COVID 19Gaurav Pingle and Associates

Under the extant provisions of the Companies Act, 2013 (“the Act”), approval of the shareholders can be obtained by passing a resolution in general meeting or voting through electronic means (i.e. e-voting) or postal ballot. The Act read with the relevant Rules made thereunder provide for detailed procedures for obtaining shareholders’ approval. Under the extant provisions, only meeting of the board of directors can be held through videoconferencing (VC) and other audio-visual means (OAVM). In view of the current extra-ordinary circumstances due to the pandemic caused by COVID-19 prevailing in the country, requiring social distancing, it is difficult for companies to obtain shareholders’ approval by conducting general meetings. Taking into consideration this situation, the Ministry of Corporate Affairs (MCA) had provided a framework for conducting extra-ordinary general meeting of the company through VC or OAVM[1]. MCA issued another Circular and permitted the companies to hold the annual general meeting through VC or OAVM during the calendar year 2020[2].

This article is an analysis of certain provisions of the MCA directions and also address certain challenges for listed companies in conducting AGM through VC or OAVM.

Rights of shareholders: Before we discuss the procedure for conducting general meetings through VC or OAVM, let us first discuss the rights of shareholders. Chapter II of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the SEBI Regulations) relates to ‘Principles governing disclosures and obligations of listed entity’. According to the provisions, the shareholders shall have the right to participate in, and to be sufficiently informed of, decisions concerning fundamental corporate changes. The shareholders shall also have an opportunity to participate effectively and vote in general shareholder meetings. Shareholders shall be informed of the rules, including voting procedures that govern general shareholder meetings. They shall have an opportunity to ask questions to the board of directors, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations. Effective shareholder participation in key corporate governance decisions, such as the nomination and election of members of board of directors. The exercise of ownership rights by all shareholders, including institutional investors. Listed entity shall have adequate mechanism to address the grievances of the shareholders.

The SEBI Regulations also provide that the exercise of voting rights by foreign shareholders shall be facilitated and the processes and procedures for general meetings shall allow for equitable treatment of all shareholders. The procedures of listed entity shall not make it unduly difficult or expensive to cast votes. The listed entities shall also ensure the said rights prescribed in the SEBI Regulations are not affected when the AGM of the company is conducted through VC or OAVM.

The highlights of the MCA Circular permitting companies to hold AGMs through VC or OAVM and certain challenges are as follows:

  1. Taking into consideration the difficulties involved in dispatching of physical copies of financial statements (including Board’s Report, Auditor’s Report, or other documents required to be attached), MCA has permitted sending such documents by e-mail to the members, trustees for the debenture-holders, or any other person entitled to receive such documents. The companies are required to give public notice by way of advertisement in vernacular language of the district in which registered office is situated and at least once in English language in English newspaper (preferably both newspapers having electronic editions). Considering this, the cost of conducting general meetings is significantly reduced for such listed companies.
  2. One of the biggest challenges for listed companies is to get the e-mail addresses of the members (holding shares in physical form) registered for sending financial statements. This will also enable the shareholders to cast their vote through remote e-voting or through e-voting during the meeting. Presently, even in the lockdown, the depositories, Registrar and share transfer agents and companies are taking adequate steps for the registration of e-mail addresses of such shareholders. However, for certain listed companies some shareholders are either not traceable or their contact details are not updated.
  3. According to MCA directions, the listed company shall provide two-way tele-conferencing facility or webex for ease of participation of the members and the participants are allowed to pose questions concurrently or given time to submit questions in advance on the e-mail address of the company. Such facility must have a capacity to allow at least 500 members or members equal to the total number of members of the company. According to the principles governing disclosures and obligations of listed entity under the SEBI Regulations (as discussed above), the shareholders shall have right to participate in, and to be sufficiently informed of, decisions concerning fundamental corporate changes. The shareholders shall also have an opportunity to participate effectively and vote in general shareholder meetings. The shareholders shall have an opportunity to ask questions to the board of directors, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations. Considering the total number of shareholders and their participation, it would be quite difficult for listed companies to provide two-way tele-conferencing facility in the general meetings. Considering the participation of members and question-answer session, such meetings would take a long time to conclude. Presently, the companies/Registrar and share transfer agents are in the process of developing a system to answer/reply to the queries asked in the general meeting through VC or OAVM.
  4. According to the MCA directions, the process for election of Chairman depends upon the members present at the meeting i.e. if members present are less than 50, then the Chairman is appointed in accordance with Section 104 of the Act. And if the members present are more than 50, then the Chairman shall be appointed by a poll conducted through electronic voting system during the meeting. i.e. generally, in the case of listed entities, it will be compulsory to have a system of ‘electronic voting during the meeting’ for members attending electronically (i.e. VC or OAVM). This mandatory agenda item of electing the Chairman would consume a lot of time before discussing the agenda for the meeting. For listed entities (at least for 500-BSE companies), the participation in general meeting would be more than 50 members. The MCA direction with reference to the appointment of Chairman for the meeting directly conflicts with the provision in the Act. It would be quite challenging for the companies to comply with the said provision.
  5. According to the MCA directions, where less than 50 members are present in a meeting, the Chairman may decide to conduct a vote by show of hands (i.e. one member is equal to one vote, irrespective of shareholding), unless a demand for poll (i.e. one share is equal to one vote) is made by any member in accordance with Section 109 of the Act. In the VC system or OAVM system, the listed companies would be required to have a mechanism for demanding poll and the shareholders should be equipped to participate in the demand. Considering that e-voting (i.e. one share is equal to one vote) is open not less than 3 days before the general meeting, the MCA should have provided uniform method of voting for the general meeting through VC or OAVM.
  6. Under the Act, the register of directors and KMP and their shareholding shall be kept open for inspection at every annual general meeting of the company and shall be made accessible to any person attending the meeting. The VC system may have a facility of the company to upload the scanned copy of the register and members during the meeting through VC or OAVM may inspect the same. Similarly, if the articles of association of the company are being amended, the draft articles of association can be made available for inspection in the VC system.
  7. According to the extant provisions of the Act, the annual general meeting of the company shall be called during business hours i.e. between 9 a.m. to 6 p.m. According to the MCA directions, the convenience of different persons positioned in different time zones shall be kept in mind before scheduling the meeting. Listed entities shall balance the two provisions for conducting the meeting, however ensuring convenience of shareholders in different time zones is difficult.
  8. In case of payment of final dividend, MCA has directed companies to pay dividend though electronic clearing service or any other means. Where the company is unable to pay the dividend to any shareholders by electronic mode, due to non-availability of bank details, the company are directed to dispatch the dividend warrant/cheque to such shareholder by post (i.e. upon normalisation of postal services). Post-lockdown and thereafter, if such dividend is not claimed by the shareholder then it may get credited in unpaid dividend account and then investor education and provident fund (IEPF) account which may be more difficult for the shareholders to claim such dividend.
  9. Considering the fact that the member would be attending the general meeting through VC or OAVM, the concept of proxy has become redundant. As per the MCA Circular, such member would be counted for the purpose of reckoning the quorum under the Act.
  10. Atleast an independent director and auditor/representative of auditor are mandated to attend the such meeting through VC or OAVM. Institutional investors are encouraged to attend and vote at the meeting.

