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To E-Vote Or Not To E-Vote?

Published on Fri, Jun 20,2014 | 23:15, Updated at Tue, Jun 24 at 16:38Source : CNBC-TV18 |   Watch Video :

This week the Ministry of Corporate Affairs deferred the mandatory E-voting provisions of the Companies Act 2013 to next year! If you’ve been watching our Companies Act series you’d be aware of the confusion that caused the MCA to do this. If not, get up to speed.

MCA Circular: 17th June, 2014
'It is noticed that compliance with procedural requirements, engagement of Depository Agencies and the need for clarity on matter like demand for poll/postal ballot etc will take some more time. Accordingly, it has been decided not to treat the relevant provisions as mandatory till 31st December, 2OI4.'

Section 108 and the accompanying Rules of the new company law allow shareholders of all listed companies and companies with at least 1000 shareholders to vote electronically. A detailed process for E-voting is laid down in the Rules including that the E-voting portal be closed 3 days before the meeting.

Companies Act, 2013
Section 108
The Central Government may prescribe the class or classes of companies and manner in which a member may exercise his right to vote by the electronic means.

Companies Act, 2013
Rule 20
(1) 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.
(2) A member may exercise his right to vote at any general meeting by electronic means and company may pass any resolution by electronic voting system in accordance with the provisions of this rule.

Companies Act, 2013
Rule 20
3(vi) the e-voting shall remain open for not less than one day and not more than three days:
Provided that in all such cases, such voting period shall be completed three days prior to the date of the general meeting;

But a prior Section- Section 107- is worded to imply that if a resolution has been voted upon electronically then it cannot be put to vote by a show of hands at the shareholder meeting.

Companies Act, 2013
Section 107
(1) At any general meeting, a resolution put to the vote of the meeting shall, unless a poll is demanded under section 109 or the voting is carried out electronically, be decided on a show of hands.

That unfortunate wording led to 2 interpretations. One - that all resolutions at meetings must be put to a poll – which can be cumbersome. Or – that since there was no explicit provision to put all such resolutions to vote via polls, the E-voting results would be determinate - which would be a very odd outcome! Finally the MCA responded by postponing the problem to next year. 

But SEBI has not yet deferred E-voting requirements under Clause 35B of the Listing Agreement. So listed companies still need to offer E-voting facilities. Add to that a recent Bombay High Court decision that suggests E-voting should be offered at meetings as well.

SEBI Clause 35B
(i) The issuer agrees to provide e-voting facility to its shareholders, in respect of all shareholders' resolutions, to be passed at General Meetings or through postal ballot. Such e-voting facility shall be kept open for such period specified under the Companies (Management and Administration) Rules, 2014 for shareholders to send their assent or dissent.

BHC: Godrej Ind Case: 8th May, 2014
'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.'

How did a facility meant to encourage more shareholder participation become so confusing? Joining me to discuss this existential crisis – to E-vote or not to E-vote- is Sanjay Asher of Crawford Bayley.

Doshi: The MCA says don’t worry about E-voting, we have pushed it to next year but SEBI’s Clause 35B- which also relies on the Companies Act 2013 and its Rules- says E-voting applies to both postal ballot resolutions as well as meeting resolutions and that is effective now and has not been deferred. So, does that mean that this deferment of E-voting applies only now to unlisted companies with 1,000 shareholders or more and does not apply to listed companies? 

Asher: Absolutely because all listed companies will necessarily have to comply with the provisions of Listing Agreement and therefore comply with 35B. 35B says that every resolution which has to be placed before a general meeting or which has to be done by postal ballot necessarily have to be done by E-voting and that too under the Company Management and Administration Rules of 2014. 

Doshi: That is interesting because the language in 35B does link to the Rules of the Companies Act and if the MCA which is the parent of the Act and the Rules is deferring the Rule that applies on E-voting by six months, then automatically Clause 35 would not get deferred? Or would you wait for an explicit announcement from Securities and Exchange Board of India (SEBI) saying we too are deferring it? 

Asher: I would wait for an explicit announcement from SEBI to that effect because it only says in the manner and in accordance with the provisions of Company Management and Administration Rules. So, the procedure to be followed is under the Company Management and Administration Rules

Doshi: So it only relies on the rule for the procedure and not for the actual application for the E-voting? 

