CORPORATE LAW IIRESEARCH PAPER

REFORM OF LAW GOVERNING GENERAL MEETINGS

Submitted By

Govind Satish

ID No. 1638

Trimester X

IV Year, B.A., LL.B. (Hons.)

Submitted on 3rd August 2011.

TABLE OF CONTENTS1.0 INTRODUCTION.............................................................................................................................2

2.0 BACKGROUND TO SHAREHOLDER PASSIVITY AND REFORMS............................................3

3.0 REFORM OF LEGISLATIVE PROVISIONS...................................................................................7

4.0 LINKING SHAREHOLDING PATTERN AND CORPORATE GOVERNANCE............................15

5.0 INCENTIVISING THE PASSIVE SHAREHOLDER......................................................................17

6.0 THE COMPANIES ACT 2009 AND INSTITUTIONAL INVESTORS: A CIRCULAR PREMISE?................................................................................................................................................20

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1.0 INTRODUCTION

Presumptions have always been at the cornerstone of evolution, as it has

driven us forward in the midst of adversity and ignorance. Indeed,

company law and corporate governance seem to function on the

presumption that both are fundamental to the promotion of good

governance and that all shareholders of a company should be entitled to

make informed judgments and enlightened critical comments about the

companies in which they invest. 1

Corporate Governance2 has always been concerned with the area of

increasing accountability mechanisms of the company and its

functioning. The transparency and fairness of a corporation’s working

has become all the more important in today’s, globalized world where

there is a need to attract the best human capital from all parts of the

world. The theory of Constitutional Economics would suggest that the

reason behind shareholders appointing directors to run the business on

their behalf was because of the inconvenience caused to them when

required to gather consensus of many for any action that is to be taken.

Regardless, great importance is given to academic discussions on the

role of the shareholder in the general meeting, since the accountability

of the appointees of the shareholders are to be made accountable for

their actions at some point.

1 Jennifer Payne, “Giving Private Shareholders a Right to Participate”, Comp. Law. 1997, 18(3), 90.2 The principle of corporate governance, as understood widely takes the whole framework within which companies operate. It is defined as the system by which companies are directed and controlled. Directors are responsible for the governance of the company. The role of the shareholders is to elect the directors and appoint the auditors, who in turn are also expected to provide an external check on the directors. The problem is the gap between the theory and practice which leads to the lack of accountability to the shareholders, which gives rise to concern over the state of corporate governance. See: Adrian Cadbury, “The Response to the Report of the Committee on the Financial Aspects of Corporate Governance”, cf. Fiona Macmillan Patfield (Ed.), Perspectives on Company Law, Volume I, London, Kluwer Law International, 1995.

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In furtherance of this, the law has given certain powers to the members

in general meeting, which they must exercise collectively.3 The chain of

command would run in the manner that actions of directors may either

be permitted or ratified through ordinary or special resolutions, and in

case where there is any inadequacy of result or fraud on part of the

management, the members are free to replace them with more

competent persons.4 Another presumption made in this context is that

the abovementioned system is implemented in conditions such that the

shareholders take active interest in the company meetings and diligently

discuss and vote for the resolutions that are beneficial to the company as

a whole.5

Since current practice has shown that shareholder interest is far from

being the actual scenario, discussions have been centered on the reforms

of law relating to general meetings. It must however, be noted that little

or no effort has been made to study the law relating to general meeting

alone in India and this has come to cause us some discomfort. The

discourse in this paper would model around the argument that there is

an inevitable passivity of shareholders due to high costs with the

addition of a premise that, that these costs are not to be done away

through simple legislative amendments like in the past, but rather

through incentivisation schemes, with due consideration given to the

shareholding patterns of the same Corporates.

3 Certain acts have to be ratified by the members, such as the further issue of capital: Section 81 of the Companies Act, 1956, which permits the company to issue further capital on a special resolution of its members at general meeting. Resolution to reduce capital: Section 100 permits the reduction of the capital of a company through a special resolution.4 Section 284 permits members to remove a director prior to when he is supposed to retire by virtue of a special notice. 5 See Gower and Davies’, Principles of Modern Company Law, London, Sweet and Maxwell, 2003, at p. 325-327.

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The paper runs into four sections that have been divided with the aim of

providing a comprehensive understanding of the situation of shareholder

passivity and the rules or laws that have contributed to it. Having done

so, the paper in an attempt at reaching its final premise delves into the

shareholding pattern of Indian Corporates before making

recommendations that would consider all the related aspects in full light.

2.0 BACKGROUND TO SHAREHOLDER PASSIVITY AND REFORMS

Professor Gower cites the report of the Committee on the Financial Aspects

of Corporate Governance (1992) to illustrate a simple yet intricately thought

over point- that the shareholders as owners of the company elect the

directors to run the business on their behalf and hold them accountable for

this running of the business.6 Therefore, apart from serving as a decision

making body with respect to certain aspects of the corporate body, the

general meeting also, and more importantly acts as a forum wherein

questions can be asked and the work of the board of directors can be

accounted for.7

A look into the legislative history would show that two concurrent themes

would emerge from the three main committees that were appointed to

identify the issues relating to the welfare of the shareholders; one follows

6 Report of the Committee on the Financial Aspects of Corporate Governance, 1992, Para. 6.1, Gower and Davies’ Principles of Modern Company Law (ed. Paul Davies, London: Sweet & Maxwell, 8th edition, 2008) at 556. HEREINAFTER GOWER. The Cadbury committee began its analysis of the accountability of the board of directors to its shareholders and recommended that both shareholders and board of directors should consider how the effectiveness of general meetings could be increased and as a result the accountability of all board members to be strengthened: Para. 6.8. Report of the Committee on the Financial Aspects of Corporate Governance: Cadbury, 1992.7 Robert R Pennington, Pennington’s Company Law (London: Butterworth, 8th edition, 2001) at 822. HEREINAFTER PENNINGTON. The General Meeting, in the modern day context acts with a twofold purpose: 1. Is to remain as an active check on the powers and exercise of the same by the board of directors and 2. As a means to allow the shareholder member to figure in the functioning of the company and the decisions that are to be undertaken with respect to the company and its growth.

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the trail of thought that runs through Cohen and Cash,8 the outstanding

theme is that which maintains the dual identity of the company and any

strong alliance between the two organs are vehemently opposed, but at the

same time, wanting to improve shareholder control and protection. The

second theme, which finds it origins in the Jenkins Committee,9 maintained

that there needs to be no protection or increased controlling by the

shareholders, and rather that the BOD, entrusted with the management of

the company would pull through.10

Having said that, the legislature created a framework wherein there were

four types of meetings of a company;11 four instances where the members

8 Report of the Committee on Company Law Amendments: Cohen, 1945 and Protection of Shareholders Act: William Cash 1987. The objective of the Cohen Committee was to look into easier ways for shareholders to exercise more effective control. The committee concluded that the dispersion of capital had prevented permanently the ability of a shareholder to practice actual power. the Protection of Shareholders Act catered to the need of the shareholders by demanding for the creation of shareholder’s committee in each committee which would effectively look into the problems of the members. However, there was no further action on the Bill. 9 Report of the Company Law Committee: Jenkins, 1962. The Jenkins Committee rejected suggestions that voting should take place via postal ballots and ultimately held that there is a meeting for purposes of discussion and therefore put the power right back in the hands of the Directors. 10 D. D. Butcher, “Reform of General Meetings”, C.f. Shakem Sheik and William Rees 224 (2000).11Palmer’s Company Law: Volume I (C. Schmitthoff et. al. Eds., London: Steven and Sons, 1987) at 555. Hereinafter cited as PALMER. There are four types of meetings of the members of a company:

1. The Statutory Meeting: to take place within a period of not more than six months from the date of commencement of the business. Applies to every public company limited by shares and limited by guarantee. Section 165, Companies Act 1956. Hereinafter referred to as CA 1956. 2. Annual General Meeting: Every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting and a company may hold its first annual general meeting within a period of not more than eighteen months from the date of its incorporation. Ordinary business is supposed to be discussed at the AGM, however, this would depend largely on the Table A articles of the company. 3. Extraordinary General Meeting: General meetings other than annual general meetings and the statutory meetings, and the directors are free to call for an EGM whenever they think fit and further that they have to call one when the conditions under section 169 CA 1956. Meeting of Classes of Shareholders: when the shares of a company are divided into various classes, meetings for people owning the same class of shares maybe called, in the event that the rights of the shareholders are meant to be varied, section 106 CA, 1956.

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could exercise their right to inspect the working of the board of directors,

concretized to form a legislation with detailed provisions- sections 165-197

and the articles of association, Table A.12 However, the applicability of these

sections and the rules vis-à-vis public and private companies (that are not

subsidiaries of public companies) is different as section 170 of the

Companies Act, 1956 provides that certain sections (171-186) of the CA

would apply to private companies only in the absence of rules formulated by

the company and mentioned in the articles of association of the company.13

As Gower rightly pointed out, the reason for the same can be traced back to

the distinction made with regard to ownership and control.14 As private

companies are in the nature of entertaining only a small amount of

members, the need for the distinction hardly becomes relevant since the

managers and the members would be the same set of individuals in most

cases.15

12 General Meetings: Clause 47-48, Proceedings at General Meetings: 49-55, Votes of Members: 56-63. 13 Section 170 CA, 1956: Sections 171 to 186 to apply to meetings.—(1) The provisions of sections 171 to 186—(i) shall, notwithstanding anything to the contrary in the articles of the company, apply with respect to general meetings of a public company, and of a private company which is a subsidiary of a public company; and(ii) shall, unless otherwise specified therein or unless the articles of the company otherwise provide, apply with respect to general meetings of a private company which is not a subsidiary of a public company.(2) (a) Section 176, with such adaptations and modifications, if any, as may be prescribed, shall apply with respect to meetings of any class of members or of debenture-holders or any class of debenture-holders of a company, in like manner as it applies with respect to general meetings of the company.(b) Unless the articles of the company or a contract binding on the persons concerned otherwise provide, sections 171 to 175 and sections 177 to 186 with such adaptations and modifications, if any, as may be prescribed, shall apply with respect to meetings of any class of members, or of debenture-holders or any class of debenture-holders, of a company, in like manner as they apply with respect to general meetings of the company.14 GOWER, AT 566.15 The shareholders are seen as a large group of people who have delegated the conduct of the company’s affairs to smaller group of managers. If, as in a small company, the directors and the shareholders are the same people, it would not make sense to distinguish between the two. R. Smerdon, A Practical Guide to Corporate Governance, (London: Sweet and Maxwell Ltd., 2010) AT 234; HEREINAFTER SMERDON.

