Postal ballot, e-voting and meetings – Bombay High Court rules on the 2013 Act

Some related issues have also
been discussed by the Court. Some aspects have been ruled on, some
issues have been flagged for further information or debate and some
issues would be considered later for ruling.

The issues raised
relate to certain important measures under the law that help wider
shareholder participation in decision making, viz., postal ballot and
e-voting. Postal ballot has been in place for several years now and the
2013 Act has extended its reach and nature. Further, yet another similar
measure suited to the digital age, e-voting, has been mandated with
even wider scope. Indeed, e-voting is now required with immediate effect
and applies to all matters except a specified few. Before we go
further, let us recapitulate what these two concepts are.

Postal Ballot and e-voting
Postal
ballot was introduced by the Companies (Amendment) Act, 2000 through a
new section 192A. The section, along with Rules made pursuant thereto,
provided for voting by post in respect of specified matters. The Company
would send voting papers to shareholders by post. The ballots received
from shareholders would be reviewed by a scrutineer who would report on
the votes. The law mandated that certain specified matters should be
decided only by postal ballot. Further, the Company could also use, at
its option, the postal ballot method for any other matters except
certain specified matters (e.g., approval of accounts, etc.) that could
be approved only at a shareholders’ meeting. For matters approved by
postal ballot, a further shareholders meeting was not required.

The
2013 Act extended this concept further to e-voting. E-voting is
mandatory for listed companies and other companies having at least one
thousand shareholders. In e-voting, the shareholders can exercise their
votes electronically through internet in the prescribed manner. The
advantage was that, like postal ballot, the shareholder need not attend a
shareholders meeting but instead vote through the internet. However, in case of e-voting, unlike postal ballot, the meeting would still have to take place.
Thus, those who have not voted through e-voting could participate and
cast their votes at the meeting. As the law stands, those who have
already cast their votes through e-voting would not in the normal course
participate again at the meeting. Further, since the law provides that
the e-voting ends 3 days prior to the meeting, e-voting at the meeting
was not possible.

The law requires that all matters, except a
specified few, should require facility of e-voting. Since this provision
has come into force immediately, all forthcoming annual general
meetings in 2014 would have to provide for e-voting. Considering that
the court decision being discussed herein mandates certain changes to
the e-voting procedure, it has important and immediate relevance.

Court decision – context and issues
The
matter before the Court was a scheme of amalgamation. Such schemes
require meetings of shareholders/creditors in a manner as directed by
the Court. The counsel for the amalgamating companies prayed to the
court that the resolutions be allowed to be passed by postal ballot
instead of meetings being called for that purpose. Here, it may be added
that while this article focuses on the provisions of the 2013 Act, the
amended Clause 49 of the Listing Agreement providing for corporate
governance requirements also mandates for e-voting. Thus, this decision
will apply to such requirement too.

The Court examined the
concept of postal ballot, e-voting and related issues. In particular,
the Court examined the very concept and purpose of meetings and whether
postal ballot/e-voting that essentially eliminate or substantially
reduce the requirement of holding meetings went against the spirit of
shareholder democracy and participation. These and related issues were
discussed by the Court.

Whether new rules have come into force?
A
transitional issue raised by the Court was whether the new Rules
relating to e-voting etc. have come into force. The Court noted that
while the Rules were signed by the concerned authority and also posted
on the website, the prescribed and time tested procedure of publishing
them in the official gazette was not, as per the information available
to the Court, carried out. Hence, the question was whether the rules
were indeed in force. Since numerous rules were prescribed at the same
time, this concern applies to all.

However, it appears that the
department has duly released the gazetted notifications. Hence, this
issue raised by the Court ought not to remain a cause of concern for
current validity of the provisions.

Whether postal ballot/e-voting has benefits
The
Court explained the nature and purpose of such methods of voting. It
noted that considering the fact that many meetings were held at far off
places and for other reasons, shareholders could not attend, participate
and vote at such meetings. Thus, postal ballot and e-voting would help
shareholders at least participate in the voting. Hence, these methods
were laudable.

Whether postal ballot/e-voting can substitute shareholders’ meetings?
This
is the fundamental issue that the Court raised. It noted that voting by
such methods eliminated substantially the need of shareholders meetings
and interaction essential for shareholder democracy. Postal ballot
totally eliminated even the requirement of such meetings. E-voting would
result in lower shareholder participation since shareholders who have
already voted would not attend. The Court therefore expressed a view
that, firstly, that holding of shareholders’ meetings was a must. In the
matter before it, it had discretion whether or not to allow voting by
postal ballot that would eliminate the need of a meeting. The Court thus
rejected such request.

