MUMBAI: As a shareholder, were you flummoxed with the notice of the meeting, which in vague terms listed the items for which your approval was sought? Or did a last-minute addition to the discussion agenda leave you with little time to make an informed decision? The secretarial standards have taken care of these and many more issues. The new standards come into effect from July 1.
The Companies Act, 2013 recognized the need for every company to observe secretarial standards. These standards (SS-1 for board meetings and SS-2 for shareholder meetings), recently issued by the Institute of Company Secretaries of India (ICSI), are mandatory and apply to both listed and private companies. Only one-person companies (a company having just one member) are exempt from following these standards.
"Secretarial standards strengthen the provisions of the Companies Act, by providing detailed procedures on various issues — ranging from agenda of the meeting, notice intimating the meeting, required quorum or even maintenance of the minutes of the meeting,"says Atul H Mehta, ICSI's president. The standards also address any lacunae that may arise in those instances where the provisions of the Companies Act and its rules are silent, giving way to differing interpretations by companies,he adds.
India is the only country to have mandated secretarial standards for conduct of meetings and nearly 8 lakh companies will have to meet these standards, according to ICSI.
To begin with, steps have been taken to encourage shareholder participation in meetings. The notice informing shareholders of a proposed meeting is required to contain complete particulars of the venue of meeting, including a route map and prominent landmarks. Companies having a website are also required to host both the notice and route map,says Gopika Shah, partner, Pramod Shah & Associates, a firm of practicing company secretaries.
Notices sent to shareholders informing them of proposed meetings will now be more detailed. For all items of 'special business' which are to be transacted at the shareholders' meeting, the notice will include not just the resolution proposed to be passed but also an explanatory statement. This will enable the shareholders to understand the meaning, scope and implications of the matter which is to be discussed and voted upon. Typically, most items to be transacted in a shareholders' meeting fall in the category of 'special business'. For example, only a few items such as declaration of dividend or consideration of accounts at an annual general meeting fall in the category of 'ordinary business'.
Interest of directors and their relatives, and also that of key managerial personnel and their relatives in any item of business to be transacted in the meeting is also to be explained. Additional details of directors who are to be appointed or re-appointed is to be provided in the explanatory statement, such as other directorships held, qualifications, experience, shareholding,points out Shah.
At times, companies at the last minute amend the notice of the proposed meeting and add additional items to the discussion agenda. Owing to paucity of time to deliberate, shareholders are unable to take sound voting decisions.
Addition of items to be discussed is now possible only if the notice of amendment is given to all persons entitled to receive the notice of meeting, at least 21 clear days before the meeting,explains Mehta.
Additional safety measures have also been built in, especially as the law was silent on some aspects relating to modification of a resolution. Also, no modification to any proposed text of the resolution can be made, if it in any way alters the substance of the resolution, as set out in the notice sent to shareholders. Further, if a resolution has been put to vote by remote e-voting, then such resolution also cannot be amended,he says.
Shah adds: Resolutions for items of business which are likely to affect the market price of the securities of the company also cannot withdrawn. This will protect the shareholder from volatile fluctuations in market price of the company's shares."
Safeguards have been built in regarding conduct of the meeting proceedings. A chairman of a public company cannot propose any resolution in which he is deemed to be interested nor conduct meeting proceedings in this regard. This step will ensure that the members are not lured by the objective and implications explained by an interested chairman,says Shah. If any director is unable to attend a meeting, the chairman conducting the meeting is required to explain such absence to the shareholders.
Companies can no longer distribute gifts, gift coupons or cash at shareholder meetings. While ICSI had recommended this even earlier, it was then not mandatory for companies to follow the recommendation.
Various processes have also been streamlined, such as inspection by shareholders of documents relating to matters that will be discussed in the meetings, or standardization in keeping the minutes of the meeting.
Board meetings
Improved procedures have also been set for board meetings. At least a 7-day notice is required for convening a board meeting, even if the meetings are held on pre-determined dates. Further, draft minutes are to be circulated to all board members within 15 days of the conclusion of the board meeting.
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