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Even with the neatly provided sections and the thought over distinctions

made by the legislators, it would soon emerge that large public companies

did not effectively use the general meeting in securing the accountability of

the management, and would provoke reformers to call into question the

governing and construction of the rules itself. The CA 1956 and the Listing

Agreement would begin to be criticized in so far as they did not effectively

promote shareholder action or control over the management.16 On a larger

scale it would result in the systems of checks that were placed on the

management by the ownership coming under severe scrutiny, and this

would wipe out the presumption in favour of there being a two tier system

governing the working of the company.17

The Cadbury Committee, 199518 was appointed to look into the matter

regarding the public companies and the shareholders control over the

Board and the auditors. In 1998 however, with the additional criticisms

leveled against the public corporate machinery, The Hampel Committee

Report was constituted to look into the case.19 The Committee, in an

16 The author, through the course of this paper, will try and look into reasons as to the degenerating nature of the AGM and attempts at reforming the same. In addition, the author will also look into the working of these reforms and try and work out reason for the so called passivity of the shareholders; this will also require the author to delve into the shareholding pattern of the various corporate offices and the trends of attending general meetings.17 This relies on a basic assumption that the shareholders at the meeting will exercise some amount of control over the Board of Directors. There are various matters on which the Board statutorily requires the shareholders’ consent before such decisions can bind the company. Although the general meeting does not have to pass any resolutions relating to these, they are important because they give the members an opportunity to question the board on the manner in which the company has been managed and this might permit broader debates than a specific resolution would allow. Boyle and Bird’s Company Law (eds. John Bird et al, Delhi: Universal Publishing Company, 3rd edition, 1997) AT 325-327; HEREINAFTER BOYLE AND BIRD.18 The objective of the Cadbury Committee was to investigate how large public companies should adopt corporate rules with a focus on the procedures of financial reporting production and the role of accounting. 19 Committee on Corporate Governance: Hampel, 1998. The Hampel Committee Report looked into four main issues:

1. Role of the director2. Director’s compensation 3. Role of the shareholder4. Accountability and audit

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attempt to pacify proponents reasoned and recommended that the

constructive use of the AGM would improve communications with the

member shareholders, thus solving the problem. 20 In the Indian legislation

however, there was no evidence of there being provisions relating to AGM

to suggest that the framers had paid heed to this suggestion.21 Without any

delay, the Kumara Mangalam Birla Committee was set up in 1999 in order

to ensure that the confusion in England would not find its way into India.

The committee focused on measures that would strengthen the auditing of

the company, the director disclosure standards and the role of the

institutional investor.22 The Narayanan Murthy Committee also found that it

would be most beneficial if the recommendations were focused more on the

‘viva-voce’; the auditing of the company and director disclosure measures

finding most mention. However, the committee did realize the importance of

Codes of Conduct amongst the directors as they sought to introduce

responsibilities on the board of members to adopt them.23 The OECD

Principles and the Listing Agreement (Clause 49) sought to address the

problem with a different approach, as there was more focus on increased

shareholder power, disclosure and transparency and responsibilities of the

board; a step in a direction different to the previously auditing and

independent director ‘heavy’ reports.24

20 Hampel Committee Report: Committee on Corporate Governance, 1998, available at http://www.ecgi.org/codes/documents/hampel.pdf, last visited, 14-7-2011. The committee, in summation, made the following recommendations with respect to the AGM:

1. Reasonable discussion time at the AGM and a written answer to any significant question

2. Prepare a resume of discussion at the AGM together with voting figures on any poll or proxy count

3. That there should full disclosure regarding the remuneration and interest of the directors of the company.

21 R. Balakrishnan, “Constructive use of the AGM”, 79 Company Law 182 (2007).22 Report of the Committee Appointed on Corporate Governance: Shri Kumar Mangalam Birla, “Report of the Kumar Mangalam Birla Committee on Corporate Governance” (1999) available at http://www.sebi.gov.in/commreport/corpgov.html23 Report of the SEBI Committee on Corporate Governance: Narayanana Murthy, 2003 available at http://www.nfcgindia.org/library/narayanamurthy2003.pdf24 S. K. Verma and S. Gupta, “Corporate Governance and Corporate Law Reform in India”, 25 Asian Law Series (2004).

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3.0 REFORM OF LEGISLATIVE PROVISIONS

Four separate corporate governance resolutions later,25 the Companies Act

was still under heavy fire and scholars sought to label it as a growing

impediment to the conduct of the General Meetings. Having attempted to

garner more corporate efficiency by means of external regulatory

mechanisms and the imposition of codes of conduct, the author suggests

that the rules regarding the General Meeting should be analyzed instead.

The applicable provisions relating to general meetings (166-197) flows in a

constructive and chronological manner; starting with calling of the

meetings (165-169), moving on to the more intricate details (170-174) such

as the service of notice and its contents and quorum requirements, further

ahead dealing with the provisions relating to the conduct of the meetings

(175-185) i.e. rules relating to proxies and voting, and finally towards the

rules providing for decision making at the meeting (188-192A) i.e.

resolution requirements, types of resolutions and provisions dealing with

the ways in which to pass a resolution.

The bulwark of corporate efficiency, the AGM is protected under section

166 (2) of the CA 1956 which calls for an AGM to be conducted by every

company during the working hours, on a day that is not a public holiday in

order to discuss the various matters of management. 26 The section further

states that an AGM can only be held in the city, town or village where the

registered office of the company is situate and not elsewhere.27 It has to be

noted that the increasing trends of dispersed shareholdings in public

25 Rahul Bajaj (1998), Birla (1999), Narayanana Murthy (2002) and Naresh Chandra (2003). 26 A Ramaiya, Guide to the Companies Act Part I (Nagpur: LexisNexis Butterworths, 17th

Edition, 2010) AT 1543. HEREINAFTER RAMAIYA. 27 A clarification was sought for with reference to the boundaries within which an AGM could be held; whether they could be held only in the city, town or village where the registered officer of the company is situate and not elsewhere. Clarification: (Letter Number 1/1/83-CL - V & No. 6/159/PT/64 dated 16th Feb. 1981 Issued by the Department of Company Affairs)

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companies and the economic benefit weighing by minimum size share

holders28 would make it impractical to consider that members would spring

into collective action for an AGM when the benefits of the same are not

apparent.29

The rule governing meetings that are not in the nature of being an AGM or

a Statutory Meeting is section 169, CA 1956 which empowers the directors

of a company to call for an Extraordinary General Meeting on the

requisition made by the members who; 1. In the case of a company having a

share capital, hold not less than one-tenth of the paid-up capital of the

company and, 2. In the case of company not having a share capital, exercise

not less than one-tenth of the total voting power of all the members having

the right to vote at that said date.30 Though this provision entitles the

members to another effective control mechanism, to consider it effective all

around would be gruesome, since in the case of large public companies with

a dispersed membership, enlisting the support of other members required

28 A shareholder, whose holdings are not substantial, would not see the point in travelling to another city to participate in a general meeting, where, more often than not, his opinions etc will not have a material effect because of the high qualifications placed for the introduction of resolutions. Therefore, where a person’s shareholding does not amount to enough so as to justify his intervention in company policy, he would rather remain a passive investor. Farrar’s Company Law (eds. John H Farrar et al, London: Butterworths, 4th edition, 1998) AT 318. HEREINAFTER FARRAR.29 The first practical consideration that needs to be considered is with respect to the space required to hold an AGM. Most of the bigger Corporates in India have shareholders that run into the millions and accommodating them in one location does not seem feasible from the company’s perspective. Secondly, since AGMs cannot be held on a public holiday, it becomes highly inconvenient for a shareholder to compromise on his routine to attend one unless his shareholding in the company justifies the same. Lastly, since AGMs are held in the city of the registered office of the company only, the wide and varied shareholding patterns across the country would lead to shareholder disinterest. 30 Section 188, CA 1956; data collected in the year of 1996, showed that on an average, the largest institutional investor in a company’s register held around 8% of the shares and the largest five held around 25%. This would indicate that in a typical case, a small group of investors would be in a position to activate the procedure under the Act. For private investors however the chances seem bleek, as per the data analysed, even persons acting in concert would bring about a total of only 2.4% of the shares. C.f. K. Parmjit and G. Suveera, Patterns of Corporate Ownership: Evidence from BSE-200 Index Companies, 13(2) Institute of Management Technology (2009).

