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Understanding Shorter Notice Consent in Calling Annual General Meeting - MMJC
Introduction
Companies Act, 2013, [‘the Act’] provides for convening of Annual General Meeting (AGM) of companies. The Act provides for compliances and timelines for activities to be undertaken before AGM, during, AGM and after the AGM. One key aspect of pre-AGM compliance is issuing the notice of AGM. The Act provides that AGM shall be convened by giving 21 clear days’ notice to all the members of the company. Further the Act also provides that an AGM can be called by sending a notice for a period shorter than 21 days to the members of the company. Further the Act provides for the procedure for taking a shorter notice consent for calling AGM. Further the Act also provides for shorter notice consent for certain other purposes in the Act.
In this article we shall focus on the compliance requirements for obtaining consent for a shorter notice period of members of company for convening AGM and shorter notice consent for sending of financial statements etc in terms of provisions of section 136 of the Act.
Shorter notice consent for AGM in case of public companies
The notice period for convening an Annual General Meeting (AGM) or any other General Meeting is specified under Section 101 of the Companies Act, 2013 which is as follows:
- A general meeting of a company may be called by giving not less than clear twenty-one [twenty-one days] notice either in writing or through electronic mode in such manner as may be prescribed:
Provided that a general meeting may be called after giving shorter notice than that specified in this sub-section if consent, in writing or by electronic mode, is accorded thereto—
- in the case of an annual general meeting, by not less than ninety-five per cent. of the members entitled to vote thereat; and
- in the case of any other general meeting, by members of the company—
(a) holding, if the company has a share capital, majority in number of members entitled to vote and who represent not less than ninety-five per cent. of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or
(b) having, if the company has no share capital, not less than ninety -five per cent. of the total voting power exercisable at that meeting:
Provided further that where any member of a company is entitled to vote only on some resolution or resolutions to be moved at a meeting and not on the others, those members shall be taken into account for these purposes of this sub section in respect of the former resolution or resolutions and not in respect of the latter.]
As per section 101 of the Act consent ofnot less than ninety-five per cent. of the members entitled to vote thereat is required to call an AGM by giving notice of less than 21 clear days.
So, for example (a) If a company has twenty members, 95% of the membership equates to nineteen members. Therefore, for a valid shorter notice period, consent must be obtained from these nineteen members.
b) If a company has nineteen members, 95% of this number is approximately 18.05 members. In this case, consent for a shorter notice period must be obtained from all nineteen members, as the regulations require consent from at least 95% of the members entitled to vote. So, for calling AGM at a shorter notice in case of public companies consent of atleast 95% of the members of the company is required.
Shorter notice consent for AGM in case of private companies
Section 101 is also applicable to private companies. But as per the Ministry of Corporate Affairs (‘MCA’) notification dated 05th June 2015[i], Section 101 is applicable to private companies unless the articles of association of the private company specify otherwise.
So, if the articles of association of private company stipulate a notice period shorter than 21 days for calling an AGM, it takes precedence over Section 101 of the Act.
However, in the absence of specific provisions in the articles of association of private company, section 101 of the Act mandates a 21-day notice period for closely held private companies. In this case a shorter notice consent of members would be required for convening AGM. Moreover, if the articles of association of a private company require a notice period of three days for calling AGM then this would be in compliance with Section 101 of the Act and no additional Shorter Notice consent is needed from members specified in Section 101.
Shorter notice consent – sending of copy of financial statements.
Section 136 of the Act also provides for shorter consent for the purpose of sending a copy of financial statements and other documents required to be placed in general meeting. Section 136 of the Act reads as follows:
- “a copy of the financial statements, including consolidated financial statements, if any, auditor’s report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person so entitled, not less than twenty-one days before the date of the meeting:
Provided that if the copies of the documents are sent less than twenty-one days before the date of the meeting, they shall, notwithstanding that fact, be deemed to have been duly sent if it is so agreed by members-
(a) holding, if the company has a share capital, majority in number entitled to vote and who represent not less than ninety-five per cent. Of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or”
(b) having, if the company has no share capital, not less than ninety five percent. of the total voting power exercisable at the meeting:
Section 136 of the Act states that if a company wants to send a copy of financial statements alongwith other documents to be placed at AGM at a shorter notice then consent of members would be required to be taken as per section 136. To explain the above provisions with the help of an example ifa company has three members, a majority will consist of two members. These members must collectively represent not less than ninety-five per cent of such part of the paid-up share capital of the company as gives a right to vote at the meeting. If such consent is taken, then only company can send the documents referred to in section 136 of the Act at a shorter notice.
Anamolies
As seen above section 101 and section 136 both provide for sending notices to members for calling AGM and dispatch of financial statements along with other documents 21 days prior to the meeting. Further section 101 and section 136 both provide that a company may call a general meeting or send a copy of financial statements along with other documents as specified on a shorter notice if consent in this regard is taken from members of the company.
But it needs to be highlighted here that section 101 and 136 provide for a different criterion for taking shorter notice consent from members.
Section 101 of the Act provides for shorter notice consent of the majority of members as against this section 136 of the Act provides for consent of majority of shareholders holding 95% of voting rights.
So even if a company has taken an approval for calling AGM by taking a shorter notice consent of members as per section 101 that consent cannot be equated with shorter notice consent taken required to be taken under section 136 for dispatch of financial statements along with other documents required to be placed at AGM. Thus, even if compliant with Section 101, separate shorter Notice consent under Section 136 is mandatory.
Further it needs to be highlighted that compliance with section 136 with regard to shorter notice consent is not exempted for private companies. As we have seen above in case of private companies if the articles of association provide for a shorter period of notice for calling AGM then it is possible to call meeting by sending notice at a shorter period specified in articles but this shorter time period would not be applicable to shorter notice consent required under section 136 of the Act.
Hence even if articles of association of private companies provide for calling AGM at shorter notice consent separate shorter notice consent would be required to be taken for sending financial statements along with other documents under section 136.
Conclusion
All companies must carefully consider notice periods shorter than 21 days for convening AGM and compliance with section 136. The criteria specified under Section 101 for Shorter Notice consent differs from that under Section 136. Failure to obtain Shorter Notice consents renders resolutions passed at such meetings invalid.
This article is published in Taxmann. The link to the same is as follows: –
This article is written by Tejal Davda –Deputy Manager— tejaldavda@mmjc.in and Vallabh Joshi Senior Manager- vallabhjoshi@mmjc.in
[i] https://www.mca.gov.in/Ministry/pdf/Exemptions_to_private_companies_05062015.pdf