Revised General Meetings Process: Secretarial Standard 2

Introduction

The Ministry of Corporate Affairs notified secretarial standard 2 (“SS-2”) on April 23, 2015 which came into effect from July 1, 2015. The objective of SS-2 is to ensure good corporate governance and better accountability towards shareholders in all general meetings (“GM”). Section 118(10) of the Companies Act, 2013 (“the Act”) imposes an obligation on companies to strictly comply with SS-2 at all times.

This bulletin highlights the process of holding GMs by private limited companies after coming into force of SS-2. While some of the procedures are already practiced as per the Act, our aim is to provide an overview of the entire process to be followed to hold GMs now.

1. Amended Meeting Process

With effect from July 1, 2015, all Indian companies have to follow the provisions of the Act, their articles of association¹ and SS-2 to convene their GMs on or after July 1, 2015. Indian law mandates convening of an annual general meeting (“AGM”) within six months of the closing of the financial year to transact ordinary² and special business.³ The gap between two AGMs should not exceed fifteen months. In case directors fail to convene the AGM, the members may also convene it. The Board or members on requisition⁴ may call an extra- ordinary general meeting (“EGM”), whenever required to carry out any urgent special business. AGM or EGM on requisition will be held at the registered office or some place within the same city but other EGMs can be convened at any place within India. The section below covers the process for GMs of private limited companies.

• Notice and Agenda – The directors have to circulate written notice to all members including directors, auditors and debenture trustees, if any, by hand, post or e-mail at least twenty-one clear⁵ days prior to the GM. If the company holds a GM at shorter notice for urgent matters, consent of at least 95% percent of the members is required. The company must necessarily maintain proof of dispatch. Notice should contain day, date, time, full address of venue of the GM including the route map and a statement that any individual member can appoint a proxy. Accordingly, a proxy form and attendance slip should be attached with the notice. If the company has a website, notice should be hosted there as well.Further, the GM must be conducted on any day, except national holiday, during business hours i.e. from 9 am to 6 pm. If it is not held on the date fixed, it may be adjourned and re- convened by giving a notice at least three days before the GM. Further, the notice has to contain an explanatory statement in case of special business stating background of the resolutions.

• Quorum – The quorum for a GM is 2 members unless articles change this requirement. Members constituting quorum should be personally present throughout the Meeting. Proxies nominated by individual members are not counted for quorum; however, authorized representative of a body corporate is counted towards quorum. A person authorized by two or more body corporate will be treated as more than one person. However, it is not enough that one authorized representative represent 2 members for the purpose of quorum, at least two individuals should be present. Presence of the member who has already voted by remote e-voting⁶ also constitutes quorum.

• Chairman – The chairman of the board will be the chairman of the GM. If he is absent, the directors will have to elect a chairman from amongst themselves. If none of the directors are present or willing to act as chairman, the members present shall elect one of themselves by show of hands. The chairman’s overall job is to ensure the GM is held in a fair and legal manner. In case of equality of votes, he has a casting vote.

• Proxies – A member may appoint his proxy to attend GM on his behalf at least 48 hours before the Meeting. Such appointment shall be through a proxy form which shall be duly filled, dated, signed and stamped. A proxy can only act on behalf of up to 50 members at a time so long as the aggregate shareholding represented by such proxy should not exceed 10% of the total share capital of the members carrying voting rights. However, a member holding 10% or more share capital can appoint a single person as proxy but that proxy cannot act on behalf of any other shareholder. Proxy’s appointment is valid for both, the original and the adjourned GM, and he should carry a valid identity proof while attending such GMs. A proxy’s authority can be revoked in writing anytime before the GM. In case a member who had appointed a proxy also attends the GM, the proxy’s authority automatically stands revoked.

• Voting – The voting process involves a member proposing a resolution and another member seconding it. An “interested member” cannot vote in any contract in which he is a related party. The company may put all resolutions for voting by show of hands but members or the chairman may demand for poll even after the declaration of result of voting by show of hands. Further, companies having at least 1,000 shareholders can put any resolution for electronic voting or e-voting.
  
  Remote e-voting and ballot at the Meeting – If a company circulates any resolution for e-voting, it will necessarily have to put that resolution for ballot at the GM. E- voting has to remain open for at least three days and should close by 5 p.m. preceding the Meeting day. Members who have already voted on that resolution can attend the GM but cannot vote again. In the event any member has nominated a proxy, such proxy cannot vote by show of hands but only through postal ballot. The Board will decide the last date for

casting vote through the e-voting process. Such date should not be earlier than 7 days prior to the meeting date. The notice facilitating e-voting has to be circulated in the same manner as in case of other GMs but it should contain date and time of commencement and closure of e-voting, cut-off date, manner of obtaining log-in ID and password, process for e-voting and ballot at the GM, website address where notice is displayed, details of the concerned person for any grievances related to e-voting and a statement stating that e-voting cannot be allowed after the fixed date and time. It should specifically state that the members who cast their votes through e-voting can attend GM but cannot vote again.