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to make a valid requisition would be cumbersome, not to mention

expensive.31

A notice with the matters that are to be discussed at the general meetings

are drawn up and sent to all the members entitled to vote and this duty has

been placed on the directors; however, the case may vary in instances of

circulation of resolutions.32 Section 172 CA, 1956 mandates that a ‘clear

notice’33 of 21 days is required to be given to all shareholders and other

31 In the case of small private companies, the provision would relatively well as the shareholding is more concentrated, in the hands of a fewer number of people. Eiles Ferran, Principles of Corporate Finance Law (Oxford: Oxford University Press, 2008) AT 569. HEREINAFTER FERRAN. 32 For resolutions, the company has the discretion to decide to send the notice along with the notice for the AGM, however, the circular accompanying the resolution is normally sent by the company, but the expenses are undertaken by the requisitionists and not the company. On the requisition made however, the notice must be sent out to other members and the cost of the same must be borne by the members and not the company. Section 188, CA 1956. 33 There have arisen disputes as to the interpretation of the 21 day requirement under section 171. The following three interpretations have been put forth: 1. 21 days clear notice exclusive of the day of service and the day of meeting: RE. HECTOR WHALING LIMITED: (1936) 1 CH D. 208: In this present case, the issue was regarding a notice that was sent, convening an extraordinary general meeting of the Company on 30th May, 1935 dated and posted on 8th May, 1935. The articles of the company provided for the service of notice only on the 9th of May, 1935. The Court decided, relying on the ration in Rex v. Turner (1910) 1 K.B. 346 and Chambers v. Smith (1843) 12 M. & W. 2 : 152 E.R. 1085 that the expression "not less than twenty-one days ' notice " contained in Sub-section (2) of Section 117 of the Companies Act, meant 21 clear days exclusive of the day of service and exclusive also of the day on which the meeting was to be held. Thus, the court further held that it was not open by the Articles of Association to curtail the length of time which the statute had fixed. Therefore, in the present case, having excluded the date of the meeting, the total period of notice would only come to 20 days and this was considered to be void and illegal. 2. Interval of 21 days between the date of the meeting and the date of service of notice: NVR NAGAPPA CHETTIAR V. MADRAS RACE CLUB: (1949) 19 COMPCAS 175 (MAD): The Madras Race Club was a body corporate registered under the Indian Companies Act of 1913 with the object of carrying on the business of a race club. In April, 1947, 45 members of the Club sent a requisition to the Club for convening an extraordinary general meeting for the purpose of appoint a committee to consider the revision of the Articles of Association. On the 16th of October, notice was issued to the Club members of the extraordinary general meeting on the 7th of November, 1947. The plaintiffs contested that the meeting of the general body of the members of the Club held on the 7th November, 1947, was invalid and void and that all business transacted thereat was invalid null and void. The Court in this case held that the date of the meeting and the date of service of notice were to be excluded in counting the 21 clear days period. Thus, the meeting was held to be illegal and void.3. Two days to be added to 21 days clear notice: BALWANT SINGH SETHI V. SARDAR Z.H. SINGH: (1988) 63 COMPCAS 310 (BOM): The respondent filed a case against the appellant for

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parties.34 The notice usually contains information on the kind of matters that

are to be discussed; a contentious problem however, is that explanatory

notes are required only in the case of special business35 and this

differentiation may be utilized by the directors while undertaking to

consider special business under the guise of an ordinary transaction.36

Looking into the provisions that deal with decision making, considered to be

the most powerful tool in the hands of a shareholder, it is important to note

that section 188 of the CA, 1956 allows for members to circulate their

resolutions to the other members of the company.37 However, in practice,

since the notice requirement period for moving such resolutions is 6 weeks,

it becomes impossible for a member to circulate the said resolution along

with the notice of the AGM circulated by the company.38 Thus, the timing

a declaration that the requisition contained in the letter dated September 21, 1987was not a valid and lawful requisition for calling an extraordinary general meeting. The notices for the meeting had been posted on August 31, 1987 and some of them on September 1, 1987, and, therefore, some of the members could not receive notice. The Court held that pursuant to section 53(2)(b)(i), the notices will have to be deemed to have been received after 48 hours from the day of posting, that is, on 2nd and 3rd. Therefore, since the meeting is to be held on September 21, 1987, the notices posted on August 31, 1987, and September 1, 1987, cannot be held to be 21 days' clear notice to the members. 34 Notice of every meeting of company must be sent to all members entitled to attend and vote at the meeting. Notice of the AGM must be given to the statutory auditor of the company. Table A also requires notice to be sent to all persons entitled to a share in consequence of the death or bankruptcy of a member and to the directors. 35 Section 173, CA 1956 specifies the distinction between the two and requires explanatory notes only for the special business that is to be conducted. Further, as far as ordinary business is concerned, the notice does not require to be exact, however, in the case of a special business, the specifics of the meeting must be set out clearly. N. Sachdev, “Significance of Annual General Meeting in Corporate Governance”, 64 SEBI and Corporate Laws 28 (2005) at 31.36 N. Sachdev, “Significance of Annual General Meeting in Corporate Governance”, 64 SEBI and Corporate Laws 28 (2005) at 34. 37 The resolutions are the instruments via which the general meeting passes on their decision and will over to the board of directors. All valid resolutions must be obeyed to by the BOD and the same is binding on them. Also, the power of removal of a director also comes in the form of moving a resolution. Thus, it can be stated that the General Meeting is the occasion and the resolution is the weapon for the members to exercise their control over the BOD. Ford’s Principles of Corporate Law (ed. I.A.Ramsay et.al, Australia: Butterworths, 10th edition, 2001) AT 124. HEREINAFTER FORD.38 The moving of a resolution requires the member to give notice to the company of 6 weeks, and while the notice regarding the general meeting is only 21 clear days in advance, it now becomes virtually impossible for a member to figure out and strategize his plan in anticipation of the notice of the AGM, since all the documents and matters are

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required of such a resolution would make its utility hard-pressed as there

are either significant costs or significant share holding power that is

required before being able to move the same.39 Moreover, an additional

disincentive is that the directors are free to use the machinery of the

company in order to circulate their responses, and this would allow them to

increase their advantage over the case of the dissenting members, if ever

there was incrimination over how the company was managed.40

Another hurdle in the event of moving resolutions is the special notice

requirement under section 190 CA, 1956.41 A special notice would mean

that the person who’s moving the said resolution is required to give the

company notice of 14 days before the meeting at which the resolution is to

be presented.42 In the case of removal of a director from the board, the 14

released only then. K. Midgley, “Companies and their Shareholders: the Uneasy Relationship”, 24 Lloyds Bank Review (1975).39 The other option available is section 188 (2) under which is required one-twentieth of the voting power, or, one hundred member who have the right to vote and who have an aggregate share capital of One Lakh Rupees. Since no record of beneficial owners is maintained, it will be difficult to obtain support and therefore, for individual shareholders who do not have the requisite amount, moving a resolution would seem quite daunting and impossible. 40PEEL V. LONDON: 1907 1 CH 5, CA: In the present case there was a controversy regarding to policy affecting the management of the company and in pursuance of this, the directors sent to each shareholder a circular setting out the facts and their views. The issue that arose was the expenses of printing, posting, and stamping these documents was paid for out of the funds of the company. Therefore the shareholders brought an action to restrain the company and the directors from using the funds of the company in paying expenses thus incurred. The court held the expenditure to be completely justified since it was a matter of policy. The circulars that are sought to be sent by the requisitionists cannot, in any event be of a length more than 1000 words. Furthermore, the cost of circulation is to be borne by the requisitionists. However, a company can respond to the resolution and the circular, by using the corporate machinery.41 The following resolutions require a special notice to be sent:

1. To remove a director by an ordinary resolution 2. To appoint an auditor in certain circumstances or to remove an auditor from office3. To allow director to serve beyond his retiring age

FARRAR AT 321.42 Section 190: In the span of 14 days, the directors of the company will be able to send out circulars that oppose the said resolution at the company’s expense, whereas the member can only make his case at the General Meeting. If the member wanted to move circulars explaining his resolution, then the notice requirement changes and section 188, CA 1956 governs the proceedings.

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days, it is urged by Eilis Ferran, would give the director enough and more

time to prepare his brief and circulate the same at the cost of the company,

not to mention, the case is likely to be stronger as the 1000 word limit does

not apply in presenting his case.43

Attached along with the resolutions, every member is entitled to circulate

statements not exceeding 1000 words to the other members detailing and

explaining the resolutions that they wish to place before the general

meeting. However, the cost of circulation must be borne by the persons

wanting to circulate the same, unless the company otherwise resolves a sum

payable by them that is reasonable.44 Termed as an unjustified luxury of the

Board, a defense to the same luxuries would arise in cases where the

dissenting member proposes to move a requisition because of a decision

wherein the board had possibly sided with an opposing group of members;

in such a case, it may be justified that the board uses the money of the

company in explaining to them and other members the reason and logic for

actions of the board.45

43 FERRAN AT 224. 44 Section 188 (1)(b) CA 1956. 45 STEINBERG V. ADAMS: F SUPP 604 1950: The controversy in this case is the payments made by the corporation to defray the expenses incurred by two contesting parties in connection with an election of directors. The contest was conducted by printed appeals for proxies addressed to the stockholders, and employment of proxy solicitors and other devices and both parties had incurred expenses to the tune of $20,110.64 and $27,755.82 to win over the management and the insurgents. The court held that where the controversy is concerned with a question of policy as distinguished from personnel of management and the stockholders are called upon to decide it, it would be legal for directors to make such expenditures from the corporate treasury as are reasonably necessary to inform the stockholders of the considerations. The Court further held that a change in personnel would sometimes be indispensable to a change of policy and thus, it was not a contest. ROSENFIELD V. FAIRCHILD:309 NY 168 1955: In this case, there was a stockholder's derivative action brought by plaintiff as he seeks to compel the return of $261,522, paid out of the corporate treasury to reimburse both sides in a proxy contest for their expenses. The court held that if directors of a corporation may not in good faith incur reasonable and proper expenses in soliciting proxies in these days of giant corporations with vast numbers of stockholders, the corporate business might be seriously interfered with because of stockholder indifference and the difficulty of procuring a quorum, where there is no contest. The test laid down by the court was that when the directors act in good faith in a contest over policy, they have the right to incur reasonable and proper expenses for solicitation of proxies and in defense of their corporate policies, and are not obliged to sit

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Despite the number of provisions relating to the calling of the general

meeting, there exist circumstances where the calling of a general meeting

might be beyond the control of the board of directors because of

impracticability. Fortunately, the Court has been given the power to step in

to remedy the situation and call a general meeting instead of the Board.46

One of the instances where the Court has deemed intervention to be

necessary is when quorum could not be met- in cases where the minority

shareholder holds out. The Courts have held, as previously suggested by the

Cohen Committee that one person present in person or by proxy shall

constitute quorum for a meeting and this ruling has effectively found an

effective solution to quorum tactics of the minority members.47 This

rationale has now found place is sections 167 and 186 of CA, 1956.

