CS Nidhi Bothra,

CS Vinita Nair

Metamorphosis of Company law rules that went bad, changed a caterpillar into an ugly frog.

Under the erstwhile (read outdated) system of holding general meetings where the resolutions were put to vote by way of show of hands or a poll could be demanded.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) 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. Assume the general meeting is on 30th September, 2015, cut-off date can’t be beyond 23rd September, 2015.

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 cannot follow the practice of keeping the same date taken for determining names of shareholders for despatch of notice as cut-off date for e-voting. . Companies will be required to have a cut-off ( or determination date or record date) date for despatch of notice, for remote e-voting as well as mode of voting at the meeting and and one for dividend.

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. Formerly, the rules specified the minimum and maximum number of days for which the facility may be offered. However, considering the cost and complexity, the Companies may consider to keep open for maximum three days. Assuming the general meeting is on 30th September, 2015, the remote e-voting facility may be kept open from 27th to 29th September, 2015 thereby complying with both of aforesaid requirements.

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 at 5.00 pm 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. The Company may consider to re-open the same on commencement of 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.


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.

[1] http://mca.gov.in/Ministry/pdf/Chapter7_Rules_19032015.pdf

[2] http://indiankanoon.org/doc/63355168/?type=print

[The above post is contributed by CS Nidhi Bothra & CS Vinita Nair at Vinod Kothari & Co. They  can be contacted at [email protected], [email protected] respectively]

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  1. CS A C Shah says:

    Really enlightening and innovative Article by CS Nidhhi and CS Vinita with real professional approach. Very thought provoking and covering full length and breadth of the topic. Excellent, keep it up.

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September 2021