E-voting
rules change - A new mess a new day !
Metamorphosis
of Company law rules that went bad, changed a caterpillar into an ugly frog.
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CS Nidhi Bothra
CS Vinita Nair
Vinod Kothari & Company
Corporate Law Services Group
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This write up is the property of Vinod Kothari & Company and no part of it can be copied, reproduced or distributed in any manner. The website (www.onlinelawsolutions.com) has published the same on behalf of the author as requested.
Disclaimer:
This write up is intended to initiate academic debate on a pertinent question. It is not intended to be a professional advice and should not be relied upon for real life facts.
Under the erstwhile
(read outdated) system of holding general meetings where the resolutions were
put to vote by way of show of hands or a poll could be demanded. Since only
such members who were present at the meeting either themselves or through proxy
could have voted, the system demanded members to be present themselves or
through proxy.
The new refurbished
rules however facilitated members to vote on resolutions to be taken up at the
general meeting without having to be present themselves. They could now vote
from the remotest location in the country if they had internet access and
exercise their right to vote.
With the introduction
to the e-voting system for specified class of companies, the concept of show of
hands was bid adieu. Members could vote through e-voting system and at the
meeting the Chairman could put the resolution to poll.
The rules on e-voting
system posed challenges of its own when introduced last year and MCA was forced
to make it optional considering the barrage of queries and clarifications the
rules demanded. Soon the industry was
settling with the rules on e-voting, MCA amended the rules on e-voting vide
Companies (Management and Administration) Rules, 2015 issued on 19th
March, 2015 ( new rules)[1]
and the first reading of the amendments has the potential of raising a thousand
new queries on the changes. Rule 20 as applicable on e-voting has been
substituted by the new provisions as introduced by the amendment of 2015.
Eligibility for applicability of rules
The new rules on
e-voting will have to be complied with for all general meetings in respect of
which notices are issued after the date of commencement of this rule. That is
to say, all notices issued for general meeting after the publication of the
rules in the official gazette will have to comply with these rules.
All companies with
equity shares listed on recognised stock exchange or companies having not less
than thousand members will have to provide its members facility to exercise
their right to vote on resolutions proposed to be considered at general
meetings by electronic means.
The new rule also
states that the rule shall not apply to companies referred to in Chapter XB or
Chapter XC of SEBI ICDR regulations along with companies with less than 1000
members. Chapter XB of the ICDR regulations is on issue of specified securities
by small and medium enterprises and Chapter XC of the ICDR regulations is with
regard to listing on the Exchange made possible without bringing an initial
public offer by SMEs.
The rules seem to
indicate that the new rule shall not be applicable to listed SMEs. Sure enough
cannot understand the rationale for this other than the cost implications.
The provisions of
e-voting will not be applicable to listed SMEs, which means general meetings
will be conducted by using means such as show of hands, poll, ballot paper etc.
Concept of Remote e-voting and voting by
electronic means
The new rules talk
about voting through electronic means and remote e-voting. Voting by electronic
means includes remote e-voting. Remote e-voting is where the members can
exercise their vote from any remote location, in case they are unable to attend
the meeting.
Voting by electronic
means is a facility that the Company may facilitate at the general meeting
also. So now the members can vote on matters electronically either from the
remote location or at the meeting itself.
Sure enough the
rationale for e-voting at the meeting cannot be understood as the member is
physically present at the meeting to cast the vote, discuss the resolution and
air concerns. One benefit could be saving the cost of polling process. The
Company needs to have two scrutinizers – one for e-voting and one for poll. The
concept of e-voting was introduced with an intent to facilitate the members to
vote even if they were unable to attend the meetings. This enabled larger
participation of members in resolutions and removing the constraint of physical
participation.
The new rule does seem
to suggest that voting through electronic means at the meeting is optional for
the company to provide. This also means additional cost burden for companies to
introduce voting through electronic means for members at the meeting –
technologically enabling the meetings to provide for the option and also explaining
the modus operandi to the members to put the option to use.
This was seemingly
even suggested by Hon’ble Bombay High Court in the matter of amalgamation of Wadala Commodities Limited and Godrej
Industries Limited[2],
where Hon’ble Judge Mr. G S Patel under Para 24 (a) stated the following:
“All provisions for
compulsory voting by postal ballot and by electronic voting to the exclusion of
an actual meeting cannot and do not apply to court-convened meetings. At such
meetings, provision must be made for postal ballots and electronic voting, in
addition to an actual meeting. Electronic voting must also be made available at
the venue of the meeting. Any shareholder who has cast his vote by postal
ballot or by electronic voting from a remote location (other than the venue of
the meeting) shall not be entitled to vote at the meeting. He or she may,
however, attend the meeting and participate in those proceedings.”
Concept of cut-off date for remote e-voting -
The new rule talks
about a cut-off date which is defined to be a date not earlier than seven days
before the date of the general meeting for determining eligibility to vote by
electronic means or in the general meeting.
While the definition
seems to be completely garbled, despite the garbled language for all practical
purposes, the cut-off date will be the record date as is currently used by
companies. We reproduce hereunder the contradictory provisions of law that
comes to fore from the garbled language
Rule 20 (4) (v) (e) –
requires the Company to state in the public notice the manner in which the
persons who have acquired shares and become members of the company after the
despatch of notice may obtain the login ID and password.