In the authors view, the most controversial aspect of the business of the

company are the procedures relating to voting on resolutions- specific

regard to the right of every member to appoint a proxy. Under section 176

CA, 1956 proxies have conventionally been called on for the purpose of

facilitating shareholder democracy;48 however they also lead to the problem

idly by.46 The Tribunal may exercise this power either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote. Section 186 CA, 1956. 47 Section 174 CA, 1956 provides for the quorum of a meeting and the same is set at 5 for a public company and 2 for a private company. Section 371 (2) of Companies Act 1985 of the United Kingdom is the equivalent provision. However, courts have in certain cases, held that one person can constitute quorum: IN RE: WHITCHURCH INSURANCE CONSTULTANTS: 1993 B.C.L.C. 1359: There was a motion made by the members of the company to have an extraordinary general meeting of the company to remove a minority shareholder from the position of director. The applicant held 666 of the 1,000 shares in the company and the respondent held the other 334. Though the petition gave no substantial grounds for alleging oppression or prejudice in respect of this company, on these facts, the court held that it was right to exercise the discretion under s. 371. The court further held that it was impracticable to hold a meeting and it was plainly right and desirable to get a proper board into the company by allowing the meeting to be held for the purpose of dealing with the present inqourate state.

48 In cases where the shareholder finds it inconvenient to attend a general meeting and there is a resolution in whose favour the member would like to cast his vote, he can, under the aegis of section 176 proceed to appoint a proxy who will, in his place attend the meeting and vote. However, there are certain restrictions placed on a proxy. Gore-Browne

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of solicitation of votes by the Board.49 In order to curb this practice, there

are certain protections that have been advanced in the CA 1956 and the

Listing Agreement.50 A tried and tested measure to curb the directors of the

company from using the company machinery to issue proxies in their favour

is to have the proxies sent at the instance at the board to be made available

to all members and not merely select ones.51

Moreover, it has been practice that the board, while sending out proxy

forms, would issue forms in favour of their proposal along with detailed

explanations, and this would likely result in the proxies being swung by

these very elaborate explanation. In a bid to stop this disheveled practice,

the Stock Exchange through the Listing Agreement requires that all

companies will send out ‘two-way’ proxy forms, i.e. forms which can either

vote for or against a resolution.52 However, even with such measures to

curb the heinous practice, the problem does not stand completely negated

as the board still maintains the early mover’s advantage.53

To add to the worry, final decisions of the proxy, however, cannot be called

into question in cases where the proxy has acted in a manner not consistent

with the wishes of the member directing him, unless it arises in cases where

on Companies (ed. The Rt Hon the Lord Millet, Alistair Alcoch et al, Bristol: Jordans, 45th

edition, 2006) AT 1124. HEREINAFTER GORE-BROWN.49 Since the directors are the first to send out their circulars with the explanations, it is only the most earnest of proxies that hear out both sides and then vote based on merit. PENNINGTON AT 268.50 Section 176 (4) CA 1956 and Clause 34 (f) of the Listing Agreement. 51 It is the norm that a proxy may not speak at a meeting, unless the articles provide differently, and as regards voting, a proxy can only take part in a poll and not in a show of hands called by the chairman, and therefore the likelihood that the board can solicit the proxy to vote in a particular manner is high considering they act first and defiantly. Since the advent of Proxy solicitation, the protection afforded under the regulations 176 (4) CA 1956 and clause 34 (f) of the listing agreement take particular significance. Ghosh and Chandratres Company Law (New Delhi: Bharat Publishing House, 13th edition, 2007) AT 312. HEREINAFTER GHOSH-CHANDRATRES.52 The Jenkins committee had suggested that this be statutorily applicable to a public company in the UK and the same was not implemented. Although, in the UK, the same has found an appearance in the Listing Agreement, it provides a proxy with discretion apart from the two way proxy form. S. Sheikh and W. Rees, Corporate Governance and Corporate Control, (London: Cavendish Publishing Ltd., 2000) AT 229.53 PEEL V. LONDON: 1907 1 CH 5, CA.

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fiduciary duties exist54 or in cases where there is a contract as per which

the proxy is to remunerated.55 In a bid to better resuscitate the practice, the

Kumara Mangalam Committee on corporate governance had noted the

specific issues that arose with the advent of proxy voting, but had concluded

that the system was both ineffective and misleading though essential, and

therefore, voting by postal ballot and electronic means would be another

option that is open to the members to consider exploring.56

Having crossed the various hurdles with respect to the moving of

resolutions and the voting mechanisms, the normal practice in meetings

would require a vote to be counted first on a show of hands and then, if a

valid demand is made, for a poll to be held. The difference is crucial

because on a show of hands each member present will have one vote

irrespective of the number of shares held, whereas on a poll members can

cast votes attached to all of their shares.57 A proxy cannot vote on a show of

hands, unless the articles specifically provide for the same and in the event

that this is allowed by the articles, a proxy can record only one vote even if

holding out for more than one.58 It is fortunate that the CA, 1956 under

section 179 crystallizes and protects this distinction and the right of a

member to demand for a poll.59 54 A Prime example is a case where the proxy is a professional advisor to the shareholder. GOWER at 581. 55 Unless there is a binding contract or any other equitable obligation, the answer lies in the negative. Normally, there is only a gratuitous authorization imposing no positive obligation on the agent, but merely a negative one not to vote contrary to the instructions of his principal if he votes at all. OLIVER V. DALGLEISH.:1963 1 WLR 1274. 56 S. Banerjee and S. Bose, “Role of Proxy in General Meeting”, 1 Company Law Journal 1 (2004). A proxy has the advantage of being able to use his discretion based on the proceedings of the meeting and can be a more real time authority check than an electronic voting medium. 57 Section 176 and 177, CA 1956.58 FARRAR AT 372. 59 Section 177, CA 1956. A show of hands, is required so as to show the mood of the members at the meeting and it is not an accurate judge of the will of the members considering that at a show of hands, a member is entitled to only one vote, irrespective of the number of shares held by him. PUNT V. SYMONS.1902 2 CH 506: In the current case, the question was with respect to one of the provisions in the company’s articles of association. The provision had stated that a demand for poll could be made by the members only if there were at least five of them requisitioning. It was held by the court that a company

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Having begun this section with the premise of exposing the impediments

that lie within the Companies Act, to consider Professor Gower’s conclusion,

that the legislature is misguided in allocating more power to the AGM, is

both self explanatory and crucial to note.60

4.0 LINKING SHAREHOLDING PATTERN AND CORPORATE

GOVERNANCE

While concluding that the working of the Companies Act does not provide

for an ideal support for the exercise of shareholder rights and protection, it

is also important to note that the negative implications of the same would

be twofold and further that they affect two separate but equally important

functions of the General Meeting: firstly, as an instrument where a

shareholder can properly exercise his rights relating to the working of the

company, and secondly as an instrument by which to ensure that the proper

control over the BOD is maintained.

Professor Gower had noted that the BOD had become self perpetuating

oligarchies that control the members rather than the members controlling

the BOD.61 The previously mentioned committees appointed to find out the

source of the problem (and Professor Gower’s statement) had previously

overlooked one key aspect- that the principles of ownership and control

over property would not apply coextensively to shares in the midst of there

being far too many shareholders; the explanation being that there would

hardly be any incentive for them to act, given the unhelpful provisions.62

Thus, it was concluded that shareholder action and participation was no

could not contract itself out of statutory rules prescribed and concurrently that the right to demand of a poll by a member could not be subject to conditions as the company deemed fit. 60 D. D. Butcher, “Reform of General Meetings”, C.f. Shakem Sheik and William Rees 229 (2000). 61 GOWER AT 512. 62 D. D. Butcher, “Reform of General Meetings”, C.f. Shakem Sheik and William Rees 230 (2000).

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longer economical for the average shareholder and therefore, the

participation rates would obviously tend towards being very low.63

The Narayanan Murthy Committee realized this trend, as information

relayed from the attendance of members at Annual General Meetings

showed that the year 2001 witnessed only 35.7% of the AGMs conducted

with a participation of more than 100 members. Considering this to be an

abysmally low number, the ensuing disgruntle promoted researchers to look

into reasons that can be attributable to the decline and it ultimately was

agreed upon that the increased shareholder passivity comes from the

increase in varied distribution of shares and shareholder dispersion; the

growth rate of the companies being the major factor, as increase in the

number of shares over the years meant that there were an exponentially

increased number of shareholders.64 The corporate governance regime

came to the conclusion that diversified shareholding would imply that the

action initiated by a single member working alone, would not yield the best

of results as the incentive for intervention, let alone active participation

would not outweigh the apparent economic costs involved. 65

63 From an economical point of view, the shareholder would not participate in the General Meeting unless the cost of intervention is lower than the benefits that he gains from the said intervention. This outcome, however, is rare in the case of small time shareholders. J. E. Parkinson, Corporate Power and Responsibility: Issues in theory of Corporate Law, (Oxford: Oxford University Press Inc., 2002) AT 154. HEREINAFTER PARKINSON.64 “Shareholder Participation in the Modern Listed Company”, Companies and Securities Advisory Committee (2000)¸available at http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFFinal+Reports+2000/$file/Shareholder_final_reportJun00.pdf. From the year 1992 to 1999, there has been an increase in over 200% in companies with shareholders above 1,000,000 and about 200% in companies with shareholders ranging between 100,000 and 250,000.65 Taking the case of removal of a director, section 284 CA 1956, states that a director maybe removed through an ordinary resolution at a general meeting, however the process is not that simple since the board has the entire company’s resources at their disposal, the high costs and the elaborate public relations exercise they bombard the members with. Even in the case of members acting as a check and balance on the affairs of the BOD, there exists hurdles that hinder the surveillance process. Report of Committee appointed on Corporate Governance: Rahul Bajaj, “CII Voluntary Code of Corporate Governance” (1998), available at http://www.nfcgindia.org/library.htm and Report of the Committee Appointed on Corporate Governance: Shri Kumar Mangalam Birla, “Report of the Kumar Mangalam Birla Committee on Corporate Governance” (1999) available at http://www.sebi.gov.in/commreport/corpgov.html.

