Cos To Be Banned From Giving Gifts At Agms

The working group set up to recast the Companies Act has proposed penalties to deter companies from giving, and investors from accepting, gifts at annual general meetings (AGMs).

The group has proposed a penalty of ten times the gifts value, placing the onus equally on the company and the investor for giving and taking gifts, respectively.

The movement against gifts at AGMs has been gaining momentum in recent years with the industry chambers complaining that the practice has deteriorated into a tool for pressuring the managements by investors.

Companies have been saying that investors with this motive become difficult at AGMs and disrupt business unless gifts are distributed.

 

On the contrary, companies like Reliance Industries Ltd (RIL) have desisted from distributing gifts at AGMs. But, these number among the handful which have dared to be different.

The financial institutions (FIs) with public holdings, too, have been following suit, the discipline being based more on government directive than self-imposed.

Market analysts, however, argue that the fault does not lie totally with the shareholders since the companies have mastered the art of luring investors through often expensive gifts when crucial resolutions have to be passed.

A special resolution needs to be passed by three-fourths of the shareholders present at an AGM and companies get their way by throwing open the gift counter simultaneously at the time when these resolutions are being moved, the analysts said.

They believe that this was one ploy which had been most successfully used by companies to get approvals on issues such as preferential allotments to promoters at concessional prices, a resolution totally against the interests of the minority shareholders.

The issue has been a subject of debate in the Department of Company Affairs (DCA) which has been hesitant about imposing a legal ban on the grounds that it is a matter between the company and its shareholders, and therefore, there is no justification for government intervention.

However, the Department of Company Affairs circulated an informal note some time ago to the various chambers requesting them to direct their members to refrain from distributing gifts in the interest of corporate democracy.