To ensure that e-voting is carried out efficiently, the Board will have to appoint any company secretary, chartered accountant, cost accountant, advocate or any other reputed person to scrutinize the e-voting process. Such appointed person can take assistance of any other person who is not in the employment of the company but aware of the e-voting process. The scrutinizer has to submit his report within 3 days of the conclusion of the GM to the chairman for signatures. The chairman will declare the result of the voting and the number of votes for and against each resolution. He will also display such results including scrutinizer’s report on the notice board of the registered and corporate office of the company as well as on its website.

Conduct of poll – Before or after the declaration of result of voting by show of hands, the chairman or the members may demand for poll. In case of poll for appointment of the chairman or adjournment of the GM, the chairman may allow an immediate poll but in other cases, it will be exercised within 48 hours of the demand. One ballot paper may be used for more than one item. The chairman will have to declare the result within 2 days of the submission of scrutinizer’s report. It is noteworthy that process for appointment of scrutinizers and declaration of result is the same as for e-voting.

Postal ballot – The company which has more than 200 members can pass the following resolutions only by postal ballot: (a) alteration of object clause but in case of companies incorporated under the Companies Act, 1956, alteration of main objects only; (b) shifting of registered office from one city, town or village to another; (c) issue of shares with differential rights; (d) variation in rights attached to a class of securities; (e) buy-back of shares; (f) appointment of a director by small shareholders; (g) sale of the whole or substantially the whole of an undertaking; (h) giving loans, guarantee or security in excess of limits specified. Notice of the meeting where such resolutions shall be passed should include the postal ballot form and a postage prepaid envelope addressed to the scrutinizer along with the necessary instructions for filling and sending it back. Any resolution passed by postal ballot can only be rescinded by another resolution passed in the same manner.

• Minutes – The minutes have to be drafted, finalized and signed by the chairman within 30 days of the GM and entered in the minute book. However, in case the chairman is not able to sign them, any authorized director can sign. All minutes should state the date and place of signature so that no alteration can be made thereafter. The Company Secretary (“CS”) or any authorized director if there is no CS, must certify the signed minutes. All resolutions passed through postal ballot should also reflect in the minutes.
  
  

SS-2 has supplemented some more provisions for maintenance of minutes such as

(i) meetings, resolutions and minute sheets should be serially numbered; (ii) loose-leaf minute sheets should be bound and kept in the safe custody of CS at the registered office or at any other place with board’s approval; (iii) minutes must contain company’s name, serial number, type, day, date, venue and time at the beginning and conclusion of the GM; (iv) names of directors present in alphabetical order; (v) qualifications or comments on the financial transactions mentioned in auditors’ report (vi) proxies and number of shares represented (vii) names of the scrutinisers appointed in case of poll (viii) unambiguous language and fair and correct summary of the noting and resolutions passed.

Further, SS-2 has widened the scope of the maintenance of minutes. Companies can maintain them electronically, but will have to comply with the provisions of “time stamp”

i.e. the real time of an event is recorded by a secure computer system.⁷ The “time stamp” will add the time to a file ensuring compliance with all timelines mentioned in SS-2 and the Act. Electronic minutes have to be digitally signed by chairman.

2. Penalty

SS-2 applies to all types of general meetings including those with debenture-holders and creditors of all companies.⁸ Failure to comply with SS-2 can result in penalty of INR 25,000 (USD 384 approximately) on the company and INR 5,000 (USD 77 approximately)⁹ on every officer-in-default. SS-2 supplements the provisions of the Act and if a particular standard or any part thereof becomes inconsistent with the Act due to any amendments, the provisions of the Act shall prevail.

3. Impact and Conclusion

It is clear from the above that the procedure for convening GMs has become more stringent and cumbersome. It now requires a lot more compliances. Closely-held private companies and unlisted public companies have to comply with fairly stringent procedural requirements. The ultimate intent behind these changes is that companies will operate in a consistent and transparent manner and have better disclosures. All this is likely to enhance corporate governance standards and investors’ confidence.

Authored by:
Jaya Moorjani

1 Table F contains model clauses for company’s articles of association. As a matter of practice, most companies typically adopt Table F as it is unless they specifically wish to modify some clauses
2 Business relating to (i) approval and adoption of financial statements, auditors’ and directors’ report; (ii) declaration of dividend; (iii) appointment of non-retiring directors; and (iv) appointment or ratification or fixing of remuneration of auditors are considered as ordinary business
3 Business other than ordinary business are deemed as special business
4 Meetings by requisition have to be called by members holding at least 1/10th of the total paid-up share capital having voting rights in case of a company having share capital and by members holding 1/10th of the total voting power in cases of companies not having share capital
5 Clear days do not include the day of sending notice and the day of meeting
6 Remote voting is the facility of casting vote electronically from a place other than meeting venue
7 A system reasonably reliable and secured from unauthorized access or misuse. It should be correct and support generally accepted security features
8 The exception is one person companies that have only one director on its Board
9 Section 118(11)
7 A system reasonably reliable and secured from unauthorized access or misuse. It should be correct and support generally accepted security features
8 The exception is one person companies that have only one director on its Board
9 Section 118(11)