Section 192A of Companies Act, 1956 – Passing of resolution by Postal Ballot

A Company is a perpetual entity owned by its members, who have delegated the powers of running the company to the Board of Directors. Members in turn exercise their ownership rights through various meetings AGM / EGM, which provide directions / authorizations to the Board of Directors.

But at times members (read shareholders) participation especially the non-promoter, non-institutional category read “Individual Investors” especially the “Small Individual Investors” is quite low and they do not exercise their rights as members but remain as passive members due to varied reasons like paucity of time or purchase of shares just for capital appreciation or due to locational disadvantages.

In order to bring about high level of participation of all members in critical decisions of the companies “The Companies (passing of the resolution by Postal Ballot) Rules, 2001” was formed, this has been superseded by “The Companies (passing of the resolution by Postal Ballot) Rules, 2011” from 30th May 2011.

The above rule mandates that certain business should be passed only through a Postal Ballot sent to all members. The following is the brief procedure:

1. Company has to send a notice to all members either through

      a. Registered Post Acknowledgement due or

      b. any other secured mode provided by Department of posts or

     c. through “E-mail” – provided the company has email addresses of all members

2. An advertisement in English and the Vernacular language newspaper of the state in which the company is registered stating that the notice has been dispatched

3. The notice should mention the date by which the postal ballot should reach the company beyond which it is not valid

4. Procedure for Postal Ballot should be clearly explained in the notice. In case of Electronic Voting the process should be explained as provided by the Electronic voting providing agency. At the moment the following are the 2 agencies authorized vide Ministry of Corporate Affairs Circular No.21/2011 dated 2.5.2011

     a. National Securities Depository Limited – NSDL

     b. Central Depository Services (India) Limited – CDSL

5. A scrutinizer is appointed to conduct the postal ballot

6. The scrutinizer being an independent person conduct the postal ballot and provide a report to the Board of Directors

The following are the salient features of Postal Ballot

1. All members will get a voting sheet at the convenience of their location and they can vote from wherever they are

2. Shareholders cannot appoint Proxies

3. Higher level of member participation in critical issues

4. Cost of conducting meetings is reduced

A company has an option to carry out as many businesses in postal ballot, however the following are mandatory to be conducted only through postal ballot

1. Alteration in the Object Clause of Memorandum;

2. Alteration of Articles of Associations in relation to insertion of provisions defining private company;

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

4. Issue of shares with differential voting rights as to voting or dividend or other wise under sub-clause (ii) of clause (a) of section 86;

5. Change in place of Registered Office out side local limits of any city, town or village as specified in sub-section (2) of section 146;

6. Sale of whole or substantially the whole of undertaking of a company as specified under sub-clause (a) of sub-section (1) of section 293;

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

8. Election of a director under proviso to sub-section (1) of section 252 of the Act;

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

Having seen the legal provisions as above it is pertinent to discuss whether the objective of this postal ballot has been achieved. I was reading a research article which can be reached through http://www.lawyersclubindia.com/articles/Impact-of-Postal-Ballot-Mechanism-in-Improving-Shareholders--1381.asp which states that on an average around 5% of the shareholders participate in the postal ballot process however these 5% represent atleast 60% of the shareholding. This again brings to the fore that the “Small Individual Investors” for whom this postal ballot will be beneficial and for whose benefit this has been brought in are not utilizing the same for varied reasons. It is high time they realize their responsibilities and participate in the company affairs so that Corporate Governance issues in companies and upheld. Small investors should raise their voice in running the company affairs and should actively participate rather than leaving it to the Directors and majority shareholders.

Shareholder activism is one which will ensure that corporates uphold higher level of Corporate Governance and legal compliance, you may recall shareholders activism was the prime reason why Satyam scandal got broken inspite of the Board giving the nod for buyout of Matyas. This active participation will also help small investors to grow their investment value. Keeping away from corporate affairs will prove detrimental to value growth.

ATTENTION SMALL INVESTORS PLEASE PARTICPATE AND GROW.