15 May 2014

Bombay HC on CA 2013

Important Judgement of Hon'ble Bombay High Court with respect to Companies Act, 2013


The Hon''ble Bombay High Court has made several important and interesting observations with respect to the Companies Act, 2013, recently on 8th May 2014, in the matter of Godrej Industries Limited.

The issue for consideration before the court was whether in view of the provisions of Section 110 of the Companies Act, 2013 and SEBI Circular dated 21st May 2013, a resolution for approval of a Scheme of Amalgamation can be passed by a majority of the equity shareholders casting their votes by postal ballot, which includes voting by electronic means, in complete substitution of an actual meeting. In other words, the issue considered by the Court was whether the 2013 Act, read with various circulars and notifications, has the effect of altogether eliminating the need for an actual meeting being convened. Along with this issue, the Hon'ble High Court also discussed several other matters such as the issue of effectiveness of the rules prescribed by the Ministry of Corporate Affairs ("MCA") under the Companies Act, 2013.

Interestingly, amongst the various discussions in the Order, the Court pointed out certain grey areas that persist with respect to the interpretation of the provisions around the issue under discussion. In Para 18 of the order, the Court pointed thus

"Far too many grey areas that still persist — the SEBI circular of 17th April 2014 is apparently differed; the Management & Administration Rules are not yet gazetted; Sections 230 and 232 of the 2013 Act are not yet brought into force; there is an apparent conflict between the requirements for a quorum coram and Section 110; it is doubtful whether Section 110 or any SEBI circular mandating exclusive voting by postal ballot can apply to a court- convened meeting.


Discussing the issues, and the considerations around it in much detail, the Court reached the following conclusions:

  1. The Court noted that the website of the Ministry of Corporate Affairs has a link to a single scanned PDF file entitled "COMPANIES ACT 2013 - STATEMENT OF NOTIFICATION OF RULES" on its front page where about 21 rules are listed. They are all said to be effective 1st April 2014. Several of these are not yet gazette. The Court Hon'ble Judge expressed his concern as to how such rules can be made effective on a basis where a ministry simply puts up some scanned document under the signature of one of its officers but without any publication in the official gazette. The Court noted that publication is not an idle formality and has fact a well-established legal purpose. That purpose is not and cannot be achieved in such an ad-hoc manner. Therefore, the Court ruled that, till such time as these rules are gazetted, or there is some provision made for the dispensation of official gazette notification, none of the rules in the Ministry of Corporate Affairs PDF document that are not yet gazetted can be said to be in force.
  2. The Court concluded that all provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of an actual meeting cannot and do not apply to court-convened meetings. At such meetings, provision must be made for postal ballots and electronic voting, in addition to an actual meeting. Electronic voting must also be made available at the venue of the meeting. Any shareholder who has cast his vote by postal ballot or by electronic voting from a remote location (other than the venue of the meeting) shall not be entitled to vote at the meeting. He or she may, however, attend the meeting and participate in those proceedings.

In addition to the above, the Court observed that effect, interpretation and implication of the provisions of the Companies Act, 2013 and the relevant SEBI circulars and notifications, to the extent that they mandate a compulsory or even optional conduct of certain items of business by postal ballot (which includes electronic voting) to the exclusion of an actual meeting are matters that require a fuller consideration. It directed that the Company Registrar shall send an authenticated copy of present order to both the learned Additional Solicitor General and to SEBI requesting them to appear before the Court when this matter is next taken up for a consideration of this issue. Further, the Court laid down that until this issue is fully heard and decided, no authority or any company should insist upon such a postal-ballot-only meeting to the exclusion of an actual meeting.

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