MCA temporarily allows virtual AGMs: help or hindrance?

Relaxation
Comment

In view of the COVID-19 pandemic and continuing restrictions on the movement of individuals, on 5 May 2020 the Ministry of Corporate Affairs (MCA) issued a circular allowing companies to convene their annual general meeting (AGM) through videoconferencing or other audiovisual means (ie, electronically) (the AGM circular). This follows earlier MCA circulars which have relaxed the rules on convening extraordinary general meetings.

Relaxation

Pursuant to Section 96 of the Companies Act 2013, read with the Companies (Management and Administration) Rules 2014, companies (other than one-person companies) must hold their first AGM within nine months from the end of a financial year and subsequent AGMs within six months from the end of a financial year such that no more than 15 months elapse between two AGMs. AGMs must be held during business hours either at the company's registered office or another place in the city, town or village in which its registered office is situated.

However, unlisted companies' AGMs can be held anywhere in India with the consent of all of their members pursuant to the Companies Act.

Since COVID-19 has affected companies' ability to hold physical meetings and make the necessary arrangements for members to attend AGMs, the MCA has relaxed certain rules regarding the convening of AGMs for the financial year 2019-2020.

The relaxation applies to companies that:

• must provide e-voting facilities under the Companies Act;
• have voluntarily opted for e-voting facilities; and
• are not required to provide e-voting facilities, but have at least half of their members' email addresses, which;
  • in the case of nidhi companies, hold shares of more than Rs1,000 in face value or more than 1% of the total paid-up share capital, whichever is less;
  • in the case of companies which have share capital, represent no less than 75% of the paid-up share capital of the company which have a right to vote; and
  • in the case of companies which have no share capital, have the right to exercise no less than 75% of the voting power exercisable at the meeting.

Considering the ongoing crisis, all of the Companies Act's requirements relating to the convening of AGMs have been relaxed, including:

• the manner of dispatch of notice and financial statements (including board reports, auditors' reports and other documents required to be attached) to members and others entitled to receive the notice;
• the payment of dividends;
• the members' appointment of the chair;
• the recording of the meeting; and
• the electronic inspection of registers.

Companies that convene an AGM electronically must consider the following:

• All the members participating will be counted in quorum and allowed to vote through e-voting or by a show of hands.
• At least one independent director and auditor or their authorised representative, who is qualified to be an auditor, must attend the meeting.
• A maximum of 1,000 members can attend the AGM on a first come, first served basis. The AGM notice must be published by the company by way of an ad in a vernacular newspaper, at the place where the company's registered office is situated and in an English language newspaper with a wide circulation.
• All of the resolutions passed at the electronically convened AGM must be filed with the Registrar of Companies (RoC) within 60 days of the meeting, clearly indicating that the mechanism provided in the AGM circular along with other provisions of the Companies Act and rules were duly complied with while conducting meetings electronically.

The MCA clarified that despite the relaxations, if companies cannot convene their AGM, they should voluntarily apply to the RoC seeking an extension of the date of the AGM following the procedure prescribed under the Companies Act. The MCA further directed the RoC to follow a liberal assessment at the time of considering the request for extending the date of a company's AGM on account of the difficulties being faced by companies.

The MCA has focused only on the manner of convening AGMs by companies; however, the primary purpose of convening an AGM is for companies to adopt their financial statement. Due to the continuing government and self-imposed restrictions on movement, companies are facing challenges in completing audits in a timely manner.

Keeping in mind the challenges witnessed by stakeholders, the RoC exercised its power provided under the third proviso of Section 96(1) of the Companies Act and recently granted a major relaxation by way of extending the due date for convening AGMs for the financial year which ended on 31 March 2020 by three months.

Comment

This temporary relaxation by the MCA, allowing AGMs to be held virtually, could be a substantial step towards the introduction of digital and innovative ways of holding AGMs more generally.

When compared with physical AGMs, virtual AGMs not only reduce costs for companies but also the operational expenses and efforts required. Moreover, virtual AGMs represent a step towards more eco-friendly meetings.

With AGMs around the corner, it will be interesting to see how companies will hold virtual AGMs in practice and whether companies and their members will welcome the MCA's relaxations.

For further information on this topic please contact Neetika Ahuja or Jatin Oberoi at Clasis Law by telephone (+91 11 4213 0000) or email (neetika.ahuja@clasislaw.com or jatin.oberoi@clasislaw.com). The Clasis Law website can be accessed at www.clasislaw.com.