Shareholders participate in the management of the listed companies. The Companies act of 2013 and SEBI, a regulatory body, protects the interest of the shareholders. In 2020, Kotak committee recommendations are added to corporate governance. These recommendations led to the participation and rights of shareholders in India. The Insurance regulatory and development authority of India encouraged the participation and protection of shareholders. The code for insurers is a set of guidelines for understanding the shareholder’s conduct, participation in the meetings and disclosures. The shareholder’s participation improves the relationship, return on investment and informed decisions.
The case law from Zee entertainment and OFI global china fund LLC and Invesco developing markets fund explains the importance of investor relationships and compliance. The blog engages the readers with an explanation of case law and new guidelines regarding shareholder democracy.
The limitation on powers of directorship, skills of directors, the appointment of female independent directors, transactions by a related party, and usage of funds from the preferential issue in the financial year are the areas of shareholder democracy that changed in recent years. The case of Zee entertainment and OFI from China forms the ground for understanding shareholder activism. The shareholders in India find it a great relief. Now, the shareholders have primary rights to hold an EGM for changing the composition of the Board.
On 11th, September 2021, the investors of Zee holding, with a 17.88 per cent stake want to conduct EGM. The EGM was to change the CEO and board. Zee reported to the Bombay high court that the requisition is invalid. The court directed the meeting at the convenience of Zee. The investors filed an appeal. The appeal judgement came out on 22nd March 2022. The courts said that the reason for the meeting has to be reviewed by the board. There is no necessity to state the reason for the judicial review. Here, the business purpose is the matter, and judicial review is not necessary. The relationship between promoter and investor benefits the company. It helps the management to take potential decisions.
Guidelines regarding shareholder democracy:
The changes made to the provisions of shareholder democracy increase the power and rights of the shareholders. In 2022, the following provisions are included by SEBI and the companies act:
E-voting is for getting consent from shareholders and members to pass a resolution. ‘E-voting’ reduce administration cost, improve postal correspondence, and makes it easy to count digital votes, increase paperless voting, help for making quick decisions, and give time to decide for the shareholders. The companies act allows e-voting for listed and non-listed companies having above 1000 shareholders.
Proxy is appointing a person to do voting. The original shareholder is the principal. The nominated authority is the proxy. The company will send the details of proxy information before the annual general meeting. If the shareholder is not interested in voting, the independent person or firm can make use of a proxy vote. Proxy has the right to vote, but they do not have the right to speak.
Vote through post:
In case of a large number of voting postal ballot is the best option. Physical voting is difficult for a resolution with a high quorum.
Rights for demanding poll:
The shareholders demand a poll for the appointment or adjournment. The poll shall be conducted within 48 hours of request or as directed by the chairman.
Rights regarding inspection:
The company maintains reports, registers, documents, financial statements, auditor reports, and minutes of meetings. Shareholders have the right to inspect these operations. The right to do an inspection is open to all shareholders. The data showing the shareholding pattern is not considered as the eligibility to do the record inspection. If the company refused the required records demanded by the shareholder, the company is supposed to pay a penalty. Shareholders understand the investment value and do not exploit the information available.
Rights regarding AGM:
Shareholders participate in the decision-making process. The general meetings are organised by board or shareholders. If the board is not arranging a general meeting, the shareholders demand to conduct a general meeting.
Rights regarding resolutions:
If the shareholders expect the company to take action, they file a shareholder resolution. In implementing corporate governance, the shareholders with specified rights for voting demand a resolution. Shareholders have control over the following matters: appointment of directors, changing bylaws and implementing corporate governance etc., Shareholders take part in the decision-making process and share their views through shareholders’ rights.
Right to participate in the general meeting:
Shareholders participate physically and remotely n the decisions of the company. The purpose of the annual general meeting is to share views and plant growth. The notice about the meeting should reach the shareholder.
Accountability to shareholders:
The board of directors must disclose the conflict of interest, bring coordination with the shareholders, follow the law and maintain accountability with the shareholders. The company’s goal carries the shareholders, members and company towards growth.
The rule regarding independent directors:
The appointment of the independent director is to act independently on the issues of the company. SEBI prescribed the number of independent directors depending upon the company size. Independent directors are part of a board member. The independent directors attend the meeting and express their views on key matters.
The rule regarding related party dealings:
Related party transactions are agreements with pre-existing business dealings. The American regulatory body states that these transactions do not affect the value of shareholders, and the nature of these transactions is conflict-free. The companies act, 2013 states that the approval of the board and audit committee are essential while entering into related party transactions. Shareholders also participate in the voting process of the related party transactions.
There is a need for freedom in the company to implement the whistle-blower policy. The whistle-blower policy must encourage the employees and board members to talk about unethical behaviour. The act makes sure that the safety of the person who brings out the unethical practices inside the company to the discussion of the board is taken care of.
The rules of shareholder democracy help to maintain the interest of the investor. The transparency in the operations, decisions and management of members enhances growth opportunities. Shareholders bring investment and increase the value of the company. The freedom and views of shareholders help the growth of the organisation.