Article on Taxman Website – E-voting and Virtual Meetings- Are Nationalised Banks excluded?
Year 2020, most unexpectedly, the world faced an unprecedented crisis with the outbreak of Covid-19. Covid-19, being declared as pandemic bythe World Health Organization, was followed by severe lockdown, social distancing, restrictions on travel and disruption of business activitiesall over the world. In India, corporates faced multiple challenges due to disruption of business activities and revenues hit all time low due toslow down in production as well as services industry.
Issues around ensuring timely regulatory and periodical compliances posed as a great challenge for the businesses as it was extremely difficultto tackle the compliance matters remotely, with employees working from home and lack of relevant infrastructure. Non-compliance withapplicable regulations would mean invitation to penalties, punishments, and legal proceedings. The Companies Act, 2013 (CA 2013) requires every company to hold annual general meeting to transact business which inter alia includesadoption of financial statements, declaration of dividend and so on. Similarly, board meetings are required to be held periodically to transactbusiness which relates to operations, management and affairs of the companies.
Challenges due to Covid-19
Due to lockdown imposed by the Central Government along with social distancing restrictions, businesses were largely affected including day today functioning, holding of shareholder meetings to transact business and adhere to the requirements of the CA 2013 and other applicable laws.The inability to conduct board and shareholders meetings for getting shareholders’ approval on important business matters had an adverseimpact on the already affected businesses of the companies in India.
Annual general meetings are required to be held within 6 (six) months from the end of financial year (i.e., on or before September 30 each year)and any delay in holding such meetings without express permission for holding meetings at a later date from the Ministry of Corporate Affairs(MCA) would result in non-compliance of the provisions of the CA 2013 resulting in payment of penalties along with show cause notices, legalproceedings, etc.While getting infrastructure in place for conducting a shareholders meeting was a challenge, the other aspects consisted of availability ofrequisite quorum, issuance of notices and annual reports in time to all shareholders.
Temporary relaxations introduced by MCA and SEBI
With the panic about the pandemic, there was a dire need for clarity and certain relaxations to corporates regarding the annual and periodicalcompliances under the CA 2013 and other applicable laws.
The MCA and other regulatory authorities introduced certain relaxations to companies in relation to holding of board meetings, holding ofgeneral meetings of shareholders, new voting mechanism, relaxations on the timelines for conducting shareholders meetings and so on.
A. Temporary relaxations introduced by MCA for meetings to be conducted by Indian companies
(i) Holding of annual general meetings up to expiry of 9 (nine) months from the end of financial year (i.e., December 31)
(ii) Conducting of board meetings through video conferencing or other audio-visual means for approval of financial statements(iii) Companies have been permitted to conduct extra ordinary general meetings through video conferencing or other audio-visual meansalong with e-voting facilities provided to shareholders for voting in such e-meetings
(iv) Mechanism for passing of ordinary and special resolutions in electronic meetings and manner for facilitation of voting byshareholders in such meetings
(v) Conducting annual general meetings through video conferencing or other audio-visual means along with provision of e-votingfacilities and registered email
(vi) Extension for holding of annual general meetings up to December 31, 2020
B. Temporary relaxations introduced by the Securities Exchange Board of India (SEBI) for meetings and other periodical compliances
i) Extension of timelines for submission of quarterly/half yearly results by listed companies
(ii) Extension of timelines for submission of annual financial statements and annual secretarial compliance report
(iii) Relaxation provided in respect of the gap between board meetings and gap between audit committee meetings
(iv) Extension of timelines for conducting meetings of nomination and remuneration committee, risk committee and stakeholders’relationship committee
(v) Exemption from publication of advertisements for notices of board meetings, general meetings, and financial results(vi) Exemption from circulation of physical copies of annual reports to shareholders for annual general meetings to be conducted on orbefore December 31, 2020
Are the relaxations provided by MCA and SEBI in relation to e-voting, postal ballot and holding of virtual meetingsapplicable to Nationalised Banks?
