Holding Annual General Meeting Amid Covid-19 Pandemic : A Critique to MCA Circular

Annual General Meeting -Taxscan

Introduction

Holding of Annual General Meeting (AGM) is a statutory obligation on every company. Pursuant to the provisions of Section 96 of the Companies Act, 2013 (hereinafter referred to as ‘2013 Act’) every company shall hold its AGM other than the first AGM within a period of 6 months from the closure of its date of the financial year. On the other hand, in the case of the first AGM the same must be conducted by the Company within a period of 9 months from the closure of the financial year. Also, the gap between two AGMs shall not be more than 15 months. Recently, the Ministry of Corporate Affairs (MCA) vide circular dated 21st April 2020 has extended the due date of AGM by 3 months for the Companies who are having their financial year closure date as 31st December, 2019. Such extension was provided with a view that COVID situation through which the nation is going through will not be able to control by 30th June 2020 which was the actual due date of AGM for such companies and therefore to avoid unnecessary application for extension of AGM the relief has been provided to all such companies at once.

But the situation does not seem to be controllable even now and it is difficult to presume for the companies to hold AGMs by physical mode in the near future as they use to do till last financial year. In lieu of such extraordinary situation prevailing in the nation, MCA has issued another circular dated 05th May 2020 (hereinafter referred as AGM Circular’) wherein it has allowed the companies to hold their AGMs through the mode of Video Conferencing (VC) or Other Audio-Visual Means (OAVM) and has also clarified over various points or task to be done by the company while holding an AGM. This is a welcome move of MCA as the Act does not provide any provision for holding any General Meeting including AGM through such mode.

In this article, an attempt has been made to discuss the clarification provided by the ministry over the current provisions and will be deliberating over other factors whatever seems necessary to be discussed in respect to such clarifications.

Picture of the circular

If you analyze the whole circular, it has been divided into two major parts i.e. Part A which is including those companies who are having the mandatory requirement to provide the e-voting facility and Part-B which covers in its ambit the companies which are not having a mandatory requirement to provide e-voting facility. Circular has provided certain obligations depending on the part of the company and has also provided the common clarification/obligation(s) w.r.t few things for the companies falling under both the parts. It is necessary to note here that the act or obligations stipulated under the act and not clarified under the circular will apply in its true and complete sense and non-inclusion of such thing in the circular shall not be construed that such provisions do not apply.

The present circular is linked to two circulars earlier issued by MCA w.r.t holding of Extra-ordinary General Meeting via VC or OAVM on 8th April 2020(EGM Circular-I) and 13th April 2020(EGM Circular-II) respectively, and the company has to comply with the mentioned clauses of such circular depending upon the category prescribed in the AGM Circular in which such company is falling i.e. either Part-A or B.

Understanding of Companies under Part-A and Part-B

PART-A Companies

Referring to the language of circular read with provisions of Section 108 of the 2013 Act and Rule 20 of Companies (Management and Administration) Rules, 2014 it can be said that Part-A Companies are those companies, which are-

  1. Having their equity shares listed or
  2. having 1000 or more members count, which indirectly means unlisted public companies only having such number of members, or
  3. companies that voluntarily adopt the e-voting facility.

Please note that in Part-A only equity listed companies are covered and not debt listed companies and debt listed companies if want to hold AGM through VC or OAVM must comply with conditions for getting in Part-B company in the circular (discussed below).

The Company falling under this Part has to comply with the framework provided in Para 3-A of EGM Circular-I and shall issue the notice in the manner prescribed under sub-para (i) of Para A of EGM Circular-II.

PART-B Companies

Referring to the language of Part-B, it includes such other sort of companies which fulfills the criteria pertaining to thresholds specified in the circular, which have-

  1. The email ids of Minimum 50% of the total number of members registered, and
  2.  Such members who are having their email ids registered with the company holds-
  • In the case of Nidhi Companies, holds shares of the face value of more than INR 1000/- or 1% of the total paid-up capital
  • In case of Companies having a share capital, holds at least 75% of the total paid-up share capital giving them such equivalent right to vote at the meeting
  • In case of a company not having a share capital, holds at least 75% of the total voting power exercisable at such AGM.

It is to be noted that both the above criteria are to be fulfilled depending upon the nature of the Company specified above.

Further, the Company falling under this Part has to comply with the framework provided in Para 3-B of EGM Circular-I and shall issue the notice in the manner prescribed under sub-para (i) of Para B of EGM Circular-II.