Taking into consideration that MCA has permitted companies to hold the general meetings through VC or OAVM, SEBI may also relax certain provisions of the SEBI Regulations in due course. It will be interesting to see the effective implementation of the dynamic amendments introduced to the provisions of general meeting – i.e. calling of meeting, holding and conducting of meeting. Taking into consideration the current extra-ordinary circumstances due to the pandemic caused by COVID-19, for the general meetings for the year 2020 should be more of ‘shareholders co-operation’ than ‘shareholders activism’, except in exceptional circumstances.


*Practising Company Secretary, Pune. He can be reached at gp@csgauravpingle.com

[1] MCA General Circular No. 14/2020 dated April 8, 2020.

[2] MCA General Circular No. 20/2020 dated May 5, 2020.

COVID 19Legislation UpdatesNotifications

Clarification on dispatch of notice under Section 62(2) of Companies Act, 2013 by listed companies for rights issue opening upto 31st July, 2020

MCA received many representations for providing clarification on the mode of issue of notice referred to in Section 62(1)(a)(i) of Companies Act read with Section 62 (2) of Act for rights issue by listed companies, in view of the difficulties faced by companies in sending notices through postal or courier services on account of the threat posed by COVID-19.

In view of the above and on account of the overall situation, it is hereby clarified that for rights issues opening upto 31st July, 2020, in case of listed companies, which comply with the aforementioned SEBI Circular dated 6th May, 2020, inability to dispatch the notice referred in para 1 of this Circular to their shareholders through registered post or speed post or courier would not be viewed as violation of Section 62(2) of the Act.

Read the circular here: CIRCULAR


Ministry of Corporate Affairs

Circular dt. 11-05-2020

Legislation UpdatesNotifications

The Ministry of Corporate Affairs has amended the Companies (Share Capital & Debentures) Rules by removing Debenture Redemption Reserve requirement for Listed Companies, NBFCs and HFCs.

The decision has been taken in pursuance of the Budget announcements for 2019-20 by Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman and the Government’s objectives of providing greater ‘Ease of Doing Business’ to companies in the country, as part of its 100 Days Action Plan.

Through these amendments, the provisions relating to the creation of Debenture Redemption Reserve (DRR) have been revised with the objective of;

  1. removing the requirement for the creation of a DRR of 25% of the value of outstanding debentures in respect of listed companies, NBFCs registered with RBI and for Housing Finance Companies registered with National Housing Bank (NHB) both for public issue as well as private placements;
  2. Reduction in DRR for unlisted companies from the present level of 25% to 10% of the outstanding debentures.

Hitherto, Listed Companies had to create a DRR for both Public Issue as well as Private Placement of Debentures, while NBFCs & HFCs had to create DRR only when they opted for Public Issue of Debentures.  It is aimed at creating a level-playing field between NBFCs, HFCs and listed companies’ on the one hand and also between them and Banking Companies & All India Financial Institutions on the other, which are already exempted from DRR.

The measure has been taken by the Government with a view to reducing the cost of the capital raised by companies through issue of debentures and is expected to significantly deepen the Bond Market.

The rules, while retaining DRR requirement for Unlisted Companies, provide for reduction from a DRR of 25% to a DRR of 10% for such companies, so as to safeguard interests of investors.


Ministry of Corporate Affairs

[Press Release dt. 19-08-2019]