Under the CA 2013 “banking company means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949. Interm of section 5(c) of the Banking Regulation Act, 1949 (“BR Act”) “banking company means any company which transacts the business ofbanking in India”. Section 1(4) of the CA 20133inter alia states that the provisions of the CA 2013 shall apply to banking companies, except in sofar as the said provisions are inconsistent with the provisions of the BR Act.
Nationalised banks in India are also governed by Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (“BCATU Act”),Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970 (“Nationalised Banks Scheme”). Similarly, if thenationalised bank has listed its shares on any stock exchanges in India, Securities Exchange Board of India (Listing Obligations and DisclosureRequirements) Regulations, 2015 (“SEBI LODR”) and Securities Exchange Board of India (Issue of Capital and Disclosure Requirements)Regulations, 2018 (“SEBI ICDR”) are applicable to the nationalised banks as well.
The BR Act is a statute which governs the banking sector in India. Section 2 of the BR Act provides that, the provisions of this Act (i.e., BankingRegulation Act, 1949) shall be in addition to, and not, save as hereunder expressly provided, in derogation of the Companies Act, 1956 (now CA2013), and any other law for the time being in force. Therefore, the BR Act which governs banking companies does not prohibit or restrict theapplication of other laws in force if the other laws are not inconsistent with the provisions of the BR Act. It is evident that the provisions of BRAct are an additional set of legal provisions that are required to be complied with by the banking companies along with the provisions of CA2013. Applicability of CA 2013 on banking companies would be relevant for discussion only in the event any provisions of the CA 2013 areinconsistent with the provisions of the Banking Regulation Act, 1949 in a given instance.
In the case of State Bank of India and Ors. v. Kamlesh Kalidas Shah and Ors.4, the Hon’ble National Company Law AppellateTribunal, New Delhi, while deciding on a matter regarding transfer of shares has observed that provisions of the CA 2013 are applicable tobanking companies (in the instant case State Bank of India) to the extent the provisions (of CA 2013) are not repugnant to the other governinglaw (SBI Act).
On reading of the provisions of the BR Act, it is evident that the BR Act does not have any specific provisions relating to voting by shareholderson matters requiring their approval through e-voting mechanism or postal ballot mechanism. Similarly, the BCATU Act and the Nationalised Bank Scheme do not have any provisions enabling or restricting the adoption of postal ballot and e-voting as per the provisions of CA 2013 read with the rules framed thereunder for seeking shareholders’ approval for resolutions. Section 19 of the BCATU Act empowers the board of directors of the banks to make regulations for matters relating to general meeting, holding of meetings of shareholders and business to be transacted thereat and so on.
The Securities Exchange Board of India (“SEBI”) under the Securities Exchange Board of India Act, 1992 (“SEBI Act”) has the power to interalia regulate the business in stock exchanges and other securities markets, regulate working of intermediaries associated with securitiesmarkets, specify the requirements for listing and transfer of securities and other matters incidental thereto6. The directions issued by SEBI from time to time are mandatory and binding on the stock exchanges and other intermediaries associated withsecurities markets. Further, in terms of the provisions of Section 11B of the SEBI Act7
, SEBI’s power to issue directions also deems to includepower to direct a person (who acts in contravention of the provisions of the SEBI Act or regulations framed thereunder) to disgorge an amountequivalent to the wrongful gain or loss averted by such contravention. All entities which have listed their specified securities8 on any recognizedstock exchange are mandatorily required to comply with the provisions of SEBI LODR9. Any non-compliance with provisions of SEBI Act orSEBI LODR by the listed entity is subject to liabilities for such contravention10. Regulation 44 of the SEBI LODR provides that all listed entities shall provide facility of remote e-voting to its shareholders, in respect of allshareholders resolutions. The regulation further inter alia states that the said e-voting facility provided by the listed entity should be incompliance with the conditions specified in Section 10811 of the CA 2013 read with Rule 20 of the Companies (Management andAdministration) Rules, 2014 (“Management Rules”).
