Court raises a question on effectiveness of MCA Rules under the Companies Act 2013

Whether in view of Section 110 of the Companies Act and SEBI circular a resolution of a scheme of amalgamation can be passed by postal ballot

The present matter brought up a question before the Court as to whether in view of the provisions of Section 110 of the Companies Act, 2013 (2013 Act) and SEBI Circular dated 21st May 2013, a resolution for approval of a Scheme of Amalgamation can be passed by a majority of the equity shareholders casting their votes by postal ballot, which includes voting by electronic means, in complete substitution of an actual meeting?

It was submitted that the clear legislative mandate of the 2013 Act is to do away altogether with all meetings other than those required in certain limited circumstances. Shareholders must express their views only by voting through postal ballot or electronic voting (electronic voting being included in the new definition of “postal ballot”).

The Court held that all provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of an actual meeting cannot and do not apply to court-convened meetings. At such meetings, provision must be made for postal ballots and electronic voting, in addition to an actual meeting. Electronic voting must also be made available at the venue of the meeting. Any shareholder who has cast his vote by postal ballot or by electronic voting from a remote location (other than the venue of the meeting) shall not be entitled to vote at the meeting. He or she may, however, attend the meeting and participate in those proceedings.

It was further observed that the provision for a postal ballot is an additional facility to be provided so that there is greater inclusiveness and that a shareholder or member then has an option of voting either by a postal ballot or electronic voting or in person. This would meet the requirements of Section 103 which provide for a quoram of persons personally present. Casting a vote by postal ballot or by electronic voting cannot possibly constitute personal presence, at least not without significant violence to the language.

The Court then reacting to the way Ministry of Corporate Affairs has notified rules under the new Act state that the website of the Ministry of Corporate Affairs has, on its front page made available a link to a single scanned PDF file entitled “COMPANIES ACT 2013 – STATEMENT OF NOTIFICATION OF RULES”. There are some 21 rules listed and all said to be effective 1st April 2014. Several of these are not yet gazetted. It is not clear as to how any such rules can be made effective on the above basis where the ministry simply has put up some scanned document under the signature of one of its officers but without any publication in the official gazette. Publication has a well-established legal purpose, which cannot be achieved in an ad-hoc manner. Accordingly, till such time these rules are gazetted, or there is some provision made for the dispensation of official gazette notification, none of the rules in the Ministry of Corporate Affairs PDF document that are not yet gazetted can be said to be in force.

[In the matter of Scheme of Amalgamation of Wadala Commodities Ltd.
with Godrej Industries Ltd.]
(Bombay HC, 08.05.2014)