Asher: Yes.

Doshi: But there are two interpretations to the SEBI position as well because SEBI has used slightly different wording in its previous circulars and the new approach paper that it has put out with regards to listing regulations where it links E-voting to postal ballot and not to general meetings. How would you interpret that? 

Asher: If you see July 13, 2012 circular which was the starting point or the May draft paper which converts the Listing Agreement into Listing Regulations, it only speaks about the items which have to be done at the postal ballot or through the postal ballot. 

SEBI Draft Regulations, 2014
35. (1) The listed entity shall provide e-voting facility to its  shareholders, in respect of those business, which are transacted through postal ballot in compliance with section 108 and 110 of Companies Act, 2013 and any rules made thereunder.

Doshi: In compliance with Section 108 and 110 of the Companies Act 2013 and any other Rules made thereunder. 

Asher: That is correct; whereas the existing 35B speaks about the items which have to be dealt at a general body meeting or through the postal ballot. 

Doshi: So these are two different things because SEBI currently seems to be saying that you must make E-voting available for both resolutions put to vote under postal ballot and resolutions put to vote at the shareholder meeting but in previous Circulars and in the approach papers it seems to link E-voting only to postal ballot resolutions. So, what do you think applies to companies right now; the prevalent 35B or would you go by the language that existed earlier and the language that is likely to come? 

Asher: I would say the prevalent 35B because that is what the statute is. We can’t say that because the draft regulations say, they are in draft form. 

Doshi: There seems to be some confusion. People are taking both interpretations saying but SEBI doesn’t really mean general meeting it only means in postal ballot because of its previous circulars and because of the forthcoming regulations. 

Asher: There is no clarification to that effect by SEBI.  

Doshi: So the current 35B stands? 

Asher: Absolutely. 

Doshi: Which means all listed companies have to offer E-voting with regards to postal ballot resolutions as well as resolutions to be voted on in a meeting. 

Asher: Yes, general body meeting. 

Doshi: Now we come to how does that voting happen in a meeting. So, if listed companies are to provide E-voting, it means according to 107, that they cannot allow for a show of hands to take place at the meeting. That is the interpretation broadly everybody has taken of 107 which means that all resolutions to be passed at the meeting have to either be passed on the basis of only the E-votes or on the basis of polls, which one or the combination of both? 

Asher: A poll is demanded only after a show of hands. 109 says only after a show of hands that a poll is demanded.

Companies Act, 2013
Section 109
(1) Before or on the declaration of the result of the voting on any resolution on show of hands, a poll may be ordered to be taken by the Chairman of the meeting on his own motion, and shall be ordered to be taken by him on a demand made in that behalf,-

Doshi: 107 says if you E-vote you cannot do a show of hands?

Asher: You cannot do show of hands.

Doshi: Which means you can either, only count the results of the E-voting or you pass the resolution through polls and combine the outcome of polls with the E-voting outcome and come to a final decision on the resolutions. You are saying you can’t even do the polls?

Asher: We can’t do a poll.

Doshi: 109 says before a poll happens, a show of hands happens. That is a slightly extreme interpretation, isn’t it?

Asher: No, but that is what the law is to my mind even under the old statute and also under the new statute.

Doshi: No, but that would mean effectively that you would go to a meeting and do what, because you can’t vote through a show of hands and you are saying you can’t vote through a poll, can’t the Chairman call for a poll?

Asher: The Chairman can call for a poll of course, but then the Bombay High Court judgment comes into play in the Godrej case, where the Bombay High Court has said that you provide E-voting facility at a meeting.

Doshi: We have just seen companies do that.  

Asher: Yes, which goes beyond what the law says but then if the Bombay High Court has to be interpreted to say, that look please have the E-voting facility, which is why some companies have adopted that and are doing a poll through the tablet mechanism or similar mechanism.

Doshi: Karvy is just offering that as a product- they are selling that to Annual General Meetings (AGMs) saying look, you can now instead of doing polls through paper slips and going through every resolution and collecting the slips into the ballot box etc. Just do it electronically but it is not exactly E-voting because the E-voting portal has shut three days ago, so it is now poll but it is an electronic poll.