However, Rule 20 (4)
(f) (D) states that a person whose name is recorded in the register of members or
in the register of beneficial owners maintained by the depositories as on the cut-off date only shall be
entitled to avail the facility of remote e-voting as well as voting in the
general meeting.
Going by the aforesaid
language, if the Company can provide the e-voting facility only to those who
are shareholders as on cut-off date, then it is pointless to specify how the
recent shareholders may obtain login ID and password. Companies cannot afford
to have a cut-off date for despatch of notice, for e-voting, for poll purpose
and one for dividend. Also it is not practicable to have a
moving cut-off date. Typically
notices of general meeting and modus operandi of use of e-voting facility will
be available only to members as determined on the cut-off date
There is no question
of providing such facility to persons who have become members after the cut-off
date. If so was the case, the concept of cut-off date and identifying members
of the company for attending the general meeting itself would become completely
redundant. In view of the above discussion, it would be a prudent
step to have same record date, which is fixed by the Company for the purpose of
dividend, to be the record date for the purpose of e-voting and voting by poll
too. The agencies offering e-voting platform shall refer the list of
shareholders as on record date, upload the same and generate user id and
password for such shareholders. The shareholders as on cut-off date who are
unable to vote electronically may attend and vote at the AGM by way of poll or
electronic means as the case may be.
Modus operandi for remote e-voting and e-voting at general
meeting
Rule 20 (4)(vi) states
that the remote e-voting facility will be open for not less than three days and
shall close at 5:00 pm on the date preceding the date of the general meeting.
The rule seems to indicate that the remote e-voting facility will be open till
a day preceding the general meeting.
The proviso to Rule 20
(4)(viii) indicates that the remote e-voting facility will be blocked on the
day preceding the general meeting. However, if the same electronic voting
system is being used for providing voting through electronic means during the
general meeting as well, then the said facility shall be in operation till all
resolutions are considered and voted upon in the meeting. The facility may be
used for voting only by members attending the meeting and who have not
exercised their right to vote through remote e-voting.
The rule seems to fail
to make distinction between remote e-voting and voting at the meeting through
electronic means. Remote e-voting is to stop one day prior to the general
meeting however, where the Company opts to provide same electronic voting
system will remain operative for voting through electronic means. How will the
company create a distinction between those members who have voted from remote
e-voting and those who will be exercising the voting through electronic means
at the meeting? Sure enough the system
will have to close for the company to make a note of such members who have
exercised the right to vote already. Rule 20 (4)(xiii) seem to indicate that
there will be closure period for remote e-voting and before commencement of general meeting
for the scrutinizer to make an account of all the shareholders who have exercised
their right to vote through remote e-voting. The voting through electronic
means shall re-open after the scrutinizer has taken account of the members who
have voted through remote e-voting.
Now comes the
challenging part. How will the agency ensure that while the e-voting has been
allowed at general meeting, no member is accessing the portal through remote
e-voting and casting vote at the same time? The agency providing the facility
will have to ensure this possibly by de-activating the login ids of members
other than those attending the general meeting as the scrutinizer would have
taken record of those who have already voted through remote e-voting.
Trouble of amending resolutions
The new rules indicate
that resolution cannot be withdrawn where voting through electronic means is
provided, but not sure whether amendment to the resolution is possible or
permissible. The rule seems to be silent on the issue.
Voting at meetings
Rule 20 (4)(xi) seems
to indicate that at the meeting voting through electronic means or using ballot
or polling paper will have to be allowed for all those members who are present
at the general meeting but have not exercised their voting rights already.
Considering the level
of complexity and challenges involved, it seems that Company may opt for the time
tested method of providing poll at the meeting. Since, it will be cumbersome to
provide electronic voting booths at the venue. Several shareholders who may not
be technologically sound will require guidance. Of course the AGM will turn
into a long drawn process.
Announcing results
Oddly unlike the
current practices where the Chairman announces whether the resolution is passed
or not, in future the results of the resolution will be announced not later
than three days from the meeting. Once the scrutinizer gives his consolidated
report of the total votes cast in favour or against, within three days from the
conclusion of the general meeting, the Chairman or a person authorised by him
in writing, shall declare results forthwith.
While the results of
the voting on resolutions will be announced three days from the general
meeting, the resolution will be considered to be passed on the date of the
general meeting.This will surely contradict with requirement of clause 35A of
equity listing agreement where companies are required to report the voting
results within 48 hours of conclusion of general meeting. This in case of
equity listed companies, the results will be needed to be given within 2 days
from conclusion of general meeting.
Conclusion
The transformation of
law was to transpire to be facilitating and in sync with the global
developments such that companies had the ease of doing business. The laws could
be updated to get rid of the redundancy.
At this point of time
it seems the law makers only have the intent of clogging the loopholes in the
existing system as a desperate attempt to stop corporate scams and scandals.
Any change in law has to have a vision as it has not a momentary impact but an
impact for times to come.
What could have been
the intent of introducing voting through electronic means at the meetings where
the members are present themselves to express their opinion on matters?
Corporate houses with this amendment certainly feel the burden and the pressure
of costs for introducing voting through electronic means at the meeting while
the system providers may have a day to rejoice.
The law cannot take
away the essence of the meeting and be mindless, impulsive and reactive. It
seems the MCA has goofed up yet again with this new rule as well.
For any query, mail us at query@onlinelawsolutions.com
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