Section 108: Voting through Electronic Means

Introduction

Section 108 of Companies Act, 2013, part of chapter VII that primarily lays down provisions related to management and administration of a company. Section 108 lays down the requirement for voting through electronic means. In June 2012, SEBI had made it mandatory for the top 500 listed companies to facilitate e-voting for all resolutions that demand postal ballots in accordance with the Companies Act or other relevant regulations. This is a very brief section under the act, 2013. Some might call it a skeleton provision, which is further supplemented by rules as notified by the ministry of corporate affairs. This section was not treated as a mandatory obligation until December 31st 2014. This section widens the involvement of shareholders in the activities of the company and strengthens the corporate governance structure of a company. Thus, analysis will provide a holistic understanding of this section.

Purpose of Section 108

This section very briefly lays down that the central government may prescribe the class or classes of companies in which the members may exercise their right to vote by electronic means.

This section is supplemented by Companies (Management and administration) Rules, 2014 as amended by Companies (Management and administration) Rules, 2015 and 2016. They provide for the following:

The rules provide that following companies need to proscribe this method of voting to its members in general meetings: (1) companies having its equity shares listed on a recognized stock exchange (2) company having not less than one thousand members [1].
According to the rules, a ‘nidhi company’ or an institutional investor is not required to provide this facility.
The above rule is not applicable to (1) small and medium enterprises (companies whose post issue value capital is up to rupee twenty-five crores and whose shares are listed on SME exchange (2) companies listed on the institutional trading platform.

As per Explanation to rule 20 to the Companies (Management and Administration) Rules, 2014 the expression ‘‘voting by electronic means as a ‘secured system’ based process of display of electronic ballots, recording of votes of the members and the number of votes polled in favor or against, such that the entire voting exercised by way of electronic means gets registered and counted in an electronic registry in a centralized server with adequate ‘cyber security’.

SEBI also mandates the applicability of e-voting by companies to their members as per rules, 2013 according to clause 35B of equity listing agreement. According to this the companies must provide the voting results within 48 hours to the stock exchange.

Also Read Intellectual property management in Start-ups: An Evolving Indian Prospective

The e-voting procedure and requirements as laid down under rule 20 are also applicable to postal ballot [2]. Rule 20 also lays down procedural aspects of e-voting and the important points in brief is as following:

The notice of the meeting should clearly mention that the business may be transacted through electronic means and it should also mention the manner and the procedure to conduct e-voting, the schedule and time period for the same and should also provide login ID.
The e-voting facility should be open for at least 1-3 days and should be done three days prior to the general meeting.
The company shall publish an advertisement after having sent notice, in one vernacular newspaper and one English having wide circulation in that area.
The board must appoint a scrutinizer who shall review the voting in a fair and transparent manner. He can be a company secretary, chartered accountant in practice or advocate not in employment of company and a person of repute. The scrutinizer must submit a report to the chairman.

Secretarial Standard on General Meetings (SS-2) also supplements this section and has the same provisions as per the Companies (Management and Administration) Rules, 2014.

Situation Before Enactment Of Section 108

In the previous act of 1956, there was no section corresponding or similar to section 108 of companies act, 2013. This is a new concept brought in by the act, 2013.

Application of Section 108

This section basically comes into application when voting on any resolution or anything is to be done in any meeting of a company. This section widens the ambition of the voting power of the shareholders of a company. Voting through electronic means provides the members flexibility and wider reach to make sure everybody can participate in the working of the company and important decisions with respect to working of the company.

Amendment to Section 108

This section has not been amended since its incorporation under the 2013 act. To provide clarity and ensure uniformity in the procedure of e-voting provided by companies in India, MCA has issued a general circular [3]. According to the circular, voting by show of hands would not be allowed in cases where e-voting is mandatory in the company. A person who has used e-voting can still physically attend the meeting but will not be given an opportunity to vote again. The transactions of certain items that need to be done through postal ballot have to be done through that means only and electronic method cannot be used. In e-voting in companies having share capital, principle of proportionality is applied wherein there is one vote for one share. If a member does not vote physically as well as through electronic means, he/she will not be given another chance according to this circular.

Also Read Section 286: Obligation of Directors and Managers

Cases at a Glance

Wadala Commodities Ltd v. State (BOM- 2014) [4]: Bombay High court in scheme of amalgamation between Wadala Commodities Limited with Godrej Industries Limited, passed a judgement on postal ballot, e-voting and relevance in general meeting. The question was raised with respect to the issue of the legislative requirement of e-voting. In this case the court held that an important right of shareholder democracy is not only to vote on any item of business so much as is the right to use the vote as an expression of an informed decision. Shareholder has an inalienable right to ask questions, seek clarifications and receive responses before he decides which way he will vote.

For greater inclusiveness, this right cannot be altogether done away with. To ask a shareholder to cast his vote only based on information that has been sent to him by post or mail seems to be completely contrary to the legislative intent. Often, schemes of arrangement or compromise are amended at a meeting however, in case of a postal ballot no such amendment is possible. There are court-convened meetings. A court may even dispense with such a meeting, irrespective of any provisions for a postal ballot. There must be reasonable opportunity to participate at the meeting; participation connotes something more than merely meeting.

Concluding Summary

This is a very important section as it boosts the corporate governance structure of a company in India by ensuring wider shareholder participation in the important decisions of the working of the company, that are taken in general meetings. No shareholder can put a pause to their daily work and attend all the shareholders meetings, and thus they lose the opportunity to give their valuable insight and protect their rights. This section provides a solution for the above-mentioned situation and widens the scope of participation.

References:

[1] Companies (Management and administration) Rules, 2014, r. 20 (MCA).

[2] Companies (Management and administration) Rules, 2014, r. 22 (MCA).

[3] General Circular no. 20/2014 dated 17th June 2014 (MCA).