One of the essential stipulations to ensure corporate democracy is the involvement of shareholders in decisions having a direct bearing on their rights. The present legal system, as regulated by the Companies Act 1956, provides for passing resolutions by shareholders at the general meetings which necessitates their presence. Of course, proxies can participate in the voting if it takes place through a poll -- which happens rarely. As shareholders are spread over a national level, it becomes difficult for them to attend meetings.

The location of registered office at remote places also affects the attendance level. This fact was observed in the case of AKG Acoustics (India) Ltd (1996) 3 Comp LJ 355 (CLB), where it was held that "of late it is frequently complained that managements attempt to avoid inconvenient and embarrassing questions from inquisitive shareholders. Hence they resort to shifting the registered office by exercise of their brute majority and even take the decision of shifting at extraordinary general meeting where attendance is relatively thin. To be on safe side, they hold the extraordinary general meeting at an inaccessible place so that the resolution is safely passed without any inconvenience."

Postal Ballot: A radical change in the present system is proposed in the Companies Bills 1997. Clause 151 of the Companies Bill 1997 provides for passing of resolutions by postal ballots, in case of listed public companies. Accordingly, a resolution would be passed by means of a postal ballot, instead of transacting the business in a general meeting :One, if the listed public company decides to do so on its own, two, if the resolution relates to such business as the centre may, by notification, declare to be conducted only by postal ballot.

The clause also provides for the following procedure to be followed for passing a resolution via postal ballot:

A) The company shall send notice to all the shareholders, alongwith a draft resolution explaining the reasons therefore.

B) The shareholders would be required to send their assent or dissent in writing within a period of thirty days from the date of posting of the letter.

C) The notice shall be sent by registered post acknowledgement due, or by any other method specified by the centre in this behalf, and shall include with it, a postage pre-paid envelope for facilitating the communication of the shareholders assent or dissent within the said period.

D)If a resolution is accepted by a majority by means of a postal ballot, it shall be deemed to have been duly passed at a general meeting convened in that behalf.

The proposal assumes significance as it would ensure that the shareholders democracy is sustained and encouraged. However, it is suggested that instead of sending postage pre-paid envelopes to the shareholders, it would be appropriate to send business-reply envelopes. In the latter case, the payment will have to be made by the company to postal authorities before taking delivery of the envelopes which would indicate the number of ballots received. It would therefore not be possible for the company management to destroy the unfavourable ballots and say that the same were not received.

This proposal is being opposed on certain grounds like its non-workability in the context of huge shareholders base; possibilities of the system being misused by vested parties; increase in work load and postal costs; difficulty in management; postal delays and loss of ballots-in-transit. The success of the recently concluded postal ballot by Canbank Mutual Fund has proved that the system can be used effectively for protecting investors interest and therefore any reason given for withdrawal of postal ballot system should be ignored by the lawmakers.

The author is a practising company secretary

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.