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A study of the shareholding pattern of the Indian corporate sector revealed

that there was a marked level of shareholding in the hands of the Indian

promoters; their average shareholding in the year 2002 was as much as

48% amongst a sample of over 2,500 companies.66 Another interesting and

convoluting observation that was made was the increasing presence of

institutional bodies in general and foreign institutional bodies specifically

whose participation in the shareholding pattern increased from 3 % in 2001

to 20.4% in 2010.67

In quick succession, a relation between the effectiveness of a system of

corporate governance and the shareholding pattern and ownership was

projected, and it was suggested that the promoter as a significant

shareholder would be interested in control benefits as well the as profits of

the company, whereas an institutional investor would more likely be

interested only in the profits that the company produced and neither control

nor the goodwill would feature on its wish list.68 Thus, it became a moot

point whether efforts at improving corporate governance would succeed in

a promoter heavy setting. Since concentrated ownership placed a much

smaller burden on the legal enforcement system, corporate governance

The twenty one day limit, it has been noted by the two Indian Corporate Governance committees, is not enough in most cases to help the members understand the complex set of documents, let alone question the directors on it. 66 J. Sarkar and S. Sarkar, “Multiple Board Appointments and Firm Performance in Emerging Economies: Evidence from India”, Indira Gandhi Institute of Development Research (2005), Available at http://www.igidr.ac.in/ pdf/publication/WP-2005-001.pdfThe figures were: 48% in manufacturing, 46% in standalone firms and 51% in group companies. In comparison, the Indian public's share amounted to 35 per cent, 28 per cent and 39 per cent, respectively.67 Though this statistic would not be enough to consider a situational framework as in the case of the US where the institutional investors have a much larger share, the premise that the Indian market does not seem conducive enough to make affiliations with banks and institutions are not a pronounced feature of Indian Corporates as compared to other countries in Asia would be tested to its limits. B. S. Black and J. C. Coffee, “Hail Britannia?: Institutional Investor behavior under Limited Regulation”, 92(7) Michigan Law Review 1997 (1994). 68 E. F. Fama and M.C. Jensen, “Separation of Ownership and Control”, 26 Journal of Law and Economics 301 (1983).

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reforms in India had mainly focused on internal governance mechanisms for

systematic control and development.69

The situation however did not prosper as the attendance rate only

proceeded to decrease in the coming years as AGM attendance in 2005 was

recorded to be lower at 27.9%.70 Considering the new initiatives that were

brought in to fix the problem had by then had enough time to make an

impact, the Equity Participation Rate (EPR) and the Shareholder

Participation Rate (SPR) for postal ballot resolutions,71 for the year 2005-

2006 recorded at 58.74% and 5% was not comforting.72 To make matters

worse, a study conducted on the SPR without a postal ballot system, was

found to be lower, at around 3.3% only.73

It was then looked at that this steady and progressive decline in the

participation of shareholders could not be attributed solely to the governing

rules, as no amount of change and amendments had bettered the condition.

Reformers felt the need of the hour was for the introduction a system that

69 Corporate Governance Review of Practice, “A study of Corporate governance in leading Corporates in India”, available at http://www.nfcgindia.org/pdf/asci250808.PDF.70 K. Parmjit and G. Suveera, Patterns of Corporate Ownership: Evidence from BSE-200 Index Companies, 13(2) Institute of Management Technology (2009).71 J. P. Sharma and P. Sethi, “Impact of Postal Ballot System in Improving Shareholder’s Participation in Corporate Decision Making”, 39 Chartered Secretary 159 (2009). Equity Participation Rate (or EPR) is defined as the percentage of equity capital of the company represented by the votes cast through the postal ballot, and Shareholder Participation Rate (or SPR), is defined as the percentage of Shareholders participating in the Postal Ballot exercise and measured as the number of postal ballot forms received back by the company as a percentage of total number of postal ballot forms sent out to the shareholders.72 K. Parmjit and G. Suveera, Patterns of Corporate Ownership: Evidence from BSE-200 Index Companies, 13(2) Institute of Management Technology (2009). This indicates that even though less than 5% shareholders participated in the postal ballot process yet equity represented has been more than 58% which is on account of the typical shareholding pattern of Indian Corporates.73 S. Sinha, “Equity Markets with Controlling Shareholders”, Indian Institute of Management W.P. No. 2011-04-02, available at http://www.iimahd.ernet.in/assets/snippets/workingpaperpdf/8949079892011-04-02.pdf. The lower rate can be justified by the looking at the postal ballot system as an added convenience over the personal attendance mechanism which has accounted for this lower rate. The rate of other Countries, especially Australia stands high at just over 40%.

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further incentivized the individual member shareholder to participate in

effective corporate governance.

5.0 INCENTIVISING THE PASSIVE SHAREHOLDER

Attempts to rekindle constructive participation at General Meetings have

always been an agenda for the drafting committee on the CA. The

Companies Amendment Bill 2003, introduced in the Rajya Sabha, included a

clause to enable holding of general meetings on Sunday and this would have

been a salutary end for improving corporate democracy if it weren’t for the

fact that the same has not been incorporated into the Companies

Amendment Act 2009. 74 The last measure that dealt with the amending the

procedures of the Act was the addition of section 192A to the CA, which

allowed for the passing of resolution for a public listed company via postal

ballot.75 From the perspective of a member, this would do away with the

hurdles that both travel and the time taken in attending a general meeting.

However, statistical data, as previously shown did not support this ideal and

there as the need for something more, and it came in the form of the

introduction of voting through an electronic medium.

It was envisaged that the use of integrated video conferencing and voting

though the internet76 would substantially lower the costs of both conducting

and attending a general meeting.77 However, it must be stated that there

74 G. D. Agrawal, “Corporate Democracy needs further improvement”, 54 Company Law Perspective 30 (2003). 75 However, this is subject to the condition that the company is

a. A listed public companyb. To business that the government may, by notification allow

Section 192A, CA 1956. 76 Voting through the corporate home page by the shareholder or the proxy, as the entry to the site would be available only to registered shareholders. Such an option would lead to equality between shareholders irrespective of the number of shares, as all would have access to similar information, since there can be the delivery of proxy material on the internet. R. Balakrishnan, “Constructive use of the AGM”, 79 Company Law 182 (2007).77 G. P. Kobler, “Shareholder Voting through the Internet: A Proposal for Increased Participation in Corporate Governance”, 49 Alabama Law Review 673 (1998).

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are those functions which a member cannot undertake through a postal

ballot system or through the use of the internet,78 and basic means of

communication- personal presence and active participation in the discussion

before the vote cannot be substituted, and for the same reason the proxy

system and the corporate representative ideal cannot be overlooked

completely.

Another direction towards increased participation was envisaged in section

187 CA, 1956 as per which a company may authorize such person as it

thinks fit to act as its representatives at meetings and he may in addition

exercise the same powers as the body corporate as if it were an individual.79

It would prima facie be preferable for a company to appoint a

representative over a proxy since he may speak and may also vote on a

show of hands. However, the impact was merely makeshift as the

inconvenience regarding the appointing of a representative is in the case of

a nominee company holding shares on behalf of beneficial owners with a

variety of views on the matter at issue persisted to be a problem.80

Moreover, unlike in the case of proxy appointment, where a company is

entitled to appoint more than one proxy, a company can appoint only one

representative. Adding to this infirmity, in practice, the relation between a

nominee company and the beneficial owner isn’t that smooth as there are

logistical problems due to the onus of the nominee having to consult the

beneficial owner to ask for his intention at a vote for every resolution.81 This

back and forth communication could lead to problems as there would not be

enough time for the entire communication process; having kept this

78 Only a proxy can ask for an adjournment of a meeting, furthermore, allowing the proxy to use his discretion through the course of the meeting is also preferred by a lot of shareholders to the electronic means because of the interaction that could determine decisions from the meeting itself. The same however is not possible in the case of electronic voting or voting through a postal ballot. 79 A Ramaiya, Guide to the Companies Act Part I (Nagpur: LexisNexis Butterworths, 17th

Edition, 2010) at 1546.80 GOWER AT 584. 81 FERRAN AT 324.

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condition in mind, the National Association of Pension Funds {NAPF}

suggested that companies should be given at least three months warning of

contentious matters at forthcoming general meetings as it would give fund

managers more time to consult.82

There is no present legal mechanism that covers the regulation of questions

that can be asked by the members at a general meeting. Although

companies do not generally disallow questions on a wide area of topics, the

Department of Trade and Industry in the United Kingdom did consider the

possibility of codification of practice with regard to the questions.83

However, the proposal was not taken up any further as the DTI felt that this

was something the companies should foster themselves as per the best

practice rules under the Combined Code.84 A move in this direction, would,

in the authors opinion only benefit and solidify the member’s right to ask

questions and does not, in any way jeopardize the BOD of the company, if

the questions are monitored by a third party moderator.85

Looking for ways to make the general meeting a worthwhile investment for

a shareholder, there needs to be a greater role for the individual

shareholder to play than the current passive existence, as pronounced in

the work of S. Black.86 It is suggested that the General Meetings,

specifically the AGM should deliberate upon two resolutions that would help

in better governance: the Governance resolution and the Remuneration

resolution.87 In addition, the result of the resolution should be made public

82 B. S. Black and J. C. Coffee, “Hail Britannia?: Institutional Investor behavior under Limited Regulation”, 92(7) Michigan Law Review 1997 (1994). 83 FERRAN AT 326. 84Corporate Governance Review of Practice, “A study of Corporate governance in leading Corporates in India”, available at http://www.nfcgindia.org/pdf/asci250808.PDF. 85 Janet Dine, Company Law (London: Macmillan, 1998) AT 108. HEREINAFTER DINE.86 N. Sachdev, “Significance of Annual General Meeting in Corporate Governance”, 64 SEBI and Corporate Laws 28 (2005).87 Remuneration Resolution: Information regarding the board’s remuneration to be disclosed completely to all shareholders. A maximum limit of remuneration that is fixed by the members at the General Meeting to serve as a ceiling limit.

