Can we pass a shareholder resolution by postal ballot instead of holding a meeting?

You need shareholders to approve something. A general meeting means a notice, a venue or a video link, a quorum and a chairman. You wonder whether you can skip all that and just collect votes by post or electronically.

Sometimes you can. This guide explains when, what the clock looks like, and what you must still do once the votes are in.

What the law allows

Section 110 of the Companies Act 2013 gives a company two routes to a postal ballot.

Where it is compulsory. A company "shall", for items of business the Central Government declares by notification to be transacted only by postal ballot, use a postal ballot (s.110(1)(a), Companies Act 2013).

Where it is optional. A company "may", for any item of business other than ordinary business and any business in respect of which directors or auditors have a right to be heard at a meeting, use a postal ballot instead of a general meeting (s.110(1)(b), Companies Act 2013). The method has to follow the manner the rules prescribe.

Two points follow from that wording.

First, ordinary business, and any business where the directors or the auditors have a right to be heard, cannot go by postal ballot under the optional route.

Second, a postal ballot "instead of" a meeting is a choice, not an obligation, unless the item is on the compulsory list.

What a postal ballot is worth

If the requisite majority of shareholders assent by postal ballot, the resolution is deemed to have been duly passed at a general meeting convened for that purpose (s.110(2), Companies Act 2013). The same deeming appears in rule 22(7) of the Companies (Management and Administration) Rules 2014.

So the resolution stands as if passed at a meeting. The postal ballot changes how votes are collected, not the majority you need.

"Postal ballot" does not only mean paper in an envelope. The rules define it as voting by post or through electronic means (rule 22(1), Companies (Management and Administration) Rules 2014).

Items that must go by postal ballot

Rule 22(16) lists the items that must be transacted only by postal ballot under s.110(1)(a). The list covers:

• alteration of the objects clause of the memorandum (for a company already in existence when the Act began, the main objects);
• alteration of the articles that inserts or removes the provisions that make a company a private company;
• a change of registered office outside the local limits of a city, town or village (s.12(5), Companies Act 2013);
• change in the objects for which money raised from the public through a prospectus is still unutilised (s.13(8), Companies Act 2013);
• issue of shares with differential rights as to voting or dividend (s.43(a)(ii), Companies Act 2013);
• variation of rights attached to a class of shares or debentures (s.48, Companies Act 2013);
• buy-back of shares under s.68(1), Companies Act 2013;
• election of a director under s.151, Companies Act 2013;
• sale of the whole or substantially the whole of an undertaking (s.180(1)(a), Companies Act 2013); and
• giving loans, guarantees or security beyond the limit in s.186(3), Companies Act 2013.

Now the part that matters for most readers. The same rule carries a proviso: a One Person Company, and other companies having members up to two hundred, are not required to transact any business through postal ballot (proviso to rule 22(16), Companies (Management and Administration) Rules 2014).

The Act also lets a company that must offer electronic voting under s.108 take a compulsory item at a general meeting instead, using the electronic voting in that section (proviso to s.110(1), Companies Act 2013).

So if you run a small private company with up to two hundred members, you are not forced into a postal ballot for those items. You may still choose one.

The deadline clock

The clock is thirty days.

Shareholders must send their assent or dissent within thirty days from the date the notice is dispatched (rule 22(1), Companies (Management and Administration) Rules 2014).

Assent or dissent received after thirty days from the date of issue of the notice is treated as if no reply had been received from that member (rule 22(12), Companies (Management and Administration) Rules 2014).

Two later clocks follow:

• The scrutinizer submits the report as soon as possible after the last date for receiving ballots, and not later than seven days after it (rule 22(9), Companies (Management and Administration) Rules 2014).
• The company files the resolution with the Registrar within thirty days of passing (s.117(1), Companies Act 2013). Details below.

Step by step

1. Board decides. The Board decides to take the item by postal ballot, approves the notice and the draft resolution, and appoints a scrutinizer. The scrutinizer must not be in the employment of the company. In the Board's opinion, the scrutinizer must be able to run the voting in a fair and transparent manner. The scrutinizer must also be willing to be appointed and available to work out whether the requisite majority has been reached (rule 22(5) and (6), Companies (Management and Administration) Rules 2014).

2. Send the notice to all shareholders. The notice goes to all the shareholders with a draft resolution explaining the reasons, and asks them to send their assent or dissent in writing (rule 22(1), Companies (Management and Administration) Rules 2014). It can be sent by:

• registered post or speed post;
• electronic means, such as the registered e-mail ID; or
• courier service

(rule 22(2), Companies (Management and Administration) Rules 2014).

3. Publish the newspaper advertisement. The company must advertise at least once in a vernacular newspaper in the principal vernacular language of the district of the registered office, and at least once in an English newspaper, both with wide circulation in that district (rule 22(3), Companies (Management and Administration) Rules 2014). It must state, among other things, that the business is being transacted by postal ballot, the dates dispatch is completed and voting starts and ends, that late ballots are not valid, that members without a ballot form may ask for a duplicate, and who handles grievances.

4. Put the notice on the company website. The notice goes up on the company's website "forthwith" after it is sent, and stays there until the last date for receiving ballots (rule 22(4), Companies (Management and Administration) Rules 2014).

