Monday, May 23, 2011

Electronic Communication and Meetings under the Companies Act


Over the last month or so, the Ministry of Corporate Affairs (MCA), Government of India has announced a series of “Green initiatives” to convert various processes under the Companies Act from paper to electronic form. This comes more than a decade after the Information Technology Act, 2000 was enacted, and will be welcomed as Indian industry and practitioners have been seeking these changes for a number of years.
The key changes occasioned are as follows:
1. Issue of Certificates: Various certificates to be issued by the Registrar of Companies (ROC) to companies and other stakeholders under the Companies Act will now be issued in electronic form under digital signature of the ROC.
2. Services of Documents: Section 53 of the Companies provides for the method by which a company may effect service of documents. Under the new initiative, a company may comply with this section “if the services of document has been made through electronic mode provided the company has obtained –email addresses of its members for sending the notice/documents through e-mail by giving an advance opportunity to every shareholders to register their e-mail address and changes therein from time to time with the company”.
This is a useful change as it now eases the burden of sending bulky documents such as the annual report to shareholders in physical form, particularly because it is unlikely that many small shareholders would review these in any detail at all.
3. Board Meetings: Meetings of the board of directors may now be conducted using video conference facility. However, each director must physically attend at least one meeting each financial year. More importantly, the participation of a director through video conference facility will be counted towards quorum. There are a number of other checks and balances introduced in the arrangement to ensure authenticity and credibility of the proceedings.
4. Shareholder Meetings: Similar to board meetings, shareholder meetings too can be held using video conferencing subject to inbuilt safeguards.
MCA now requires that listed companies “must provide video conferencing connectivity during such meetings at least five places in India”. This will ensure the shareholders need not travel across cities to attend general meetings, especially when meetings are held in interior locations that are not easily accessible.
While shareholders may participate electronically, the quorum required for the meeting will have to be present physically at the place of the meeting. As far as quorum is concerned, there seems to be a distinction between board meeting and shareholders’ meeting. This may introduce some practical difficulties in closely-held companies with a small number of shareholders where a minimum number of shareholders required to constitute quorum will still have to physically congregate at the location of the meeting.
Overall, these changes are beneficial to a more inclusive process in corporate democracy that generates greater participation in corporate decision-making.

2 comments:

Tarun Mitra said...

These are welcome developments, but still a lot has to be done.

Anonymous said...

what about using board portals to streamline the arduous tasks of compiling and distributing board books especially if the portal is hosted outside of India? what implications might there be?