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and making it an indicator of the management of the company.88 Further,

the proxy system has been described by Gower to be deceptive and in

reality, helps with the dictatorship of the Board; for this, an innovative and

borrowed suggestion was made by D. D. Butcher. Citing the working of the

election system in the parliament, the author suggested that proxy cards

that are sent to the member shareholders must consist of three options:

‘for’, ‘against’ and ‘abstain’ and the same was to be sent to an independent

body for counting and not to the BOD.89

6.0 THE COMPANIES ACT 2009 AND INSTITUTIONAL INVESTORS: A

CIRCULAR PREMISE?

The resolutions stated above cater to increased and easy involvement of the

member shareholder in the activities of the company. The Companies

Amendment Act 2009 does propose for some promising result as some of

the hindrances have been done away with. Clause 85, relating to the calling

of an AGM has dispensed a ‘One Person Company’ from calling an AGM.

Clause 85 also changes the time period in which to call the first AGM from

18 months after inception to 9 months from the date of closing of the first

financial year of the company.

Clause 85 (2) recognizes the problem of discounting public holidays as an

occasion to hold an AGM and therefore has reduced the burden to excluding

Governance Resolution: the governance resolution consists of the agreement that the shareholders have the right to make public all the proceedings of the meeting which, in turn should incentives the directors to stick to corporate fairness. An example of a measure that is likely to be passed at a governance resolution it that where all votes cast at meetings are revealed to the shareholder; for, against and abstain. 88 When results are made public, potential shareholders and current shareholders will be likely to be effected by the grading that is given to the corporation and thereby insist on either leaving or making changes in the governing. This measure will incentivize the directors to act in accordance with the rules as their actions now directly lead to investor attraction/repulsion. 89 D. D. Butcher, “Reform of General Meetings”, C.f. Shakem Sheik and William Rees 226 (2000).

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only National Holidays. Moreover, clause 86 gives power to the Tribunal to

call the AGM of a company if there is any default; a power that previously

rested only with the Central Government. The role that is to be played by

the electronic media has been given formal recognition as it finds mention

in clause 90 which states that notice of the general meeting may be given in

writing or through an electronic medium. The same is with the case of

appointing of proxies under clause 94 and in the case of procedure relating

to voting via clause 97 wherein a member is given the freedom to exercise

his right to vote through an electronic medium, in the manner provided.

Clause 91: explanatory statement and its annexure make the disclosure duty

on directors more stringent as the shareholding qualification has been

reduced from 20% to 2% for an interested director. However, procedure

regarding voting has seen a mixed outcome as the qualification amount of

demanding a poll has been raised to five lakh rupees paid up capital (clause

98). Clause 99 and postal ballots sees the qualifications necessary for a

company to transact through postal ballot reduced as the option is now

open to all companies, the listed company requirement being done away

with. There are two major highlights to the Amendment Act; the first being

the provision on circulation of member’s resolution which does not have a

qualification standard, and secondly, every listed public company is now

required to prepare a report on each AGM and file the same with the

Registrar: clause 109.

With legislative enactments in the said areas, positive results with regard to

nullifying shareholder passivity can be expected. However, the fact still

remains that there are still certain factors over which there is no control

and therefore have to be ceded to. One such factor is the growing

investment made by institutional investors. Seen as powerful machinery,

more than sufficiently equipped, the institutional investor has both the

credibility and largesse required to poke its nose effectively into company

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affairs.90 Institutional investors do not change the position of the passive

shareholder and therefore does not affect the general meeting in any lasting

way. Considering the situation to be as thus, there arises a more pertinent

question: has the concept and ideal of a shareholder evolved?

Annexure-I

SUMMARY OF ARTICLES AND REPORTS

1. D. D. BUTCHER, “REFORM OF GENERAL MEETINGS”, C.F. SHAKEM SHEIK AND WILLIAM

REES 221 (2000).

The article outlines the historical evolution of the various law reforms relating to general

meetings and the contexts in which they arose. After having discussed the various reforms, the

article begins to analyze as to why the general meeting has become a farce and the reasons for

the same. In conclusion, the author proposes reform measures under four broad categories;

auditing, shareholder director, voting and resolutions. The article has been used in order to fill in

the various contexts behind the reform movements and further, reform measures that deal with

the resolutions have also been incorporated in the paper.

2. G. D. AGRAWAL, “CORPORATE DEMOCRACY NEEDS FURTHER IMPROVEMENT”, 54

COMPANY LAW PERSPECTIVE 30 (2003).

The article calls for improved corporate responsibility from the shareholders and makes an

account of the various provision in the Companies Act 1956 that allow them to do so. The author

distinguishes between the roles of the Board of Directors and the members and recounts that the

Board of Directors are always accountable to the members. The author lays emphasis on the

90 J. Coffee, “Liquidity versus Control: The Institutional Investor as Corporate Monitor”, 10(2) Bond L. Review 376 (1998): However, consideration ought to be given to the fact that they act outside the corporation and moreover, that their interest in the company would remain only as long as the company turns over the green. Adding further, there is also the problem of adding another level of bureaucracy between the shareholder and the company.

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power of the general meeting to remove a director, the quorum requirements and the proxy

mechanisms involved. This article has been used in order to ascertain those areas of law that

need reforming, when looking at the annual general meeting.

3. J. P. SHARMA AND P. SETHI, “IMPACT OF POSTAL BALLOT SYSTEM IN IMPROVING

SHAREHOLDER’S PARTICIPATION IN CORPORATE DECISION MAKING”, 39 CHARTERED

SECRETARY 159 (2009).

In this article, the impact of the introduction of section 192A is being considered. The need for

the amendment, as well as the background for the same was looked into by the authors. Most

importantly, the authors collected data regarding the average attendance at AGMs without the

use and with the use of the postal ballot system. Moreover, the authors also compared the

participation rate amongst various countries to conclude that the 192A amendment has not

brought about any significant change, though it was a novel idea. The author has used this

premise and the data in the article to substantiate his point on the effect that statutory regulations

would have.

4. K. PARMJIT AND G. SUVEERA, PATTERNS OF CORPORATE OWNERSHIP: EVIDENCE FROM

BSE-200 INDEX COMPANIES, 13(2) INSTITUTE OF MANAGEMENT TECHNOLOGY (2009).

In this article, the authors correlate the ownership pattern of the Indian corporations with the

amount of corporate governance improvement in the corporation. The authors distinguish

between family/promoter owned and institutional owned corporations and attempts to survey

which amongst the two systems is better for effective corporate governance. The author has use

the data dealing with the shareholding pattern in order to assess the reasons for shareholder

passivity. Moreover, the article has been used in order to assess the role of institutional investors

as a means to better corporate governance.

5. L. C. BEBCHUCK, “THE CASE FOR INCREASING SHAREHOLDER POWER”, 118 HARVARD LAW REVIEW 96 (2011).

The article works on the premise that shareholders in America did not possess the power to intervene in

the management of the company and therefore, could not make corporate decisions. With the problem

of dispersed ownership in the US, more so than in any other nation, the power of the management and Page | 28

the weakness of the ownership is not surprise. Shareholders are urged to intervene in three corporate

decision making avenues; rules of the game- wherein the shareholder is entitled to improve the

contractual and legal arrangements governing the corporation in order to avoid the inefficient tilt. Game

ending decision ensures that the monopoly and perpetuation of the company does not continue beyond

a certain point without the assent of the shareholders. Finally, scaling back regime would help more in

empire building and the problem of free cash flow as there would be an increased monitoring of the

activities of the Board. The article has been used to gain a background into the various avenues that are

exploited by the Board, and which the members seek to actively participate in and curtail.

6. N. SACHDEV, “SIGNIFICANCE OF ANNUAL GENERAL MEETING IN CORPORATE

GOVERNANCE”, 64 SEBI AND CORPORATE LAWS 28 (2005).

The author highlights the need and rational for the separation of the two organs of the company

in order to highlight the importance of the AGM. Having done that, the author proceeds towards

the premise of the paper that the importance given to the AGM has come down in recent times.

Highlighting the various drawbacks in the current legislative scheme, the author concludes that

apart from statutory remedies, what are needed are incentivisation measures for the average

shareholder. The article has been used to expound on the Director remuneration resolution and

the governance resolution as measure to better incentives the members while maintaining a

check on the BOD.

7. R. BALAKRISHNAN, “CONSTRUCTIVE USE OF THE AGM”, 79 COMPANY LAW 182 (2007)

The author emphasis on the need for constructive use of the annual general meeting. The author

emphasis on the lack of the same in Indian, though the Hampel committee report had just listed

out non-mandatory provisions that could be adopted. The author then moves onto discuss the

various provisions relating to the functioning of the AGM and points out the difficulties with

each. The article has been used to bring about deliberation on the topic of length of notice in an

AGM.

8. B. S. BLACK, “SHAREHOLDER PASSIVITY EXAMINED”, 89 MICHIGAN LAW REVIEW 520

(1990)

This article, considered to be the bible of activist shareholders lays out the various impediments

Page | 29

to the active participation of the members in the affairs of the company and the AGM. Beginning

with the proxy system, to the disclosure arrangement, to collective action problems, to

management controlled agenda, the article highlight the main reasons for shareholder apathy and

disgruntle with the general meetings of the company. The increasing impact that institutional

investors have on the passivity and economic weighing of the average shareholder has also been

discussed. The article has been used to obtain an understanding into the various problems that

plague the current system. Furthermore, the article also proposes certain essentials that would

help better the passive situation.

9. S. K. VERMA AND S. GUPTA, “CORPORATE GOVERNANCE AND CORPORATE LAW

REFORM IN INDIA”, 25 ASIAN LAW SERIES (2004)

The article traces the history of corporate governance in India, the various phases and the legal

instruments used to enforce the principles under the system. The article connects the rights of the

stakeholder as being the basis for corporate governance and draws a link between the economical

and financial developments in India to the corporate governance regimes. The article has been

used to highlight the nexus between the economic, financial and legal regime and their

interrelations.

10. S. BANERJEE AND S. BOSE, “ROLE OF PROXY IN GENERAL MEETING”, 1 COMPANY LAW

JOURNAL 1 (2004).