Postal ballot means voting by post or through any electronic mode12. Section 110 of the CA 2013 permits companies to transact certain items ofbusiness by means of postal ballot. Rule 2213 of the Management Rules lays down procedure and detailed mechanism for conducting postalballot. Rule 22 also provides list of business items to be transacted by way of postal ballot mechanism. Rule 20 of the Management Rules14provides for detailed procedure for conducting voting through electronic means (e-voting). Voting under postal ballot mechanism can also beperformed by way of voting through electronic means. E-voting mechanism has been introduced to ensure participation from maximumshareholders in the voting process.
Secretarial standard-215 (“SS-2”) (Secretarial Standard on General Meetings) provides that every company having its equity shares listed onstock exchange is required to provide e-voting facility to its members, in respect of those items which are required to be transacted throughpostal ballot. The SS-2 further lays down procedure for issuance of notice of postal ballot, contents of notice, requirements of e-voting facility,manner of conducting e-voting and related compliances.
MCA has vide its circulars16 provided certain clarifications in respect of holding of general meetings through video conferencing/ other audiovideo platforms and passing of ordinary and special resolutions by companies in view of the ongoing lockdown as a result of Covid-19 outbreakin the country. The circulars inter alia state that the companies may send notices only by email to all the shareholders who have registered theiremail id with the company or the depository participants. The communication of the assent/ dissent of the members in respect of a resolution would take place only through the remote e-voting system as no physical meeting would be convened.
The BR Act, the BCATU Act and the Nationalised Banks Scheme do not have any express provisions enabling or restricting the use of postalballot and/or e-voting facility by banking companies for seeking shareholders’ approval for resolutions including resolutions. Further, allnationalised banks that are listed entities are mandatorily required to comply with SEBI LODR and other applicable guidelines and regulationsbrought in force by SEBI from time to time.
Validity of resolutions passed through postal ballot and electronic voting mechanism
As discussed above, the provisions in relation to postal ballot and e-voting as provided under the CA 2013 are applicable to all types ofcompanies including nationalised banks that have listed their securities on stock exchanges.
All listed entities are mandatorily required to provide remote e-voting facilities (in the manner provided under the CA 2013 read withManagement Rules) to its shareholders for all resolutions proposed to be approved17. Accordingly, it is mandatory for nationalized banks (whichare listed entities) to provide remote e-voting facility to all its shareholders for transacting business which requires approval from itsshareholders.
Any resolutions passed by way of postal ballot and electronic voting mechanism in a physical meeting or a virtual meeting conducted incompliance with the relaxations provided by MCA and SEBI should be treated as validly passed resolutions in a validly convened and conductedmeeting of shareholders. While the relaxations are applicable for a temporary period as an exception in these unprecedented times, any actionstaken during the period such relaxations are applicable will not have any adverse effect on the validity of such actions.
Shareholders meetings through virtual mode or audio video means, is as such not contemplated under the CA 2013 and the rules madethereunder. While MCA had in the past introduced electronic voting mechanism for certain set of entities as a part of its green initiative, theexisting relaxations provided by way of issuances of various circulars are only a temporary measure against the restrictions in place. Validity ofrelaxations introduced by MCA by way of issuance of circulars is in fact an important aspect to be borne in mind for future. An adequateclarification from the MCA would be immensely useful for the stakeholders.
Meetings in the ‘New Normal’
Virtual meetings and e-voting system was introduced as a relaxation for a limited period to adhere to the lockdown, social distancing norms toavoid the spread of Covid-19 and at the same time to ensure business is not hampered. The new systems for e-voting, meetings through audiovisual means has numerous benefits including but not limited to minimized costs and greater participation of stakeholders due to flexibility toparticipate from home and vote from home. Owing to its many benefits, virtual meetings and e-voting is a welcome idea and a progressive stepintroduced by the MCA and supported by SEBI by additional relaxations.
Given the operational convenience and flexibility, going forward virtual meetings and e-voting system would be preferred methods by all stakeholders for holding shareholder meetings and obtaining shareholders’ approval on special business items. It remains to be seen whetherthese relaxations introduced by the MCA, SEBI, and other authorities as a measure to promote ease of doing business in these difficult timesactually find a place in the legal provisions and corporate laws for utilization by stakeholders as a norm rather than an exception.