AGM Through VC : Members Right to Appoint Proxy and Auditors’ Attendance

28 October 2021 • Apoorwa & Gyanendu

Recommended

28 October 2021 • Apoorwa & Gyanendu

The lockdown restrictions imposed by the Government of India to fight the COVID-19 pandemic posed a great difficulty to the Companies in conducting their General Meetings. Ministry of Corporate Affairs (MCA) had earlier allowed Companies to conduct Extra-ordinary General Meeting (EGM) through Audio-Visual means vide General Circular No. 14/2020 dated 08 April 2020. The provisions of this General Circular No. 14/2020 were extended to conduct Annual General Meeting (AGM) through Audio-Visual means vide General Circular No. 20/2020 dated 05 May 2020. However, the clarification circular stipulates that the Auditor shall attend such meeting. This point is sufficient to initiate a debate whether Auditors to mandatorily attend the AGM conducted through VC Mode. Can a circular issued by MCA snatch away the exemption provided to Auditor by Section 146 of the Companies Act 2013 (the Act)?

Framework for Conduct of AGM through VC Mode

To facilitate conducting of AGM of companies through Audio-Visual means, MCA vide above referred circulars had issued clarifications regarding modalities of the meeting.

Few important pointers:

1. Which type of companies can hold its AGM through VC?

All companies which are required to provide the facility of e-voting or any other company which has opted for such facility.

For companies, which are not required to provide e-voting facility, if it has in its records, the email addresses of at least half of its total number of members.

2. How physical copies of the financial statements shall be sent?

Financial statements along with notice of meeting shall be sent only by email to the membersand to all other persons so entitled to receive the same under the Act.

3. Shall the recorded transcript of the AGM be made available on the website of company?

Only in case of a public company, the recorded transcript of the meeting shall, as soon as possible, be made available on the website (if any) of the company.

4. How to reckon the quorum of general meeting?

Attendance of members through VC shall be counted for the purpose of reckoning the quorum under section 103 of the Act.

5. What if a company can hold AGM at its registered office in physical form?

The company may hold such meeting and additionally must also provide the facility of VC, so as to allow other members of the company to participate in such meeting.

ANALYSIS:

Let’s analyse this circular a little deeper on appointment of proxy by a member and auditor having to attend the AGM, The circulars seem to have taken away certain rights provided under the Act.

The Companies Act never had any provision to enable holding of AGM through VC mode. Section 96 of the Act deals with modalities to conduct the annual general meeting. During the pandemic, since it was not convenient to conduct the general meeting with physical attendance of the members and there was no clause in the quoted section to deal with such a situation, the MCA had issued these two general circulars to remove the difficulty in conducting annual general meeting.

Context is loud and clear that since the company is obligated by the Act to hold annual general meeting, the MCA has issued these two circulars only to remove the difficulties in conducting the annual general meeting to empower the company towards discharging its legal obligations towards the Act.

Appointment of Proxy:

Appointment of proxies has been expressly prohibited by ibid circulars. Hence, the facility of appointment of proxies by members will not be available for such meeting.

However, it may be appreciated that section 105 of the Act empowers a member to appoint proxies. As per the Act, appointment of proxies is unconditional, i.e. contingencies when proxies can be appointed are nowhere mentioned. But the MCA General Circulars 14/2020 and 20/2020 state that since meeting is being conducted through VC, there should not be any requirement to appoint proxies. This is contradictory to the prevailing law. It can be contested that if the members are entitled by the provisions of the Act to appoint proxies, can this right be encroached upon by Clarification Circulars of MCA?

Auditor to mandatorily attend the AGM through VC?

General Circular 14/2020 mandates that the Auditor shall attend the meeting. This is actually in consonance with section 146 of the Act (exactly the same phrase containing the word shall is used) which mandates the Auditor to attend a general meeting by himself/ through authorized representative. However, in the very same section 146, the company has been enshrined with the powers to exempt an auditor to attend the said meeting. Therefore, as per section 146, the auditor shall attend the general meeting, unless exempted by the company to do so. Here it is pertinent to mention that whereas a company derives power from section 146 of the Act to exempt auditor from attending a general meeting, ibid circular is silent on this aspect.

Hence, our view is that in the absence of any prohibitory provisions regarding exemption of Auditors in the said circular, company can exempt the Auditor in terms of Section 146 of the Act.

General Comments on Enforceability of Clarification Circulars issued by MCA

Article 73 of the Constitution of India states that subject to the provisions of the Constitution, the executive power of the Union extends to matters on which the Parliament’s legislative power extends. However, this power cannot operate in matters of an ‘occupied field’ i.e., where prior legislation over the subject matter exists.

The provision of Section 469 and 470 of the Companies Act, 2013 (“the Act”), are implied provisions empowering Ministry of Corporate Affairs (MCA) to issue circulars, orders and clarifications to administer the Act. Section 470 of the Act, provides a power to remove difficulty to the Central Government by making such provisions not inconsistent with the provisions of the Act, as appear to it to be necessary or expedient for removing the difficulty.

Notably, in the case of CIT v. Straw Products, AIR 1966 SC 1113 the power conferred on the Central Government to make orders or issue directions for removal of difficulty in the working of an Act was held to be a power to make delegated legislation with retrospective effect.

The power of the circulars issued by MCA has to be viewed in line with the Act and the rules made there under.  Therefore, in case of any conflict or inconsistency between the Act and the circular, the Act shall prevail over the circular i.e. the prior legislation, which already exist in the Act and is the subject matter, shall prevail over the sub-ordinate legislation.

Our view is that if prior legislation is not available, MCA is not at all authorized to frame rules and issue circulars. It can issue circulars which only offer clarification with respect to implementation of the Act. General Circulars 14/2020 and 20/2020 were also issued with subject heading starting with the word CLARIFICATION. These circulars were issued to remove the difficulty in implementing Section 96 of the Act to conduct AGM during unprecedented times when substantially whole of the country was under lockdown.

 In several judicial decisions, the Hon’ble Supreme Court (‘SC’) has consistently held that clarification circulars cannot amend or substitute statutory rules. But if the Act or the Rules are silent then the Government can issue clarifications to supplement the Rules by issuing instructions. Furthermore, SC and several courts have emphasized on numerous occasions that circular in conflict with a statutory provision cannot prevail over the statute.

To know about Board Meeting through Video Conference, see

Leave a comment

Your email address will not be published. Required fields are marked *

+ thirty eight = 41