The article delineates on the various aspects of the proxy mechanism provided for under the

Companies Act 1956. Apart from discussing on the fundamental reasons for the existence of the

system, the article also moves onto to provide for the implications and powers of a proxy. This

article has been used to cite the various advantages and disadvantages of using the proxy system,

when compared to e-voting and corporate representatives.

Page | 30

SUMMARY OF CASES

1. RE. HECTOR WHALING LIMITED: (1936) 1 CH D. 208.

In this present case, the issue was regarding a notice that was sent, convening an extraordinary

general meeting of the Company on 30th May, 1935 dated and posted on 8th May, 1935. The

articles of the company provided for the service of notice only on the 9th of May, 1935. The

court further held that it was not open by the Articles of Association to curtail the length of time

which the statute had fixed. Therefore, in the present case, having excluded the date of the

meeting, the total period of notice would only come to 20 days and this was considered to be

void and illegal.

This case has been used by the researcher to illustrate that the 21 day clear notice period is

mandatory under the Act.

2. NVR NAGAPPA CHETTIAR V. MADRAS RACE CLUB: (1949) 19 COMPCAS 175 (MAD)

In April, 1947, 45 members of the Club sent a requisition to the Club for convening an

extraordinary general meeting for the purpose of appoint a committee to consider the revision of

the Articles of Association. On the 16th of October, notice was issued to the Club members of

the extraordinary general meeting on the 7th of November, 1947. The Court in this case held that

the date of the meeting and the date of service of notice were to be excluded in counting the 21

clear day’s period. Thus, the meeting was held to be illegal and void.

The case has been used to cite an example regarding the calculation of the dates when looking

into the notice period. The case used the interval of 21 days between the meeting and service

date principle.

3. BALWANT SINGH SETHI V. SARDAR Z.H. SINGH: (1988) 63 COMPCAS 310 (BOM)

The respondent filed a case against the appellant for a declaration that the requisition contained

in the letter dated September 21, 1987was not a valid and lawful requisition for calling an

extraordinary general meeting. The Court held that pursuant to section 53(2)(b)(i), the notices

will have to be deemed to have been received after 48 hours from the day of posting, that is, on

Page | 31

2nd and 3rd. Therefore, since the meeting is to be held on September 21, 1987, the notices posted

on August 31, 1987, and September 1, 1987, cannot be held to be 21 days' clear notice to the

members.

This case has been in order to cite an example of a case wherein 21 clear days would constitute

the non regarding of the day of service of notice and the day of meeting.

4. MAHARAJA EXPORTS V. APPAREL EXPORTS PROMOTION COUNCIL: 1986 60

COMPCAS 353 (DEL)

In the present case, the plaintiff filed a case for declaring that the 4th Annual General Meeting

purportedly held on 16-5-1984 was illegal and invalid. The notice was issued on 27-4-1984 and

on 30-4-1984 the plaintiff received the notice for the General meeting of the defendant to be held

on the l4th May 1984. In this case, the court held that 48 hours would have expired on 29-4-

1984. Under these circumstances as already observed earlier the notice issued on 27-4-1984 will

expire on 29-4-1984 which is well within the phrase '14 days clear notice'.

5. STEINBERG V. ADAMS: F SUPP 604 1950

The controversy in this case is the payments made by the corporation to defray the expenses

incurred by two contesting parties in connection with an election of directors. The court held that

where the controversy is concerned with a question of policy as distinguished from personnel of

management and the stockholders are called upon to decide it, it would be legal for directors to

make such expenditures from the corporate treasury as are reasonably necessary to inform the

stockholders of the considerations. The case has been used to explain how directors of a

company may be justified in passing circulars and resolutions at the expense of the company.

6. ROSENFIELD V. FAIRCHILD:309 NY 168 1955

In this case, there was a stockholder's derivative action brought by plaintiff as he seeks to compel

the return of $261,522, paid out of the corporate treasury to reimburse both sides in a proxy

contest for their expenses. The court held that if directors of a corporation may not in good faith

incur reasonable and proper expenses in soliciting proxies in these days of giant corporations

with vast numbers of stockholders, the corporate business might be seriously interfered with

Page | 32

because of stockholder indifference and the difficulty of procuring a quorum, where there is no

contest. The test laid down by the court was that when the directors act in good faith in a contest

over policy, they have the right to incur reasonable and proper expenses for solicitation of

proxies and in defense of their corporate policies, and are not obliged to sit idly by.

This case was used to illustrate the conditions necessary to be fulfilled by the director before he

set out to utilize the proceeds of the company for policy purposes.

7. PEEL V. LONDON: 1907 1 CH 5, CA

In the present case there was a controversy regarding to policy affecting the management of the

company and in pursuance of this, the directors sent to each shareholder a circular setting out the

facts and their views. The issue that arose was the expenses of printing, posting, and stamping

these documents was paid for out of the funds of the company. Therefore the shareholders

brought an action to restrain the company and the directors from using the funds of the company

in paying expenses thus incurred. The court held the expenditure to be completely justified since

it was a matter of policy.

8. PUNT V. SYMONS.1902 2 CH 506

In the current case, the question was with respect to one of the provisions in the company’s

articles of association. The provision had stated that a demand for poll could be made by the

members only if there were at least five of them requisitioning. It was held by the court that a

company could not contract itself out of statutory rules prescribed and concurrently that the right

to demand of a poll by a member could not be subject to conditions as the company deemed fit.

The case has been used to illustrate instances where the company had precluded the right of the

member to demand a poll.

9. IN RE: WHITCHURCH INSURANCE CONSTULTANTS: 1993 B.C.L.C. 1359

There was a motion made by the members of the company to have an extraordinary general

meeting of the company to remove a minority shareholder from the position of director. The

applicant held 666 of the 1,000 shares in the company and the respondent held the other 334.

Page | 33

Though the petition gave no substantial grounds for alleging oppression or prejudice in respect of

this company, on these facts, the court held that it was right to exercise the discretion under s.

371 . the court further held that it was impracticable to hold a meeting and it was plainly right

and desirable to get a proper board into the company by allowing the meeting to be held for the

purpose of dealing with the present inqourate state. The case illustrates how the Court may

intervene in cases where necessary and convene a general meeting.

Page | 34

BIBLIOGRAPHY

Articles

1. A. Belcher, “Regulation by Market: the case of Cadbury Code and Compliance

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4. D. D. Butcher, “Reform of General Meetings”, C.f. Shakem Sheik and William Rees 221

(2000).

5. E. F. Fama and M.C. Jensen, “Separation of Ownership and Control”, 26 Journal of Law

and Economics 301 (1983).

6. G. D. Agrawal, “Corporate Democracy needs further improvement”, 54 Company Law

Perspective 30 (2003).

7. G. P. Kobler, “Shareholder Voting through the Internet: A Proposal for Increased

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8. J. Coffee, “Liquidity versus Control: The Institutional Investor as Corporate Monitor”,

10(2) Bond L. Review 376 (1998).

9. J. E. Fisch, “Relationship Investing: Will it happen?,” 55 Ohio State Law Journal 1009

(2000).

10. J. P. Sharma and P. Sethi, “Impact of Postal Ballot System in Improving Shareholder’s

Participation in Corporate Decision Making”, 39 Chartered Secretary 159 (2009).

11. J. Sarkar and S. Sarkar, “Multiple Board Appointments and Firm Performance in

Emerging Economies: Evidence from India”, Indira Gandhi Institute of Development

Page | 35

Research (2005), Available at http://www.igidr.ac.in/ pdf/publication/WP-2005-001.pdf

12. K. Midgley, “Companies and their Shareholders: the Uneasy Relationship”, 24 Lloyds

Bank Review (1975).

13. K. Parmjit and G. Suveera, Patterns of Corporate Ownership: Evidence from BSE-200

Index Companies, 13(2) Institute of Management Technology (2009).

14. K. R. Chandratre, “Can a Company Pass a Resolution Without Holding a Meeting?,” 5

Company Law Journal 1 (2002).

15. L. C. Bebchuck, “The case for Increasing Shareholder Power”, 118 Harvard Law Review

96 (2011).

16. N. Parekh, “Shareholder Democracy: Participation and the Proxy System”, 5 Company

Law Journal 11 (2003).

17. N. Sachdev, “Significance of Annual General Meeting in Corporate Governance”, 64

SEBI and Corporate Laws 28 (2005).

18. P. Chakravarty, “General Meeting versus BOD: Battle for control of Modern Corporation

and Effective Corporate Governance”, 4 Company Law Journal 1 (2002).

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20. R. Grantham, “Doctrinal Basis of Rights of Company Shareholder”, 57 Cambridge Law

Journal 555 (1998).

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(2004).

22. V. Finch, “Board Performance and Cadbury on Corporate Governance”, Journal of

Business Laws 582 (2002).

Page | 36

BOOKS

1. A Ramaiya, Guide to the Companies Act Part I (Nagpur: LexisNexis Butterworths,

17th Edition, 2010).

2. Andrew Hicks and S.H.Goo, Cases and Materials on Company Law (Oxford:

Oxford University Press Inc., 2006).

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Company, 3rd edition, 1997).

4. Eiles Ferran, Principles of Corporate Finance Law (Oxford: Oxford University

Press, 2008).

5.Farrar’s Company Law (eds. John H Farrar et al, London: Butterworths, 4th edition,

1998).

6.Gower and Davies’ Principles of Modern Company Law (ed. Paul Davies, London:

Sweet & Maxwell, 8th edition, 2008).

7.Janet Dine, Company Law (London: Macmillan, 1998).

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Sons, 1987).

9. Paul Davies, Introduction to Company Law (Oxford: Oxford University Press,

2002).

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edition, 2001).

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10th edition, 2001).

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edition, 2007).

13. Gore-Browne on Companies (ed. The Rt Hon the Lord Millet, Alistair Alcoch et al,

Page | 37

Bristol: Jordans, 45th edition, 2006).

14. J. E. Parkinson, Corporate Power and Responsibility: Issues in theory of Corporate

Law, (Oxford: Oxford University Press Inc., 2002).

