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Other side of postal ballot
January, 25th 2007

Section 192A of the Companies Act, 1956, ushered in by the Companies (Amendment) Act, 2000, provides for:

A mandatory regime of postal ballot in respect of matters which the government deems seminal or significant;

An optional regime of postal ballot in respect of other matters requiring shareholders' consent.

The move was hailed as a step in the direction of fostering shareholder democracy. To be sure, it has several pluses. First, it overcomes the couldn't-care-less attitude of those shareholders who do not hold significant stakes so as to be movers and shakers at the company meetings.

For a company itself, it is a cost saver given the fact that a general meeting entails considerable expenses. The only expenses it incurs under the postal ballot regime are remuneration of the scrutiniser and the postal expenses. There can be considerable savings in postal expenses should a company go for the electronic mode of ascertaining shareholders' consent or dissent to a proposal by posting the issue on its Web site which of course must be tinker-proof in design and operation.

The drawbacks

But the most important drawback of the regime is it explicitly does away with the requirement of holding a meeting. In the event, a company management squirming uncomfortably at the prospect of facing a barrage of inconvenient questions from informed shareholders or a proxy packaged as a shareholder can squelch those questions even before they are asked!

What is more, the shareholders have only one side of the story the management's. The explanatory statement accompanying the resolution has always normally been a company's mouthpiece. But when resolutions are passed at meetings, a resolution is preceded by debate, which often throws up a lot more information, things that do not meet the eye.

Not uncommonly, the fate of a resolution is determined at the last minute what with the garden-variety shareholders making up their minds after hearing both the sides. This is all the more so when their votes matter, which happens when the rival groups of dominant shareholders have almost equal shareholding clout. The situation envisaged is akin to the one often witnessed in the political arena where fence sitters make all the difference to the results of the hustings. Close fight or other, the point is information should not be one-sided. Only a meeting can ensure that an issue is analysed threadbare in all its ramifications before it is voted upon.

Since Section 192A overrides all the preceding sections, including Section 166 dealing with Annual General Meetings (AGM), one may wonder whether a company management can avoid this annual affair (ritual?) by latching on to the optional regime of postal ballot for all the items of ordinary business transacted at an AGM.

Should this happen the accounts would be circulated to the shareholders for their adoption, the directors and auditors would be appointed by the shareholders from the comfort of their home and the dividend proposal would be given a thumbs up willy-nilly through post.

In that event, the shareholders cannot remonstrate with the directors for a better reward, the accounts cannot be debated much less questioned and candidates for the office of directorship cannot be made to bear scrutiny by the shareholders in terms of an informed debate.

Shareholder democracy

All these have to be accomplished through a laconic tick on the consent or dissent columns of the ballot paper, thus subverting shareholders' democracy and marginalising the garden-variety shareholders even further. One may dismiss these fears as chimerical and imaginary, a product of an overwrought mind.

But the way Section 192A(1) has been couched, the situation visualised is entirely in the realm of possibility despite the smug discounting of this possibility by the department vide its Circular No. 16 dated July 24, 2001, on the ground that holding of an AGM is mandatory in terms of Section 166.

It has not occurred to the department that the mandatory character of this solemn requirement has been diluted, nay overruled, by Section 192A so much so that a company intent on ducking the shareholders can do away with the AGM as well.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)

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