Doshi: We have an E-vote and we have an E-poll.

Asher: The question still remains as to whether you have a poll when you have already done an E-voting.

Doshi: I understand that you are interpreting the law strictly by the words, but there are some who believe that there is enough foreign jurisprudence to show that you cannot deny a shareholder the opportunity to vote simply by way of this kind of procedure saying if there is no show of hands, you cannot call for a poll because then you are denying him his voice altogether?

Asher: There are passages in Palmer Gower Pennington which speaks about that you don’t deprive the shareholder from doing an electronic voting or voting at a poll although the law does not mandate that, but that’s one way of looking at it.

Doshi: Very few companies would take the extreme interpretation of 109 as you have taken; they would be really rubbish companies to do that. Even if it stands up in the court of law strictly it would be fairly rubbish to deprive the shareholder who has attended the meeting the opportunity to vote because of some technicality in the language of the law.

Asher: I am only saying that one is the strict interpretation of law; the other one is from a governance point of view. If you want an absolute democracy in the shareholders meeting then surely even though you have closed your electronic vote three days prior to the date of the meeting, please offer this facility of voting through tablet or do a poll.

Doshi: Most people will interpret 109 to mean that the Chairman will order saying since I can’t do a show of hands because of the way 107 is worded, I am going to pass all these resolutions through a poll and you can vote using a tablet?

Asher: Yes, that’s a safer view- that is more from a governance point of view and in these days of corporate governance that’s a better way of doing it.

Doshi: Some companies can shelter under interpretation of ..(interrupted)

Asher: Can take shelter but at the same time the better way of doing it is complete your E-voting and then again do a poll at the general body meeting.

Doshi: Through an electronic format or through paper slips whichever one you prefer.

Asher: Yes.

Doshi: Now in fact these two would be more synchronous because the problem with trying to synchronize E-voting results with the show of hands results would be that E-voting is one share one vote; show of hand is one person one vote. So actually there is a silver lining to this cloud. Since show of hands is gone out of the window and you are now forced to do all of this through polls- polls are also one share one vote, e-vote is also one share one vote- so the two are synchronous and therefore the combined outcome makes more sense than to try and combine the outcome of E-voting and show of hands and there is silver lining to this cloud?

MCA Circular: 17th June, 2014
In case of companies having share capital, voting through e-means takes into account 'Proportion principle'[i.e. 'one share - one vote] unlike one person - one vote' principle under 'show of hands'. This along with provisions of section 107 make it clear that in case of companies which are covered under section 1Og read with rule 20 of Companies (Management and Administration) Rules, the provisions relating to demand for poll would not be relevant.

Asher: There is silver lining absolutely. 

Doshi: What happens for scheme meetings is the only the other question I want to ask you?

MCA Circular: 17th June, 2014
In view of clear provisions of section 107, voting by show of hands would not be allowable in cases where Rule 20 of Companies (Management and Administration) Rules, 2014 is applicable.

MCA Circular: 17th June, 2014
Stakeholders have asked whether matters specified under rule 22(16) (transactions of certain items only through postal ballot) can be considered in a general meeting where e-voting facility is available. It has been examined and it is stated that in view of clear provisions of section 110(1Xa) read with such rule 22(16) it would be necessary to transact items specified in rule 22(16) only through postal ballot and not at the general meeting.

Asher: In which event the show of hands comes into play because it says majoritarian number representing three fourths in value. So only in scheme meetings you have to have a show of hands otherwise for rest of the meetings in case of listed entities show of hands goes.

Doshi: Actually you can have a majority; you don’t even need a show of hands. For majoritarian number you can still create an electronic poll of sorts, whereby you have two different votes. You are casting two different votes, you are casting on the behalf of your shareholding as one to meet the 75 percent requirements and you are casting to be part of the numerical majority as one. So you could do that through a tablet and it can be done simply by tablet or paper slip or whatever; so show of hands is dead forever now?

Asher: Yes.

Doshi: For now we leave it there. The Ministry of Corporate Affairs (MCA) has also issued some clarifications along with that deferment circular but many of those clarifications are very confusing. So, hopefully they have bought some time with this deferment up to December 31st and will clarify the clarifications so that we know once and for all what the E-voting procedures are meant to be.


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