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India – Wadala Commodities Ltd.

14 October, 2014

 

Legal News & Analysis – Asia Pacific – India – Dispute Resolution

 

The Bombay High Court, in the case of Wadala Commodities Ltd.1 held that though the Companies Act, 2013 permits voting by way of postal ballot and e-voting, the same cannot mean that a company need not hold a physical meeting in cases of court convened meetings.

 
Brief Facts

 
In the course of hearing an application in the matter of a Scheme of Amalgamation of Wadala Commodities Ltd. (“WCL”), a question arose as to whether the holding of an actual meeting can be substituted by putting the Scheme of Amalgamation to vote through postal ballot and e-voting, in view of the provisions of Section 110 of the Companies Act, 2013 (the “2013 Act”).

 
WCL contended that the clear legislative mandate of the 2013 Act is to altogether do away with all meetings other than those required in certain limited circumstances and that shareholders must express their views only by voting through postal ballot or e-voting. WCL also relied on SEBI’s circular relating to Clauses 35B and 49 of the Listing Agreement to say that SEBI has made voting by postal ballot mandatory.

 
The Court appointed amicus curaie contended that rather than considering a situation of a complete ouster of all meetings, a more appropriate interpretation would be to hold that the provision for a postal ballot is an additional facility to be provided, so that there is greater inclusiveness and that accepting WCL’s contentions would result in giving a go-by to the requirement of quorum.

 
Court’s Observations

 
The Court observed that postal ballot is dened under the 2013 Act to mean voting by post or through anyelectronic mode. The rst part of Section 110(1) requires a company to compulsorily transact, through postal ballot and e-voting, items of business notied by the Central Government and the second part of Section 110(1) says that for any item of business, other than ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting, a company may transact by means of postal ballot. Providing for voting by postal ballot and e-voting is to encourage more shareholders to vote.

 
The Court took the view that in an effort for greater inclusiveness, a shareholder’s right to ask questions and/or seek clarications before voting on a matter cannot be altogether defenestrated. Accordingly, to say that no meeting is required and that the shareholder must cast his vote only on the basis of the information that has been sent to him seems to be completely contrary to legislative intent and spirit of the SEBI Circular and amended Listing Agreement’s clauses 35B and 49. The Court also rejected WCL’s contention that the requirement of quorum had been done away with in view of the non-obstante clause in Section 110 of the 2013 Act.

 
The Court also observed that merely because a shareholder has cast his vote through postal ballot or e-voting, he cannot be restrained from attending the meeting and speaking at the meeting. The Court also disagreed with WCL’s submission that e-voting ought to be limited to people voting from remote locations and observed that a shareholder at a remote location and a shareholder at a meeting will both be required to use the same portal to cast their votes. The Court took the view that the rule requiring e-voting to stop three days before the meeting is ex-facie, untenable.

 
Reverting to the facts of the case at hand the Court observed that provisions pertaining to schemes of arrangement and/or compromise contained in sections 391 to 394 of the 1956 Act (corresponding to sections 230 to 232 of the 2013 Act, which are not in force as on date) speak about calling a meeting of shareholders and not merely put the matter to vote. The Court also observed that Section 110 of the 2013 Act applies to meetings called by the company. However, since meetings for approval of schemes of amalgamation are court-convened meetings and not meetings called by a company, prima facie, the provisions of Section 110 of the 2013 Act will not apply to such meetings.

 
Effect Of The Judgment

 
The effect of this decision is that in all court convened meetings, actual meetings will have to be held. At such a meeting voting is to be by way of postal ballot and e-voting. A shareholder who has voted from a remote location via e-voting or postal ballot cannot be restrained from attending such a meeting and speaking thereat. E-voting must be made available at the venue of such a meeting.

 
Keeping in mind the fact that interpretation of the provisions of Section 110 of the 2013 Act and relevant circulars will have far reaching consequences, the Court observed that the same need a fuller consideration and directed notice to the Central Government and the Additional Solicitor General.

 
We understand that thereafter the Court has directed this matter to be heard by a larger bench and the same is as on date pending decision.

 
Our Observation

 
In our view the Court is correct in holding that to ensure higher participation by shareholders in the governance of a company, the right of a shareholder to ask questions and seek clarifications and influence the decisions of other shareholders by speaking at a meeting cannot be taken away.

 
The determination of the issue by a larger bench will be keenly followed as the same will have far reaching consequences on how matters are to be decided by shareholders. It is possible that the Court may give retrospective effect to its decision in this case and thereby effect resolutions passed in the interregnum. Believing that discretion is the better part of valour, in our view pending the decision of the Bombay High Court and/or any other clarication issued in this regard, a company should hold its meetings in accordance the directions issued by the Court in this matter for court-convened meetings.

 

End Notes:

 

MANU/MH/0955/2014

 

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Cyril Shroff, Partner, Amarchand & Mangaldas
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Sharad Mathkar, Partner, Amarchand & Mangaldas
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V. P. Singh, Partner, Amarchand & Mangaldas
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Shaneen Parikh, Partner, Amarchand & Mangaldas
shaneen.parikh@amarchand.com

 

Indranil Deshmukh, Partner, Amarchand & Mangaldas
indranil.deshmukh@amarchand.com

 

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