affects different group of shareholders will make a wiser decision as compared to a mere ‘yes’ or ‘no’ by voting in isolation. In this case it was further held that in schemes as under section 230 and 232 of the 2013 Act corresponding to section 391 and 394 of the 1956 Act speaks of “the calling of a meeting” and “not merely putting the matter to vote”. This means that it would take away the right of directors or shareholders to propose amendments, as a result of which the resolution can only be put to vote as originally proposed without any modifications.
  1. Scope of Section 110 of the 2013 Act – ‘Court convened meetings’ or only ‘meetings called by company’
Section 391 and 394 of the 1956 Act and Section 230 and 232 of the 2013 Act, state that the meetings shall be held, called and conducted as the court directs in case of schemes. On the other hand, Section 110 of the 2013 Act states that the company can conduct meetings by way of postal ballot system. In the Godrej Case the court differentiated between ‘court convened meetings’ and ‘meetings called by the company’ and held that all provisions for compulsory voting by postal ballot or electronic voting to the exclusion of an actual meeting cannot and do not apply to court-convened meetings. However, in our opinion, this approach is fallacious to the extent that the purpose of wider participation as provided by postal ballot voting (or e-voting) will not be fulfilled in the case of court convened meetings. In matters of compromise, arrangements, mergers and amalgamations, etc the protection of minority rights is sacrosanct. The Court by excluding the provision of postal ballot system for court convened meetings ignores the rights of those minority groups who may not attend the meetings.
  1. E-voting (or Postal ballot) is additional or exclusionary to actual physical meetings
The Court in this case has left the decision on this issue to a more elaborate consideration. The Court has held that any SEBI circular which makes e-voting or postal ballot the exclusive manner of voting are clearly unlawful. Moreover, in line with the 1956 Act even the 2013 Act contains specific sections regarding quorums for meetings i.e. Section 103 and if voting is to be done only by postal ballot, the statutory requirement will not be met. Therefore, in our opinion, e-voting or postal ballot should be an additional facility and not a substitute for actual meetings. This is a facility for the shareholders who are unable to attend the meeting to vote and not to deprive shareholders who want to attend the meeting, discuss and debate from attending the meeting.
  1. CURRENT SCENARIO
As per Rule 20 of Companies ( Management and Administration Rules), 2014, e-voting is mandatory in case of all general meetings of every listed company and a company having not less than 1000 shareholders. The Ministry, however, vide its general circular no. 20/2014 dated 17.06.2014 has decided not to treat these provisions as mandatory till 31st December, 2014. As per amended clause 35 B of Listing Agreement (Amended vide SEBI Circular no. CFD/POLICY CELL/2/2014 dated 17.04.2014), e-voting is mandatory in respect of all shareholders’ resolutions to be passed at general meetings or through postal ballot. Further the SEBI Chairman, Mr. U. K. Sinha, in his statement to Business Line on 22nd June, 2014, clarified that providing of e-voting facility is mandatory for listed companies even if the same has been made non-mandatory by the MCA. To sum up , the position of the different companies is as follows -
  1. Listed Companies – SEBI Circular will stand above the Ministry of Commerce circular for listed companies and thus, company needs to provide facility of e-voting for all kinds of members’ resolutions, be it through general meeting or postal ballot.
  2. Unlisted Public companies – For companies having less than 1000 shareholders e-voting facility is not required to be mandatorily provided both in case of postal ballots and general meetings. However, the application of this provision has been deferred till 31st December, 2014.
  3. Private Companies- E-voting is not mandatory.
  1. CONCLUSION
In the age where rapid transit of information and wide participation is a necessity, e-voting despite its various disadvantages cannot be set aside. If properly installed, e-voting can control fraud, enhance the speed of processing results, enhance accessibility and make voting easier for shareholders. E-voting or postal ballot voting thus is an addition to and not a substitution to actual meetings. A quorum of the actual meeting should be met and those shareholders who are unable to participate in the actual meeting should be given a right to vote. However, a formal right to vote shall not suffice; the voters should be enabled to make an informed decision. The shareholders should participate in the deliberations on the proposal. The system of virtual meetings by way of ‘remote communication’ as in the State of Delaware, USA is a very good solution for this problem however, it shall not be possible to implement in a developing country like India. Therefore, we suggest that an online discussion forum or platform should be provided prior to the meeting so that all the shareholders can express their grievances, propose amendments, persuade and can be persuaded by other voters. This way, wider participation can be achieved along with greater transparency.
[1] In re Godrej Industries , Company summons for direction no. 256 of 2014.
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