Cloud over online AGM for banks as they don't fall under Companies Act

Topics AGMs | Coronavirus | Lockdown

Many companies have started their process and also approved their AGMs, but need to see how it is going to implemented as this gonna be first of its kind meeting and experiment which would address thousands of shareholders | Illustration: Binay Sinha
The ministry of corporate affairs (MCA) has allowed listed companies to conduct their annual general meetings (AGMs) online because of the strict nationwide lockdown. However, there is uncertainty over whether this relief will be extended to banks, which are governed by a separate Act and don’t fall under the Companies Act.

Sources say regulatory authorities will have to issue separate guidelines for banks and some other institutions. Firms that are kept out have already approached their respective regulators, seeking clarity over conducting shareholder meetings.

“We have received queries from corporate bodies and certain public sector companies on their AGMs. Regulators are in discussion with stakeholders on the procedures which need to be outlined,” said a person privy to the development.
The MCA has provided a slew of relaxations following requests from companies because of the challenges pertaining to the social distancing norms amid the Covid-19 pandemic. On Tuesday, the ministry had even allowed companies to conduct video conferencing (VC) for the year, after it extended holding AGMs for three months until September 30.

According to the Companies Act, 2013, companies must hold an AGM within six months from the closure of the previous financial year and not beyond 15 months of the last AGM.
The markets regulator, the Securities and Exchange Board of India (Sebi), too, had eased the compliance rules for 100 companies and asked them to conduct AGMs within five months from the date of closing of the financial year. However, Sebi has not come out with the modalities of AGMs/EGMs for listed entities. It was not yet clear whether those governed by separate laws would come up with their standalone procedure or concerned regulator would a timeframe on their behalf.

 

 
For example, State Bank of India (SBI) is governed by the SBI Act, 1955. Besides, there are public sector banks that come under the Banking Regulation Act managed by the whole-time chairman of the respective bank. Similarly, an institution like Life Insurance Corporation has its own regulation.

Further, the MCA’s procedures on a virtual AGM do not address issues like the recording of minutes of meetings, rights to vote, attendance of members, and raising queries which may put rights of shareholders on stake during the lockdown. However, experts believe that in the given situation, the onus is on companies to regulate and prioritise queries from shareholders as in the case of well-attended meetings.
“While the measure has come as a resolution during the crisis, corporate meetings using VC would prove to be tremendously useful. These are cheaper for companies, more inclusive, and democratic for shareholders. One would not have heard of shareholders travelling to participate in corporate meetings, but the VC route would certainly see much larger shareholder participation,” said Nitu Poddar, principal company secretary and senior associate, Vinod Kothari & Company.

 
Many companies have started the process and also approved their AGMs, but they need to ensure that the plan is implemented properly.  Those which are practising good corporate governance are expected to start virtual meetings in June, while some will conduct these by August, as the last date has been extended until September 30, said a proxy advisory firm.

While the AGM circular comes with a timeframe which is within the calendar year 2020, considering there will be movement restrictions even after the lockdown is lifted, this practice is likely to continue for some more time. There are several countries, such as Hong Kong, Austria, Belgium, Germany, and Italy, which have started giving this facility post the outbreak of Covid-19.


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