Amitav Ganguly

BACKGROUND

♥ Ministry of Corporate Affairs {MCA} vide its Circular no. 17/2011 dated 21-4-2011 and no. 18/2011 dated 29.4.2011 had given clarifications regarding sending copies of Balance Sheets and Auditors Report etc { documents} to the members of a company under section 219 of the Companies Act 1956 {erstwhile} through electronic mode.

♥ Since the Companies Act 1956 did not have any provision in this regard reference was made to sections 2, 4, 5 & 81 of the Information Technology Act 2000 and it was clarified to this effect by the Ministry that a company would be in compliance of section 219{1} of the said Act of 1956 in case the copies of the Balance Sheets, Auditors Report etc are sent by electronic mail to its members subject to the fact that the company has obtained :-

  • Email address of the members for sending such documents through e-mail after giving an advance opportunity to the member to register his email address and changes therein from time to time with the company or with the concerned depository {DP}.
  • Company’s website displays full text of these documents well in advance prior to mandatory period and issues advertisement in prominent newspapers stating that copies of aforesaid documents are available in the website and for inspection at the registered office of the company during office hours.
  • In cases where any member has not registered his e-mail address for receiving the documents through e-mail, the same will be sent by other modes of services as provided under section 53 of the Companies Act 1956.
  • In case any member insists for physical copies of above documents, the same should be sent to him physically, by post free cost.

NEW COMPANIES ACT 2013 BRINGS IN DIGITAL ERA

♥ Subsequently the Companies Act 2013 {new Act} has been enacted and brought into force. In terms of the new Act, service of documents by a company u/s 20 {corresponding to sections 51, 52 & 53 of the Companies Act 1956} & its Rules is permitted to be made upon its members by sending to them by post or by courier, or, among others, by means of electronic mode/transmission.

♥ From the said section 20 of the new Act it is evident that sending of documents by a company to its members by electronic mode is an option available in addition to physical mode.

♥ Moreover under section 136 of the new Act with regard to right of member to copies of audited financial statement { corresponding to section 219 of the Companies Act 1956} and its Rules, all listed companies and certain public companies meeting specified criteria {hereinafter described as “specified companies”} shall have an option to send documents to the members:-

  • by electronic mode whose shares are held in demat format & whose e-mail addresses are registered with DPs,
  • by electronic mode whose shares are held in physical format & who have given written positive consent for receiving documents in electronic mode, and
  • by despatch of physical copies as per section 20 of the new Act in all other cases.

♥ It may be stated that generally a number of provisions in the new Act supports and mandates maintenance & delivery of electronic documents /records.

♥ However it is important to note particularly the section 136 / its rules herein-above regarding the company sending documents by electronic mode to those members whose shares are held in demat format & whose e-mail addresses are registered with DPs.

♥ It may stated that in this case it may not constitute specific positive consent of the members to receive Balance Sheets and Auditors Report etc in electronic mode as envisaged herein in terms of the new Act unless the member has specifically tick marked the applicable box in the prescribed application form for opening securities account with DP. In case he has not, the default option would be his agreeing to receive the documents in physical mode.

STATUTORY RIGHT TO RECEIVE DOCUMENTS BY MEMBERS OF ALL COMPANIES U/s 136  

  • The first issue is whether a listed company or a specified company as abovementioned should send Balance Sheets and Auditors Report etc to its members through electronic mode where members have their e-mails addresses registered with their DPs. In these cases members have not given specific positive consent to receive the documents in electronic mode as they have not specifically tick marked in the application form or forgot to tick mark, as discussed earlier. It is also understood that in some of the older DP accounts there are no registered e-mail addresses in which case there is no question of any positive consent by members to receive e-mail delivery. Even if it presumed that the members who have got their emails addresses registered with DP have given their consent to receive documents through electronic mode, and the process has legal sanctity, the question is whether that position is desirable and in order in the present digital environment of the country.
  • The second issue which may arise as to whether the remaining companies which would mean a company which is not a listed company or a specified company as abovementioned is permitted to send documents to its members through electronic mode without giving an advance opportunity to them to register their e-mail addresses. Alternatively whether such company should follow the provisions stipulated in the referred Circulars of MCA which cover all companies.
  • These issues can be understood by examining the legality of the referred Circulars issued when the erstwhile Companies Act 1956 was in force and there was no provision therein in that regard. However it may be recalled that the Circular was issued in terms of the Information Technology Act 2000 which is still in force. Hence validity of the Circulars cannot be questioned now and moreover Companies Act 2103 has elaborated upon the same. However the effect of such Circulars is more in tune with the present digital milieu of the country.
  • These issues can also understood by the fact that the country has inadequate penetration of internet facility, general lack of digital literacy and scarce availability of computer hardware more particularly in smaller towns / semi urban areas, it would be an important issue to review as to whether to let the companies shift to electronic mode of delivery of documents to their members without the members opting for such mode in clear terms or the law imposing it on them. It is very much possible that a large number of members still prefer physical receipt of documents.
  • Hence it should be an important issue to unambiguously lay down that a member of any company should always have a statutory right to receive physical delivery of documents if he so desires irrespective of whether he has an e-mail addresses or not and where he has given positive consent to receive documents in electronic mode or not. Even if he has given such consent he should be able to reverse it.
  • The most critical aspect of the matter is that it is valuable statutory right of the members to get Balance Sheets and Auditors Report etc of the company within the statutory period, and complexity of mode of deliveries and lack of technical ability of the members to access such documents should not come in the way to hinder that statutory right.   

CONCLUSION

  • Keeping in view the ground realities, it would be advisable to provide that where companies desire to send documents through electronic mode they should seek specific advance positive consent from all the members for receiving documents through electronic mode, and, if such members decline, the documents should be sent to them by physical mode.
  • By way supportive of Digital India initiatives of the Central Government and to strike a balance for saving environment, & forestation etc there could be a provision that where members do not respond to the company it shall be presumed that they have given their implied consent. This presumption should however be clearly intimated to the members while obtaining their consent.
  • Members should always have the right to change their option which should be duly recorded and implemented by the companies.
  • All types of companies should be covered and those companies who have already been following this process need not do so again.
  • The above will streamline a complex maze of rights of members to get their documents in electronic or physical mode. This will also bring in practicality and be easily understood by them.
  • Hopefully the Government should bring in a clarification to this effect.

(Author can be reached at gangulyamitav57@gmail.com)

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Author Bio

Qualification: CS
Company: N/A
Location: NEW DELHI, New Delhi, IN
Member Since: 30 Jun 2018 | Total Posts: 29
Mr. Amitav Ganguly is a Law Graduate and qualified Company Secretary with more than three decades of rich experience in senior positions; company secretarial, corporate legal affairs, management and corporate governance; in different industry sectors like investment, manufacturing and real estate. View Full Profile

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