The Death of Physical AGMs: Legal Challenges of Fully Digital Shareholder Democracy
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Introduction
The holding of a physical AGM over the virtual AGM became a mandate during the COVID-19 pandemic which allowed shareholders flexibility in holding a meeting with zero contact. However, with its advantages to its functionality, there were various disadvantages related to trust, data security, technical glitches etc. By issuing a circular in 2011 under Corporate Governance the Ministry of Corporate Affairs has promoted less pollution and wastage, and moved towards green initiatives.
The MCA has until now extended its enforcement but there are a few voices that get lesser weightage and holding the AGM requires fair transparency. As per the Companies Act, 2013 there is no provision that governs its applicability but Section - 96(2) gives power to the MCA to issue circulars for the holding or exemption of the physical AGMs. This article will encapsulate the essence of holding Physical AGMs and how the rights of the shareholders get mitigated by holding virtual AGMs.
Indian Legislation that Governs Physical and Virtual AGM
As per the Companies Act, 2013 Section - 96 addresses the holding of the Annual General Meetings (AGMs) by companies. This section mentions the time period of the first AGM which should be in 9 months from the date of the 1st financial year, another AGM should take place within 6 months from the financial year date and the gap between these two meetings should not extend more than 15 months. However, the contesting shareholders are supposed to be notified 21 days before the date of AGM as per section 101 of the Act and exercise their voting rights as statutory rights. Also, their participation in such meetings is voluntary. As there is a proxy available in the case of non-attendance according to Section 105 of the act and companies with over 1000 members are mandated to equip e-voting means as per Section - 108.
The Act also provides a provision for a penalty for failure to hold the AGM as per the timeline under section - 99 of the Act. This section clearly states that on failure to hold an AGM the fine of Rs. 1 lakh will be imposed on the company and every officer whose duty it was to hold such a meeting will also be held liable with a fine of Rs. 1 lakh and in continuation of such default a fine of Rs. 5000 will keep on adding daily. But there is no punishment for any member of the shareholders’ community for failing to attend such meetings, only the company will be held liable.
Furthermore, the Companies Act, 2013 provides a mechanism for compounding certain offences through Section 441. In cases where a company fails to hold an Annual General Meeting as required under Section 96, penalties may be imposed under Section 99. To regularize the default, the company is generally required to convene the AGM at the earliest opportunity and complete all consequential statutory filings, including filing its financial statements in Form AOC-4 under Section 137 and its annual return in Form MGT-7/MGT-7A under Section 92. Depending on the nature of the offence and the applicable statutory provisions, compounding may be undertaken before the competent authority in accordance with Section 441 of the Act.
However, presently there is no provision of the Companies Act which deals with holding AGMs virtually but the MCA has enforced Section 96 (2) by issuing a circular which exempts the company from holding such meetings and implements certain conditions. At present, there are two modes of holding the meeting virtually as per the MCA circular, 2025 which is extended until further notice i.e. Video Conferencing (VC) and Other Audio-Visual Means (OAVM). The detailed guidelines for holding AGMs are discussed below:
Access to this meeting is available on a first come first serve basis to 1000 members and the shareholders with 2% or more shareholding, directors, investors, auditors and KMPs are excluded from this and given automatic access.
The Authentication process must be tight with login required through OTPs, username and password login, timed access etc., to ensure security throughout the meeting.
The members who have logged in to this server are only counted in the quorum as present and voting.
The presence of the Chairman in the meeting is a must. However, if the number of the present members is not sufficient and the AOA of the company permits the appointment of the Chairman through an e-voting process or by e-mail, he can be appointed.
The guidelines for attending the meeting virtually must be stated clearly with the URL links and additionally provide a helpline number for solving technical glitches.
The voting process is also divided into two ways i.e., e-voting and a show of hands while the meeting is in progress.
The whole meeting needs to be recorded and transcribed. Also, minutes of meetings need to be recorded.
The Disadvantages of Virtual AGM
It's clearly noted above that the introduction of the virtual AGM is for promoting Corporate Governance and facilitating the Covid-19 pandemic to increase efficiency. The transparency of holding such meetings should be a necessary conduct but it has become a secondary intention of holding a fair AGM. With the circular of 2025 issued by the MCA, the 2020 guidelines are still in force until they are formally withdrawn. The following are the disadvantages of holding AGMs virtually:
The major drawback of e-voting rights is that it doesn't count the shareholders who are voting in virtual AGMs as present because the sole requirement is that the shareholders need to log in when the meeting is in process, which is different from voting in vc/oavm and have to choose only one route for voting. Also, those members who opted for the e-voting method won't be counted in the quorum.
The absence of face-to-face interaction with the attending shareholders misses the essence of democracy while the virtual AGM is conducted. This kind of interaction does not help in reading the room and raising appropriate questions for the better functioning of the company with healthy debate.
The holding of these meetings takes place via third-party platforms where the concern of the security violation is major and also, the reins of the whole norms of raising questions and having the voice of each shareholder are hampered by having controlling powers left in a few hands.
The whole foundation of such meetings is online based which requires good internet speed and device connectivity to be on both the receiving and the giving end of the discussion. Due to bad connectivity, the whole meaning of holding AGMs effectively becomes futile, which also affects investors’ interest and shareholders’ right to attend AGMs.
Holding an AGM is not merely a procedural requirement, it's also the core of any company where if it is not interpreted due to any of the reasons, the conclusion of these meetings can ultimately feel like scripted outcomes which also affects the shareholders and investors autonomy.
Due to non-observation of mandatory statutory requirements that need to be fulfilled and other requirements, the meeting becomes flawed and every resource that was put forward for AGMs becomes useless.
The Court’s Precedent
The Court of India has time and again ruled in favour of holding a valid AGM as per the Statutory laws of the Companies Act whose procedure is also followed in Virtual AGMs. In the Case of Jagdishbhai S. Ramani vs. Sachin Infra Management Ltd. (2012) the issue was related to the failure to comply with the statutory procedures like forging of signatures, absence of quorum, no advance notice etc, where the court held that the lack of procedural steps would make the whole meeting nullified.
Also in the case of ROC vs. Sen Hon Lee Technologies Pvt. Ltd (2024) where the court has penalised the Company and its employees due to the absence of the ROC which is the requirement for holding AGM as per section 146 of the Act. Furthermore, recently the court has also noted that not recording the whole process of the meeting i.e., failure of proper documentation will invalidate the AGMs.
Conclusion
With the digital India initiative of the Government, a lot of changes have been introduced where everyone is required to be efficiently active with the growing India. Otherwise, the race is meaningless. Every initiative has its cons and pros, but there should be a middle path that should be introduced to stop the democracy of the Shareholders getting manipulated by those who are responsible for holding these AGMs as per the MCA circular.
Author: Samridhi, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.
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