India: e-Voting A New Mandate For Listed Companies

Last Updated: 27 November 2012

INTRODUCTION

Shareholders of a Company have been expressing their assent or dissent for the resolutions requiring their approval by way of voting. Since physical presence of shareholders is not possible at every general meeting Section 192A- "Passing of Resolutions by Postal Ballot" was introduced in the Companies Act, 1956 along with The Companies (Passing of the Resolution by Postal Ballot) Rules, 2001. The said Rules recognise voting by Postal Method as well as electronic method (e-Voting).

Voting by electronic mode means a process for recording votes by the members using a computer based machine to display an electronic ballot and to record the vote and also the number of votes polled in favour or against such that the entire voting gets registered and counted in a electronic registry in a centralized server.1 Ministry of Corporate Affairs had issued circulars last year to promote Green Initiatives in the Corporate Governance and e-voting was one of the measures in those circulars to achieve the Green Initiative.

Securities and Exchange Board of India [SEBI] has made it mandatory for top 500 entities listed at BSE and NSE, chosen on the basis of their market capitalization, to provide e -voting facility to its shareholders in respect of those businesses which are transacted through postal ballot and for which notices are issued on or after 1st October, 20122. E-voting process has been introduced in order to secure wider participation of Shareholders in the important decisions of the company since postal method of voting has its own limitation.

INSERTIO N OF NEW CLAUSE IN THE LISTI NG AGREEME NT

In order to give effect to the idea of e-voting, SEBI has decided to amend the Listing Agreement. A New Clause 35B will be inserted after the existing Clause 35A. The new clause 35B read as follows3:

"35B. (i) The issuer agrees to provide e-voting facility to its shareholders, in respect of those businesses, which are transacted through postal ballot. Such e-voting facility shall be kept open for such period specified under the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001 for shareholders to send their assent or dissent.

(ii) Issuer shall continue to enable those shareholders, who do not have access to e-voting facility, to send their assent or dissent in writing on a postal ballot pursuant to the provisions of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001 or amendments made thereto.

(iii) Issuer shall utilize the service of any one of the agencies providing e-voting platform, which is in compliance with conditions specified by the Ministry of Corporate Affairs, Government of India, from time to time.

(iv) Issuer shall mention the Internet link of such e-voting platform in the notice to their shareholders."

List of businesses in which resolutions shall be passed through Postal Ballot as per The Companies (Passing of the Resolution by Postal Ballot) Rules, 20114 are as follows:

i. alteration in the Object Clause of Memorandum;

ii. alteration of Articles of Associations in relation to insertion of provisions defining private company;

iii. buy-back of own shares by the company under sub-section (1) of section 77A;

iv. issue of shares with differential voting rights as to voting or dividend or otherwise under sub-clause

(ii) of clause (a) of section 86;

v. change in place of Registered Office outside local limits of any city, town or village as specified in sub-section (2) of section 146;

vi. sale of whole or substantially the whole of undertaking of a company as specified under subclause

(a) of sub-section (1) of section 293;

vii. giving loans or extending guarantee or providing security in excess of the limit prescribed under sub-section (1) of section 372A;

viii. election of a director under proviso to sub-section

(1) of section 252 of the Act";

ix. variation in the rights attached to a class of shares or debentures or other securities as specified under section 106.

In addition to the above mentioned businesses, SEBI (Buy Back of Securities) Regulations, 1998, SEBI (Delisting of Equity Shares) Regulations, 2009, SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 also provide some business for which postal ballot is mandatory.

SALIENT FEATURES OF E-VOTING PROCESS

Some of the Salient features of using the e-voting process are as follows:

  • Any agency providing an e-voting platform is required to obtain a certificate from Standardization Testing and Quality Certification (STQC) Directorate, Department of Information Technology, Ministry of Communication and IT, Government of India, New Delhi4. Presently, NSDL and CDSL are providing e-voting platform, after obtaining necessary certifications5.
  • The Company, Registrar and Share Transfer Agent and the agency providing an e-voting platform will be three parties for providing e-voting facility to the shareholders.
  • Data of all the Shareholders will be provided to the agency providing e-voting platform company
  • User id and password will be provided to the shareholders by the agency providing e-voting platform.
  • In case of Joint Shareholding e-voting option will be available only to the First Shareholder.
  • Time available for e-voting method and postal method will be the same.
  • Voting on selective resolution will be permitted.
  • Currently shareholders are given user Id and Password to cast their votes.
  • E-Voting process will be available to shareholders holding shares in physical form as well as Demat Form.
  • Presently there is no charge for e-voting.
  • After the e-Voting period is over system will provide to the scrutinizer, the details of voting security holder wise details of the voting done in a report along with a summary, for the records of the company

ADVANTAGES OF E-VOTING

The Advantage of E-Voting to the Company/Registrar and Share Transfer Agents as well as its Shareholders are discussed as follows:

Advantages of E-Voting to the Company and Registrar and Share Transfer Agents

  • There will be overall reduction in cost and paperwork.
  • There will no need to store physical ballot papers.
  • The counting of votes and results will be accurate.
  • The results will be declared in a very short time.
  • There will be no need to verify the signatures.
  • The time provided for Postal ballot may be gradually reduced.

Advantages of E-Voting to the Shareholders

  • Invalid votes cannot be casted and also votes won't be lost in transit.
  • Voting can be done from home or office.
  • More time will be available for voting as votes can be casted even on the last day.
  • Voting can be done for different companies at the same time.
  • There will be increased transparency.
  • The participation in the decision making process will increase.

CHALLENGES ASSOCIATED WITH E-VOTING

E-Voting has many advantages but every new technology comes along with some challenges associated with it. The challenges associated with e-voting are as follows:

  • The user Id and Password which is provided to the shareholder if fallen into wrong hands may be misused.
  • Shareholders who are familiar with the ballot method of voting will take time to adjust themselves with this new method of e-voting. Hence, awareness will have to be created among the shareholders.
  • It has to be ensured that the entire process of e-voting is not subject to any kind of manipulation.
  • Correct Data of Shareholders will have to be provided by the Registrar and Share Transfer Agents or the Company to the agency providing e-voting platform otherwise a shareholder may not get his user Id and password and thus may not be able to cast his vote.

CONCLUSION

SEBI has made it mandatory for certain listed companies to provide e-voting facility to its shareholders for resolutions which require Postal Ballot and for which notices will be issued on or after 1st October, 2012. There are advantages of e-voting but the same may be subject to misuse if a proper watch is not kept on the entire process by the regulators.

In the e-voting process, role of scrutinizer will go under paradigm shift as there will be no physical collecting and counting of ballot papers, verification of signatures and rejection of invalid votes, if any.

Footnotes

1 Companies (Passing of the Resolution by Postal Ballot) Rules, 2011

2 SEBI vide Circular No. CIR/CFD/DIL/6/2012 dated 13th July, 2012

3 Inserted by SEBI vide Circular No. CIR/CFD/DIL/6/2012 dated 13th July, 2012

4 Companies (Passing of the Resolution by Postal Ballot) Rules, 2011

5 SEBI Circular No. CIR/CFD/DIL/6/2012 dated 13th July, 2012

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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