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CS Vinita Nair
Record date: Meaning & Requirement:
Record date is the date fixed for taking record of shareholders or debenture holders of the Company. An investor must be a shareholder/ debenture holder on this particular date in order to be eligible to participate in a particular corporate action.
Under Clause 16 of the Equity Listing Agreement, a Company agrees to close its Transfer Books for purposes of declaration of dividend or the issue of right or bonus shares or issue of shares for conversion of debentures or of shares arising out of rights attached to debentures or for such other purposes as the Exchange may agree to or require and further agrees to close its Transfer Books at least once a year at the time of the Annual General Meeting (AGM) if they have not been otherwise closed at any time during the year and to give to the Exchange the notice in advance of at least seven working days or of as many days as the Exchange may from time to time reasonably prescribe, stating the dates of closure of its Transfer Books (or, when the Transfer Books are not to be closed, the date fixed for taking a record of its shareholders or debenture holders) and specifying the purpose or purposes for which the Transfer Books are to be closed (or the record is to be taken) and to send copies of such notices to the other recognised stock exchanges in India
Relevance of Record date:
There was a relevance of a book closure period and record date during the time of physical transfers. Record date is the date prior to the book closure period. For example, if the book closure period is from 24th June to 30th June, 2014, 23rd June, 2014 will be the record date. Book closure was required for completing all pending transfers received by the company on or before the book date. During the book closure period, the Company would not take any further transfers. The Book period typically coincided with the AGM date. The last date of the book closure period used to be the date of AGM. The company used to update all transfer records as on record date and had the list of shareholders ready by the AGM. Transfers during the book closure period were disregarded. Thus, the company could declare and pay dividend to the shareholders as on the record date.
Should book closure dates coincide with the date of AGM?
There is nothing in the law to require book closure to coincide with the date of AGM. If it does coincide with the AGM date, then the difficulty arises particularly with electronic voting (e-voting) as explained hereunder.
Companies Act, 2013 has mandated that every listed company or a company having not less than one thousand shareholders, to provide to its members facility to exercise their right to vote at general meetings by electronic means. Rule 20 (3) (vii) of Companies (Management and Administration) Rules,2014 clearly state that during the e-voting period, shareholders of the company, holding shares either in physical form or in dematerialized form, as on the record date, may cast their vote electronically.
Companies are fixing a cut-off date for sending the e-voting instructions along with login id and password details to shareholders as on that record date. This list is also provided to the agency providing e-voting platform while sending the notices. By the book closure period and/or during the e-voting period this list would have changed, owing to transfers made after the notices were sent, and therefore, companies may face difficulty if they follow the earlier practice of fixing record date soon before the AGM date.
With the advent of demat trading, the whole concept of transfers have changed as transfers continue to happen seamlessly and momentarily. As a result, the list of shareholders keeps on changing continuously. In view of Clause 16 of the equity listing agreement, listed companies continue to do a book closure particularly at the time of AGM. However, there is no need to have the book closure date coincide with the date of AGM. It can be much before the date of AGM, preferably coinciding with date of dispatch of notice of AGM.
Record date required for 3 purposes:
As mentioned earlier, under Rule 20 (3) (vii) of Companies (Management and Administration) Rules, 2014 record date is to be determined for e-voting purpose. Further, pursuant to clause 16 of the equity listing agreement, record date is also to be determined for the purpose of dividend. Further, MCA vide circular no 20/2014 dated 17th June, 2014 clarified that shareholders who do not exercise vote electronically may attend and vote at the AGM. However, voting by show of hands is not permitted. Thus, voting for all resolutions needs to be done only by way of poll. Therefore, record date also needs to be determined for ascertaining shareholding of members voting by way of poll at the AGM
Same record date for all 3 purposes:
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 who are unable to vote electronically may attend and vote at the AGM by way of poll.
[The above post is contributed by CS Vinita Nair at Vinod Kothari & Co. She can be contacted at vinita@vinodkothari.com ]