The Court observed, :-
“We must remember that at the heart of corporate governance lies transparency and a well-established principle of indoor democracy that gives shareholders qualified, yet definite and vital rights in matters relating to the functioning of the company in which they hold equity. Principal among these, to my mind, is not merely a right to vote on any particular item of business, so much as the right to use the vote as an expression of an informed decision. That necessarily means that the shareholder has an inalienable right to ask questions, seek clarifications and receive responses before he decides which way he will vote. It may often happen that a shareholder is undecided on any particular item of business. At a meeting of shareholders, he may, on hearing a fellow shareholder who raises a question, or on hearing an explanation from a director, finally make up his mind. In other cases, he may hold strong views and may desire to convince others of his convictions. This may be in relation to matters that are not immediately obvious to the shareholder merely on receipt of written information or a notice. The right to persuade and the right to be persuaded are, as I see it, of vital importance. In an effort for greater inclusiveness, these rights cannot be altogether defenestrated. To say, therefore, that no meeting is required and that the shareholder must cast his vote only on the basis of the information that has been send to him by post or email seems to me to be completely contrary to the legislative intent and spirit to the express terms of the SEBI circular and amended Listing Agreement’s Clauses 35B and 49.” (emphasis here, and elsewhere in this article, is supplied)

The Court also noted that apart from merely deciding on whether to vote for and against, a meeting could even modify the agenda, if the discussion led to a conclusion that such changes are necessary.

WHETHER e-VOTING SHOULD BE ALLOWED AT THE MEETING ALSO ?
The Court then considered how to combine the advantage of remote voting such as through postal ballot/e-voting and the benefits of discussions at a meeting. The Court stated that e-voting was a good concept. However, it explained the nature and need of shareholder participation and stated that even those who had already cast their votes through e-voting should be allowed to participate in the meeting since they would be able to explain their views on the matters. Considering that they had already voted, the question of their voting again would not arise. The rest of the shareholders who are present at the meeting should be allowed to vote by e-voting. In view of this, the e-voting would have to be extended till the date of the meeting. Thus, the requirement under law to conclude the e-voting three days prior to the meeting would not hold good.It observed:

“Electronic voting is a method by which the votes  cast by a large number of shareholders could be more accurately ascertained. That does not mean that electronic voting cannot be permitted at the meeting itself. 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. This necessitates a single integrated electronic system for voting. This is technologically feasible and, indeed, essential. It cannot be that at the meeting that there be no voting or poll, and that electronic votes or postal ballots cast earlier would be determinative. Those who vote by postal ballot or by electronic voting cannot, of course, be permitted to vote again at a meeting. But they also cannot be restrained from attending that meeting. A shareholder may hold strong views. He may vote by postal ballot or electronic means and then attend the meeting to persuade others. Other shareholders may be undecided and may prefer to attend the meeting. Greater inclusiveness demands the provision of greater facilities, not less; and certainly not the apparent giving of one ‘facility’ while taking away a right. There is no reason why members attending a meeting should not be allowed to use a bank of computers to digitally cast their votes just as they might do if they were voting from a remote location.

20.    There is also a question about the determination of electronic votes cast. The rules seem to indicate that electronic voting must stop three days before the meeting. The Chairman of the meeting  is to be given a tally of the electronic votes cast and the decision on any item of business is supposed to have been passed or not passed only on the basis of these electronic votes. Ex-facie, this is an untenable mechanism. If, as I have said, electronic voting is not limited to voting from a remote location but must also include electronic voting at the meeting in addition to postal ballots received, then it is a sum total of all these votes that must be taken into account.

21.    This means that while a meeting must be held, provision must also be made for electronic voting at the meeting by those shareholders who desire it. Every shareholder being given that option of exercising their votes by postal ballot or by electronic voting, the latter being either from a remote location or at the meeting itself.”

Thus, the Court held that in case of e-voting/postal ballot, a meeting must be held and at such meeting, the shareholders who have not voted should be given an opportunity to vote. Further, those who have voted could also be present and participate and persuade others.

WHETHER POSTAL BALLOT WITHOUT MEETINGS SHOULD BE ALLOWED?

The Court questioned the law which said that if a matter is decided by postal ballot, a meeting for considering such matter is not required. The Court felt that this interfered with a fundamental concept of having a meeting of the shareholders to discuss on an issue. It noted that apart from the matters mandatorily required to be decided by postal ballot, except a specified few, all the rest could also be at the option of the company be decided by postal ballot. It stated that this matter required further consideration before an appropriate bench of the Court and concerned parties may be given a hearing to express their views. It observed:

“On  a  prima  facie  view  that  the  elimination   of all shareholder participation at an actual meeting is anathema to some of the most vital of shareholders’ rights, it is strongly recommended that till this issue is fully heard and decided, no authority or any company should insist upon such a postal-ballot-only meeting to the exclusion of an actual meeting. Since this is evidently a matter of some importance, the Company Registrar is directed to make a submission and obtain necessary directions on the administrative side to have the matter placed before an appropriate Bench.”

CONCLUSION
It may be emphasised that the decision arose out of a petition for approval of a Scheme of amalgamation and hence the observations arguably have a limited scope and  context.  In  any  case,  except  for  limited matters, the Court has not given final  decision.  Nevertheless, the decision would need consideration for forthcoming shareholders meetings and e-voting. Further, one would have to note what are the further developments when this matter is finally heard and the larger issue of postal ballot and e-voting is decided.