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University Press Inc., 2008).

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Maxwell Ltd., 2010).

17. Reinier Kraakman et.al.ed., The Anatomy of Corporate Law: A Comparative and

Functional Approach (Oxford: Oxford University Press, 2nd edition, 2009).

18. S. Sheikh and W. Rees, Corporate Governance and Corporate Control, (London:

Cavendish Publishing Ltd., 2000).

19. Company Meetings: A Compendium, (New Delhi: Taxmann Publications Pvt. Ltd.,

2004).

Online resources:

1. “Shareholder Participation in the Modern Listed Company”, Companies and Securities

Advisory Committee (2000) available at

http://www.camac.gov.in/camac/camac.nsf/byHeadline/PDFFinal+Reports+2000/$file/

Shareholder_final_reportJun00.pdf.

2. Combined Code on Corporate Governance (2003), available at

http://www.fsa.gov.uk/pubs/ukla/lr_comcode2003.pdf

3. Corporate Governance Review of Practice, “A study of Corporate governance in leading

Corporates in India”, available at http://www.nfcgindia.org/pdf/asci250808.PDF

Page | 38

4. Corporate Governance: Recommendations for Voluntary Adoption, “Report of the CII

Taskforce on Corporate Governance Chaired by Naresh Chandra” (2009), available at

http://www.mca.gov.in/Ministry/latestnews/Draft_Report_NareshChandra_CII.pdf

5. ICSA best practice guides, “A Guide to Best Practice for Annual General Meetings”,

available at http://www.icsa.org.uk/policy-guidance/guidance-and-reports/best-practice-

guides

6. OECD Principles on Corporate Governance, available at

http://www.oecd.org/dataoecd/32/18/31557724.pdf

7. S. K. Verma and S. Gupta, “Corporate Governance and Corporate Law Reform in India”,

25 Asian Law Series (2004).

8. S. Sinha, “Equity Markets with Controlling Shareholders”, Indian Institute of

Management W.P. No. 2011-04-02, available at

http://www.iimahd.ernet.in/assets/snippets/workingpaperpdf/8949079892011-04-02.pdf .

REPORTS

1. A Report of the Committee on the Financial Aspects of Corporate Governance:

Cadbury, 1992

2. Committee on Corporate Governance: Hampel, 1998.

3. Corporate Governance: Recommendations for Voluntary Adoption, “Report of

the CII Taskforce on Corporate Governance Chaired by Naresh Chandra” (2009), available

at http://www.mca.gov.in/Ministry/latestnews/Draft_Report_NareshChandra_CII.pdf

4. Protection of Shareholders Act: William Cash, 1987.

Page | 39

5. Report of Committee appointed on Corporate Governance: Rahul Bajaj, “CII

Voluntary Code of Corporate Governance” (1998), available at

http://www.nfcgindia.org/library.htm

6. Report of the Committee Appointed on Corporate Governance: Shri Kumar

Mangalam Birla, “Report of the Kumar Mangalam Birla Committee on Corporate

Governance” (1999) available at http://www.sebi.gov.in/commreport/corpgov.html

7. Report of the Committee on Company Law Amendments: Cohen, 1945.

8. Report of the Company Law Committee: Jenkins, 1962.

9. Report of the SEBI Committee on Corporate Governance: Narayanana Murthy,

2003 available at http://www.nfcgindia.org/library/narayanamurthy2003.pdf

Page | 40

TABLE OF CASES

ENGLISH CASES

1. PEEL V. LONDON: 1907 1 CH 5, CA

2. PUNT V. SYMONS.1902 2 CH 506

3. IN RE: WHITCHURCH INSURANCE CONSTULTANTS: 1993 B.C.L.C. 1359

4. OLIVER V. DALGLEISH.:1963 1 WLR 1274

5. WILSON V. LONDON MIDLAND AND SCOTTISH RAILWAY COMPANY 1940 2 ALL ER 91 (CH)

AMERICAN CASES:

1. STEINBERG V. ADAMS: F SUPP 604 1950

2. ROSENFIELD V. FAIRCHILD:309 NY 168 1955

INDIAN CASES

1. RE. HECTOR WHALING LIMITED: (1936) 1 CH D. 208.

2. NVR NAGAPPA CHETTIAR V. MADRAS RACE CLUB: (1949) 19 COMPCAS 175 (MAD)

3. BALWANT SINGH SETHI V. SARDAR Z.H. SINGH: (1988) 63 COMPCAS 310 (BOM)

4. MAHARAJA EXPORTS V. APPAREL EXPORTS PROMOTION COUNCIL: 1986 60 COMPCAS

353 (DEL)

TABLE OF STATUTES

ENGLISH STATUTES

1. Companies Act, 1985.

2. Companies Act, 2006.

INDIAN STATUTES

1. Companies Act, 1956.

Page | 41

Annexure-II

TABULAR DATA

TABLE 1: MEMBER PARTICIPATION IN AGM

AGMs attracting 300 or more shareholders 2001–2005

2001 2003 2005

35.7% 34.3% 27.9%

AGMs attracting fewer than 100 shareholders 2001–2005

2001 2003 2005

23.2% 22.4% 38.2%

TABLE 2: INVESTOR PARTICIPATION RATES IN ACTIVE GOVERNANCE

Page | 42

Country Participation Rate

Australia 40%

UK 30%

Japan 30%

US 26%

Canada 25%

France 15%

Germany 9%

Italy 7%

India 3%

Sri Lanka 2%

Source: J. P. SHARMA AND P. SETHI, “IMPACT OF POSTAL BALLOT SYSTEM IN IMPROVING SHAREHOLDER’S PARTICIPATION IN CORPORATE DECISION

MAKING”, 39 CHARTERED SECRETARY 159 (2009)

TABLE 3: PROMOTER HOLDINGS

Company Promoter Holding

TATA Tata Steel 31%

TCS 82%

Tata Power 32%

Tata Motors 33%

Tata Chemicals 32%

BIRLA Grasim Industries 25%

Aditya Birla Nuvo 39%

Hindalco Industries

27%

Ultra Tech Cement 53%

RELIANCE (MDA)

Reliance Industries

51%

IPCL 47%

RELIANCE (ADA)

Reliance Energy 34%

Reliance Comm. 67%

Reliance Capital 52%

Adlabs 55%

SOURCE: S. SINHA, “EQUITY MARKETS WITH CONTROLLING SHAREHOLDERS”, INDIAN INSTITUTE OF MANAGEMENT W.P. NO. 2011-04-

02

Page | 43

Page | 44

TABLE 4: SHAREHOLDER-WISE OWNERSHIP STRUCTURE

SR. NO. CATEGORY OF SHAREHOLDER 2001 2002 2003

1 Promoters Holding 45.08 46.24 48.611.1 Indian Promoters 30.27 31.43 33.241.2 Foreign Promoters 11.76 11.73 12.131.3 Persons Acting in Concert 3.05 3.08 3.242 Non-Promoters Holding 54.92 53.76 51.392.1 Institutions 21.10 20.21 19.432.1.1 Mutual Funds/UTI 6.42 5.48 4.762.1.2 Banks, FIs, 9.11 9.42 9.75

Insurance Companies2.1.3 FIIs 5.57 5.31 4.922.2 Non-Institutions 33.82 33.55 31.962.2.1 Corporate Bodies 8.48 8.28 6.862.2.2 Individuals (Indian public) 22.35 22.30 21.802.2.3 Others (a) 2.99 2.97 3.30

SR. NO. CATEGORY OF SHAREHOLDER 2004 2005 2006

1 Promoters Holding 46.66 46.22 45.60

1.1 Indian Promoters 31.20 30.71 30.69

1.2 Foreign Promoters 12.15 12.45 12.86

1.3 Persons Acting in Concert 3.31 3.06 2.05

2 Non-Promoters Holding 53.34 53.78 54.40

2.1 Institutions 23.51 24.99 27.78

2.1.1 Mutual Funds/UTI 5.10 5.05 5.62

2.1.2 Banks, FIs, 8.64 7.95 7.46

Insurance Companies

2.1.3 FIIs 9.77 11.99 14.70

2.2 Non-Institutions 29.83 28.79 26.62

2.2.1 Corporate Bodies 7.08 7.01 6.40

2.2.2 Individuals (Indian public) 18.96 17.24 15.11

2.2.3 Others (a) 3.79 4.54 5.11

Page | 45

TABLE 4: SHAREHOLDING PATTERN SHARES HELD BY VARIOUS CATEGORIES OF SHAREHOLDERS (NO. OF COMPANIES)

PROMOTERS HOLDINGS

Range of shareholding

Indian Promoters Foreign Promoters Persons Acting in concert

(%)2001 2006 2001 2006 2001 2006

Less than 5 34 32 97 96 117 121

5-20 13 14 5 6 8 7

20-35 33 32 5 4 5 4

35-50 23 25 6 5 3 2

50 and above 31 31 21 23 1 0

NON-PROMOTERS HOLDINGS

Range of shareholding

Institutions Non- Institution

(%) (a) (b)

2001 2006 2001 2006

Less than 55-20 18 7 0 0

20-35 46 33 18 41

35-50 54 58 60 66

50 and above 13 27 37 20

3 9 19 7

Source: K. PARMJIT AND G. SUVEERA, PATTERNS OF CORPORATE OWNERSHIP: EVIDENCE FROM BSE-200 INDEX COMPANIES, 13(2) INSTITUTE OF MANAGEMENT TECHNOLOGY (2009).

Page | 46

TABLE 5: COMPANY GROWTH RATE (NUMBER OF SHAREHOLDERS)

More than 1,000,000

500,000 to 1,000,000

250,000 to

500,000

100,000 to

250,000

50,000 to 100,000

25,000 to 50,000

1992 0 0 0 4 3 2

1999 2 0 3 2 0 3

SOURCE: “SHAREHOLDER PARTICIPATION IN THE MODERN LISTED COMPANY”, COMPANIES AND SECURITIES ADVISORY COMMITTEE (2000)

Page | 47