New AGM Deadline for Companies


The Coronavirus pandemic has led to a global disruption in economy, industry, policy and social life in general. The locking down of countries world-over has resulted in an inevitable shift in modus operandi of most companies from work at office to work from home. Work from home has been revolutionary, proving that large office spaces can be potentially done away with. In light of mandating companies (except those providing essential services) to work from home, the government through the Ministry of Corporate Affairs has issued a series of circulars clarifying how companies must hold their ‘General Meetings’.


WHAT ARE GENERAL MEETINGS

General meetings refer to either Annual General Meeting [“AGM”] or Extraordinary General Meetings [“EGM”]. AGMs are those meetings mandated by Section 96 of the Companies Act 2013 [“the Act”] to occur after 6 months of the closing of the financial year of a company or in the case of a newly incorporated company, to occur within 9 months of the closing of their first financial year. They are held by the company to present its annual report to its shareholders and take certain decisions concerning “ordinary” and “special” business. Ordinary business refers to perusal of financial statements and reports of board of directors and auditors, declaration of dividends, appointment of director in place of retiring director and appointment and fixation of remuneration of auditors.[1] Special business refers to all other matters. EGMs, on the other hand are convened for emergency, necessary and urgent purposes that need to be dealt with immediately and cannot wait till the AGM. They are described under Section 100 of the Act.


BACKGROUND

The MCA had initially issued 2 circulars dated 8.04.20 and 13.04.20 clarifying the procedure for holding of only EGMs through Video Conferencing [“VC”] or Other Audio Visual Means [“OAVM”]. Furthermore, another circular dated 21.04.20 was issued stating that those companies whose financial year ended on 31st December 2019 can hold their AGM within 9 months from the closing of their financial year i.e. by September 2020. This relaxed the provisions of Section 96 of the Act.


LATEST CIRCULAR AND ITS EFFECT

The latest General Circular No. 20/2020, dated 5.05.20 has now also eased AGM requirements for all companies by allowing AGMs to be conducted “during the calendar year 2020.” This effectively means that companies can hold their AGM at any time during the year irrespective of Section 96. Furthermore, prior to the clarification, Companies had to hold their AGM either at their registered office or at some other place within the city, town or village in which the registered office of the company is situate.[2] Now, companies can hold not only EGMs but also AGMs through VC or OAVM.


As mentioned earlier, each AGM has ordinary and special business agendas. Decisions on these agendas are usually made respectively by the passing of ordinary or special resolutions. Ordinary resolutions require 51% of the total votes (excluding those abstaining from voting) and special resolutions require 75% of the total votes (excluding those abstaining from voting). In light of the same, the circular specifies “other than ordinary business, only those items of special business, which are considered to be unavoidable by the Board, may be transacted.” Thus, the caveat brings about some confusion as the distinction between avoidable and unavoidable items is subjective to the facts and circumstances.


Additionally, prior to the circular, voting on resolutions was usually conducted in person but could be conducted by electronic means[3] for only those companies that were either listed or not having less than 1000 shareholders.[4] However, the circular extends the ambit of electronic voting to those companies who have in their records, the email addresses of at least half of its total number of members, who[5]:

a. in case of a Nidhi, hold shares of more than one thousand rupees in face value or more than one per cent. of the total paid-up share capital, whichever is less;

b. in case of other companies having share capital, who represent not less than seventy- five per cent of such part of the paid-up share capital of the company as gives a right to vote at the meeting;

c. in case of companies not having share capital, who have the right to exercise not less than seventy-five per cent. of the total voting power exercisable at the meeting.

Moreover, for those companies that have procured requisite permissions to hold the AGM at their registered office, may provide for presence of other members by facilitating VC or OAVM so as to allow participation. All members physically and virtually present shall be deemed to be the quorum[6] for the meeting.

Lastly, the circular also makes provisions for those companies that are not covered under any of the aforementioned circulars till date by allowing them to file an application for the extension of conducting the AGM before the Registrar of Companies under Section 96 of the Act.


CONCLUSION

The extension of the deadline for the conducting of the AGM does provide relief and flexibility to the corporate sector. In view of the continuing restrictions on movement and the fact that not all companies may be able to operate in a completely digital setup, the extension seems to be sensible move. For companies that have already issued the AGM notices would have to make necessary changes to comply with the circular. Overall, the circular furthers the adoption of digitalization and could mark the beginning of a slew of digital reforms to come.



[1] Section 102 (2), Companies Act, 2013. [2] Section 96 (2), Companies Act, 2013. [3] Section 108, Companies Act, 2013. [4] Rule 20 (1), Companies (Management and Administration) Rules, 2014. [5] General circular No. 20/2020 [6] Section 103, Companies Act, 2013.

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