5. Protect the ballots. Ballots received back stay in the safe custody of the scrutinizer. After a shareholder's assent or dissent has been received in writing, nobody may deface or destroy the ballot paper or declare the shareholder's identity (rule 22(8), Companies (Management and Administration) Rules 2014).

6. Scrutinizer's register. The scrutinizer keeps a register, manual or electronic, of assent and dissent. It records the shareholder's name, address, folio number or client ID, the number of shares held, their nominal value, and whether the shares carry differential voting rights. It also records defaced or mutilated ballots and invalid ones (rule 22(10), Companies (Management and Administration) Rules 2014).

7. Declare the result. Results go on the company's website along with the scrutinizer's report (rule 22(13), Companies (Management and Administration) Rules 2014).

8. Keep the papers. The scrutinizer holds the ballots and papers until the chairman considers, approves and signs the minutes. Then the scrutinizer returns them to the company, which must preserve them safely (rule 22(11), Companies (Management and Administration) Rules 2014).

Rule 22(15) applies the electronic-voting provisions of rule 20, as far as applicable, to electronic postal ballot voting. Read rule 20 before you set up the electronic side.

After the result: minutes and MGT-14

Minutes. A resolution passed by postal ballot is recorded in the minute book of general meetings as if it had been deemed to be passed in the general meeting (rule 25(1)(a), Explanation, Companies (Management and Administration) Rules 2014).

You enter a brief report on the postal ballot, covering the resolution proposed, the result of the voting and a summary of the scrutinizer's report, in the minute book of general meetings. The entry carries its date and must be made within thirty days from the date of passing of the resolution (rule 25(1)(b)(ii), Companies (Management and Administration) Rules 2014).

The chairman of the Board signs it within the same thirty days. If there is no chairman, or he has died or cannot sign within that period, a director duly authorised by the Board signs (rule 25(1)(d)(iii), Companies (Management and Administration) Rules 2014).

Filing with the Registrar. A copy of every resolution or agreement that has to be filed, together with the explanatory statement under s.102 if there is one, is filed with the Registrar in Form MGT.14 along with the fee (rule 24, Companies (Management and Administration) Rules 2014).

The duty comes from s.117. It applies to special resolutions, among other categories (s.117(3)(a), Companies Act 2013). The filing is due within thirty days of the passing of the resolution (s.117(1), Companies Act 2013).

Use the current MGT-14 e-form on the MCA portal and pay the fee that applies when you file (rule 24, Companies (Management and Administration) Rules 2014).

If you are late. The company is liable to a penalty of ten thousand rupees, and for continuing failure a further one hundred rupees for each day after the first, up to a maximum of two lakh rupees. Every officer in default is liable to a penalty of ten thousand rupees and a further one hundred rupees a day, up to a maximum of fifty thousand rupees (s.117(2), Companies Act 2013).

What not to do

• Do not use a postal ballot for ordinary business or for matters where the directors or auditors have a right to be heard. Section 110(1)(b) excludes them.
• Do not appoint an employee as scrutinizer. The scrutinizer must not be in the employment of the company (rule 22(5), Companies (Management and Administration) Rules 2014).
• Do not forget the filing. Passing the resolution is not the end. The MGT-14 filing has its own thirty-day clock (s.117(1), Companies Act 2013).

What to do now

• Next step: Check whether your item is on the compulsory postal ballot list (rule 22(16), Companies (Management and Administration) Rules 2014) and whether your company has up to two hundred members, which removes the requirement (proviso to rule 22(16)). If a meeting is simpler, hold one.
• Deadline: Voting window is thirty days from dispatch of the notice (rule 22(1), Companies (Management and Administration) Rules 2014). Scrutinizer's report is due within seven days after the last date for ballots (rule 22(9)). MGT-14 is due within thirty days of passing (s.117(1), Companies Act 2013).
• Consequence of delay: A penalty of ten thousand rupees on the company and on each officer in default, plus one hundred rupees for each day after the first, capped at two lakh rupees for the company and fifty thousand rupees for an officer (s.117(2), Companies Act 2013).

Have a CA review your facts before you act or file.

Frequently asked questions

Is a postal ballot as valid as a general meeting?
Yes. If the requisite majority assents by postal ballot, the resolution is deemed to have been duly passed at a general meeting convened for that purpose (s.110(2), Companies Act 2013).

Can we send the notice by e-mail only?
The notice may be sent by registered post or speed post, by electronic means such as the registered e-mail ID, or by courier (rule 22(2), Companies (Management and Administration) Rules 2014). The newspaper advertisement is still required (rule 22(3)).

What if a shareholder replies after thirty days?
The reply is treated as if it had not been received (rule 22(12), Companies (Management and Administration) Rules 2014).

Do we file MGT-14 for a postal ballot resolution?
If it is a resolution that has to be filed, such as a special resolution, yes. File it with the Registrar in Form MGT.14 within thirty days of passing (rule 24, Companies (Management and Administration) Rules 2014; s.117(1) and s.117(3)(a), Companies Act 2013).

Where do we show the result?
On the company's website, with the scrutinizer's report (rule 22(13), Companies (Management and Administration) Rules 2014).

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See Also

• Section 118: minutes — the 30-day rule and what can be left out
• Removing a director who will not resign
• Where must our statutory registers be kept, and can they sit at the CA's office?