Planning to Conduct shareholders meeting through VC – Hurry up - MMJC

Background:

The Covid -19 pandemic was an unprecedented global crisis. During these times of pandemic, rigorous restrictions were placed on public movement, thereby forcing businesses to go digital and consequently relaxations w.r.t provisions of law were also granted so that one can cope up with these challenging times, and comply with law and run the business efficiently. Regarding compliances of Companies Act, 2013 (the Act), the Ministry of Corporate Affairs (MCA) came up with various relaxations. One amongst them was w.r.t conducting shareholders’ meetings through video conferencing (VC) or other audio-visual means (OAVM).

Provisions of Companies Act, 2013 mandates every company to conduct at least 4 Board meetings in a year where gap between two consecutive board meetings should not be more than 120 days and one Annual General Meeting (AGM) as per provisions of Section 96 of the Act.

Evolution of provisions related to conducting Board Meetings through VC:

As far as board meetings are concerned, it is permissible for companies to conduct board meetings through VC since the inception of the Companies Act, 2013. Section 173(2) read with rule 3 of Companies (Meetings of Board and its Powers) Rules, 2014 allows the companies to convene their board meetings through VC and puts in place, a framework to execute so. Parallelly, the Act makes it adequately clear through section 174(1), since inception of this section, that directors attending the meeting through VC shall be counted for purpose of calculating the quorum.

However, initially Rule 4 of Companies (Meetings of Board and its Powers) Rules, 2014 enlisted few transactions which were restricted transactions and could not be dealt through VC or OAVM. However, to reduce compliance burden and for promoting ease of doing business, these conditions were relaxed to some extent w.e.f 7^th May 2018, and such board meetings where these restricted transactions were proposed to be transacted were also permitted to be held via VC/OAVM provided quorum requirement is fulfilled by physical presence.

Further during the pandemic times, Rule 4 of Companies (Meetings of Board and its powers) Rules, 2014 was modified on and w.e.f 19^th March 2020 and for certain period (which got extended multiple times), it was allowed to transact such restricted items through VC even though the quorum was not present personally. Thereafter, MCA on 15^th June 2021 omitted the said rule 4. By the virtue of this amendment of deletion of Rule 4, all transactions can now be undertaken through VC even if quorum is not present physically and there is no restriction as such on conducting board meeting through VC for any kind of transactions. The enabling power of Central Government to prescribe such restrictions is still retained in section 173(2) and in future some new restrictions may come, but as of now there is no restriction.

Conducting General Meetings through VC and postal ballot:

The Act recognises two types of general meetings (shareholders meetings) i.e., Annual General Meeting (AGM) and Extra-Ordinary General Meeting (EOGM).  Section 96 and Section 100 respectively deal with AGM and EOGM. Since the inception of the Companies Act, 2013 and before the Covid-19 pandemic, although Section 108 read with Rule 20 of the Companies (Management and Administration) Rules, 2014 prescribed rules with regard to remote e-voting and e-voting at general meetings for prescribed classes of companies, there was no provision in the Act about conducting general meetings through VC or OAVM. Hence any general meeting of shareholders could be convened in physical manner only.

Considering restrictions on movement of people during the pandemic, MCA came up with a separate set of circulars which permitted convening of EOGM as well as AGM through VC. MCA circular dated 8^th April 2020 read with MCA circular dated 13^th April 2020 provide a detailed framework for convening EOGM through VC for companies mandated to give remote e-voting as per section 108 as well as for other companies. Similarly MCA circular dated 5^th May 2020 provides a detailed framework for convening AGM through VC and refers to the earlier EOGM circulars for certain aspects.

Section 110 read with Rule 22 of the Companies (Management and Administration) Rules, 2014 deals with the manner of conducting postal ballot for seeking approval of shareholders for certain items. Pursuant to above mentioned circulars, various exemptions were given with regard to sending physical notices and physical ballots to shareholders.

These circulars are comprehensive and provide clarity regarding all related matters such as sending notices and financial statements through email, appointment of chairman, counting of quorum, providing remote e-voting facility, wherever applicable, and counting of votes etc. Even though these circulars originally permitted such conduct of EOGM and AGM by VC only for limited period, considering the hardships of corporates due to extended restrictions on public movement due to pandemic, MCA extended the validity of these circulars from time to time. The applicability of these circulars was last extended in May 2022 up to 31^st December 2022. That is, the companies can conduct their AGMs as well as EOGMs through video conferencing only up to 31^st December 2022. Similarly, the relaxations with regard to postal ballot are also available only till 31^st December 2022.

Conclusion:

Unlike board meetings, there is no express provision in the Act w.r.t conducting general meetings through VC. Although it is not expressly prohibited, there is no provision in the Act which provides framework to conduct the general meetings through VC or other audio-visual means. Therefore, the deadline of availing the exemptions granted by the above-mentioned circulars is 31^st December, 2022.

It means from 1^st January, 2023 onwards unless MCA comes up with an extension through circular w.r.t convening general meeting through VC or amend the necessary provisions in the Act after taking into consideration the benefits of conducting general meetings also through VC (along with keeping the option to attend it physically), this option will not be available to corporates as well as shareholders.

Contemplating the factors like ease of doing business, increased participation of shareholders, cost effectiveness etc. the proposal to amend the provisions dealing with general meetings to provide framework for conducting general meetings through VC was discussed and recommended by Company Law Committee in its report published in March 2022. However, as on date, this has not yet been adopted in the Companies Act, 2013

Hence, in case you are planning to conduct General Meeting via VC, then take note that deadline permitting  the same is 31^st December, 2022.