Common Obligations on both Part-A & B Companies pursuant to circular-

  1. Registration of email ids of persons-

The obligation has been put on the company to take all necessary steps to get the email addresses of the persons registered with the company. This step will help the company to easily and effectively convey all the necessary information for conducting such meetings. If a company, not being a company falling under Part-A, wants to hold its AGM virtually and not having requisite email ids registered, then such company can do so by getting registered the e-mail ids of its members to fulfill the necessitated requirement in the AGM Circular. For registering the email ids of members such companies can either contact such members or can also make a public announcement in the leading newspaper to reach all the members at large.

  1. Dividend matter-

Owing to the pandemic situation going in the nation, an obligation has been on every company to provide a mechanism to enable the members to provide their mandate for receiving the dividend amount, if any declared, directly in their bank accounts or through any other mode. Also, the obligation has been put on PART-A type of companies to detail out such mechanisms and information in the advertisement to be published for conducting the AGM.

The companies are advised to pay directly in the bank accounts of the members and in case the company does not have bank account details of any member or does not receive any mandate regarding the same, the company shall dispatch the dividend warrant or cheque to the registered postal address of such member after the situation gets normalized. The important factor to understand in the above scenario is that the period of thirty days for payment of the dividend will start soon after the declaration and there is no relaxation in that respect and all the obligations stipulated under Chapter VIII of 2013 Act is still there as it is and no waive off or relaxation has been provided for such provisions or obligations.

  1. Clarification regarding the dispatch of notices, financial statements, board reports, etc.-

 Under the applicable provisions of the 2013 Act, Company has to send the notice for AGM at least 21 clear days prior to the date of AGM. Also, in addition to such notice, the company is obligatory to send audited financials of the company for the concerned financial year along with Auditor Report and Board Report. There are also other documents that need to be given along with such notice which depends upon case to case basis. During this situation it is difficult to send the physical copies to a person entitled to it, and therefore MCA has clarified that such documents can be sent by way of email to all the persons entitled to it. Also, the adoption sub-para (i) of Para A of EGM Circular-II and sub-para (i) of Para B of EGM Circular-II respectively in the AGM Circular clearly authorizes both sorts of companies to issue a notice of AGM via e-mail and since all other documents i.e. audited financials, audit report, director’s report, etc. forms an integral part of AGM notice in general parlance, it can be said that sending of such documents along with notice will fulfill the intention of such relaxation granted by the MCA. Though, the timeline with respect to dispatch of such documents remains the same and in case it has been sent by the Company in less than requisite 21 clear days, the AGM can happen only when requisite shorter consent has been taken prior to the time fixed for such AGM.

      4.  Special Business(es)

MCA in its circular has advised the companies to take only those special businesses for consideration in AGMs which are unavoidable in nature otherwise companies are obligated to restrict themselves to ordinary businesses only. Though, it will be difficult for MCA to analyze what kind of special businesses will be considered as unavoidable as the same can be taken as unavoidable by the Companies at their own whims and fancies. But here, the moral duty has been put on the shoulders of the Companies to decide on seriousness of the items of special businesses prior to including it in agenda for AGM.

  1. Clarification on other compliances

MCA has clarified in the present circular that all such companies which are holding their AGMs through VC or OAVM are required to comply with all other provisions also without any negligence which includes holding of AGM during the prescribed time of 9 A.M to 6 P.M on any day except National Holiday, disclosures to be given, provision for inspection of related documents/register of members, articles of associations, requirements under listing regulations, etc.. Though, here such documents shall be readily available in a soft format and shall be made available through electronic mode on demand by the persons who are entitled to inspect such document.

Also, pursuant to the provisions of Section 96(2) every AGM must be held at the registered office of the company but since now AGM is getting conducted virtually the requirement of place will be difficult to be fulfilled, rather in this case the Company can state that AGM has been held via VC or OAVM and in case the company still wants to mention about the place, it is advisable to mention the place of the host which company must ensure that it exists in the city in which Company is having its registered office.

Additional obligations on companies falling under Part-A

Companies falling under Part-A shall prior to sending notice and financial statements and other documents with respect to AGM is required to make an advertisement in two newspapers i.e. newspaper of vernacular language and English newspaper having wide range in the district in which the registered office of the company is situated. Also, the Company must prefer such newspapers which are providing electronic editions in such a district to their customers.

It is further important to understand that such advertisement must include the disclosure that the AGM is going to be conducted through VC or OAVM, and must detail out about the date and time of such meetings, information regarding the availability of notice on the website of the company or the stock exchange in which the company is listed. Such an advertisement must also provide the mechanism for the voting by the members of the company who are holding shares in physical form or not having their email addresses registered with the company and must also convey the manner by which such members can get their e-mail ids registered with the company.

