The attitude of the expert group which sha-ped the companies bill to small investors is clear from its treatment of the idea of postal ballots. The group's report concludes that "postal ballot was not feasible in the present context. The basic reason is the state of postal infrastructure in India."
But if the postal infrastructure is in such a shape then how are AGM notices continued to be routed through this same system? The group should have suggested a way of combating a common malpractice indulged in by many companies in connivance with the postal staff.
AGM notices are either posted too late for them to reach shareholders on time, or not dispatched at all but valid postal certificates of dispatch obtained nevertheless.
This is not the end to the group's postal mischief. The companies bill proposes to drop one provision and add another. In the present act, section 53 provides for the "service of documents". The provision proposed to be added is clause 26(4) (b) saying, "such services shall be deemed to have been effected if the company obtains the stamp of the post office wherein the letter had been delivered as evidence of their posting."
Mark the word "obtains". So the existing practice of the management "obtaining" the stamp of the post office has been given legal sanction. One provision proposed to be deleted is section 53(2) (b) which says "such service shall be deemed to have been effected "" (i) in the case of a notice of meeting, at the expiration of forty-eight hours after the letter containing the same is posted, and ii) in any other case at the time at which the letter would be delivered in the ordinary course of post."
Under the existing provisions 21 clear days' notice has to be served. When one excludes the days of posting and receiving of advance notice, it becomes 23 days.
Plus by virtue of section 53(2) (b), additional 48 hours i.e. two days have to be provided. So notice has to be posted at least 25 days in advance. Now with the deletion of section 53(2) (b), only 23 days" notice have to be given.
With the postal inefficiency diagnosed by the group, one would have expected the report to increase, not decrease, the number of days of the notice period.
Another reason cited by the group, for turning down the postal ballot is that if amendments are proposed in the meeting, how would the ballot take place?
This question has already been answered by several experts advocating postal ballot. They suggest that balloting can take place only after all amendments have been moved in the meeting and the final resolution is ready for voting.
Non-existent control by AGM: The most important reform that is urgently required but seems to have been missed out is in the functioning of general meetings. The Cohen and Cadbury committees in the UK have forcefully highlighted the inadequacy of the general meetings. The observations of these committees are equally, if not more, appropriate to the Indian context.
Moved by the glaring pitfalls found in the provisions and from the experience of over 50 years, Prof Gower holds that "general meetings have proved a singularly ineffective way of making directors answerable to the general body of members and the boards of widely-held public companies are self-perpetuating oligarchies which control the general meeting rather than it controlling them." He further laments that "The legislature seems to assume the contrary by adding ever more circumstances where the consent of a general meeting is required."
What are the ground realities of AGMs? The AGMs are held at the places where the registered offices of the companies are situated. These offices are being progressively transferred to the factory premises away from town and cities. Shareholders rarely get notices in time.
The timing of the meetings range from 9 am to 5 pm. Where the registered offices are in metros, there are sometimes 15 to 20 meetings on the same day. Proxies have to be filed 48 hours before the meeting. Proxies are not allowed to speak. Postal ballots are non-existent.
Even if you have to stand for directorship, you have to pay a deposit. As against these ills affecting the AGM, all that the report offers is to allow the proxies to speak and to vote on show of hands. The simplest provision for the group to suggest would have been to set a deadline of, say, 30 days from the end of the accounting year, for filing nominations. That date could then be included in the AGM notice itself.
It is significant that the group does not count costs incurred by companies in publishing and circulating chairmen's statements ? These are mostly ghost-written and enable chairmen to masquerade as economists.
They are chairmen's personal views, if at all. If they really care for their views, then they should publish them at their own cost. Why pander to personal egos at the cost of companies ? We have seen chairmen signing praises of the Emergency and penning freedom songs post-Emergency.
Except for a solitary provision of proxies being allowed to speak, the group has come out with no change in the procedure for AGMs. But funnily enough, the proxies have to be sent only to the company, meaning to the existing management.
Can you imagine your votes in a general election being handed over to one of the candidates himself ? Even a small provision like creating an independent authority for depositing proxies has missed the attention of the group.
Reforming auditing: The entire corporate edifice, which presumes division between ownership and management, rests on two basic tenets. Firstly, appointment of auditors as shareholders' representative who report to them directly and secondly, the functioning of the AGM in which this report is to be discussed and auditors and directors are to be elected.
We have already considered the inefficiency of the AGM as a forum to enforce the accountability of directors. Auditing by an independent auditor as a representative of shareholders has also not been promoted at all.
It is not expected that auditors will prevent frauds. Also, no blame, in general, can be laid at the door of the profession for not preventing scams. But, even when it was required to act diligently and primarily in the interests of shareholders, the profession has been found wanting.
An auditor need not be a blood-bound, but a watch-dog he must certainly be. In practice, he is more a 'lap-dog' of the management.
The degeneration in the profession has crept in because the author is appointed by the shareholders only in theory. In practice they are appointed by the managements and, more importantly, remunerated by them. They have no link with shareholders, not even a nodding acquaintance. They are not required to attend AGMs and so cannot be directly questioned by shareholders. Apart from a page in the annual report which mechanically recites a mantra of "true and fair", they have no accountability to the shareholders.
As is to be expected, on this substantial issue of the auditors, the report is absolutely silent. At the same time, one important right of the auditors is taken away in the draft bill. Presently, if the auditor becomes tough (i.e. he cannot be "managed") and the management decides to remove him at the AGM or EGM, a notice of such meeting has to be given to the auditor, and the latter has a right to be represented or circulate his representations to the shareholders.
Though rarely exercised, this is an important right which is in consonance with the principles of natural justice. The draft bill totally omits this. For whose benefit? Among the eight wise men of the group, at least two are company secretaries, two lawyers and two chartered accountants. At least the latter should have been fair to their brother professionals.