 Manner of voting at AGM

Pursuant to the provisions of Section 107 of 2013 primarily the option of a show of hands is adopted by the company for taking decisions over any particular item, until or unless the poll is demanded in that respect. But due to current scenario wherein companies are allowed to hold AGM virtually, it will be difficult for the companies to adopt the option of a show of hands and that might create a lot of confusion also, therefore the MCA has provided the option of e-voting or voting by conveying their assent or dissent over the designated mail id provided by the Company. Though it is open for the company to adopt the traditional method of ballot voting or postal ballot also by adhering to the stipulated provisions under Section 109 and 110 of the 2013 Act, as the case may be.

Chairman of the meeting

Generally, the person whose name has been stated in the articles as ‘Chairman’ of the Company presides the meeting as the chairman but in case of articles do not say or provide anything regarding such person, then the chairman pursuant to Section 104 of 2013 Act is elected by the members present at the meeting by way of a show of hands until the poll is demanded in that concern. This concept has been modified to some extent in the convening of AGM virtually.

In the circular, wherever the articles of the Company is not prescribing the name of chairman, method of a show of hands to elect the chairman amongst the members present can be opted by the Company only when the members present are below the number of 50 and in case the member present is 50 or more the same shall be selected by way of poll only. Also, such an option of a show of hand is completely prohibited for the companies belonging to Part-A and is applicable in case of Part-B companies as the option to vote by show of hands in case of Part-A company has been diluted pursuant to EGM Circular-II.

Concept of extension of the period for holding AGM

Pursuant to the provisions of Section 96(1) of the 2013 Act, a company can make an application to the Registrar of Companies to obtain the extension of the period for holding AGM beyond the prescribed time period. On such an application, the Registrar can allow the extension for a maximum period of 3 months and not beyond it. In the circular for AGM it has been clearly stated that in case the company is not falling either in PART-A nor in PART-B, such company shall make an application for extension of the period of AGM before the Registrar. Also, at this time the application for extension having the reason for non-holding of AGM due to inability to hold physical meetings will be a fit case of reasonable cause.

Whether the company can hold AGM physically?

There has been no bar as such under the 2013 Act that AGM cannot happen through physical mode. But that totally depends upon the restriction imposed by the state authority or local authority of the city in which the registered office of the company is situated. In case there persist any such restriction, the holding of AGM physically is possible only if permission has been obtained by such concerned authority. But, an important factor to be kept in mind is that even in cases where the AGM is being conducted physically, either with permission or without it, for the companies falling under PART-A, the mechanism to be followed for voting will be e-voting only and PART-A companies must also ensure VC or OAVM facility for the members who are unable to join. While in case the Company is falling under PART-B, though the circular is not addressing the issue still the members who are not able to join such a meeting physically can challenge the happening of such meeting. In the latter case, it is ethically advisable to PART-B companies to avoid any future discrepancies and should provide VC or OAVM facility to the members for whom it is not possible to join the meeting due to restrictions on movement imposed by the government.

The validity of AGM through VC or OAVM and Penal Provision

Since MCA has allowed adopting the concept of AGM through VC or OAVM, any resolution passed by the members following the procedure prescribed will be effective in an entire manner and will have complete validity, until it is shown that such resolution passed is void or devoid of merits. Usually that happens by challenging such resolution before the concerned authority or judicial forum.

In respect to Penal Provision, it is important to understand that the circular is silent on the adoption of penal provisions stipulated under Section 99 of 2013 Act w.r.t non-compliances in holding of AGM in the complied manner and since circulars are just clarificatory in nature, it will be challenging to point out non-compliance of any of the clauses of AGM Circular, if any happens. MCA must clarify such thing so as to bring seriousness towards the compliance stipulated in such AGM Circular.

Concluding remark

In this situation, holding an AGM physically is risky due to the outbreak of COVID-19 disease all over the world, therefore if the Company is holding AGM physically then the same shall be done by the Company adhering to the social distancing norms and any other rules and regulations stipulated by any local authority. The present AGM circular of MCA is an appreciable move which allows the Companies to hold AGM virtually, which will eventually also low down the cost burden for the companies to hold AGM, and therefore it is advisable to all the corporates to hold AGM keeping in mind the true intention behind allowing such mode for holding AGM which is to make the members aware of the actual financial position and affairs of the Company, and Company must adhere to such AGM Circular in a constructive and ethical manner.

 

CS Santosh Pandey is a Company Secretary Practising in New Delhi. He can be reached at info@spcounsels.com

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