SHAREHOLDERS’ DUTY OF NOT TO ASK

I have a small piece in 109th edition of the e-Magazine from ICSI Mysore Chapter “Shareholders’ duty of to ask” I am thankful to my friends Ms. K  Sarina Chouta Harish and Mr. Dattatri H M who made great afforts for editorial inputs. Here is full piece:

We are living in an era of corporate governance but who is really interested in it! All efforts by the corporate governance are directed at bringing more transparency to the stakeholders for enabling their participation in decision-making process. If that be the case on one hand, on the other, the age-old concept of fiduciary relationship of board of directors, our law and law enforcement agencies render protection to the right of the board of directors to maintain complete secrecy of its decision-making. I am afraid; something is wrongly settled as law. There has to be a reality check…..

In the present legal framework, Directors are representatives of majority shareholders, if not promoters or controlling shareholders. Nominee directors represent interests of specific investors or financial institutions. Independent directors have no duty to report any thing to ‘owners’, the glorified members. Further, we have a full breed of professionals; issuing a host of certificates and reports. Is there any known incident where these independent directors or the reports unearth some fraud? Are these mere employment schemes?

We have a gamut of rules, regulations, circulars and listing agreement; which place emphasis on disclosures. The disclosures are not what are asked for by shareholders but what authorities think fit and proper. Why is this so? Are these authorities answerable only to predetermined questions or meant to disclose only predetermined “material” disclosures! These authorities have to make disclosure under various laws and at the same time are answerable to Parliament, courts, fellow authorities and general public through right to information.

In an era of Corporate Governance, there are reams of discussions on E–voting, E–meeting, frequent (pre– determined) disclosures of ‘Material’ information, Whistle – blower mechanism, and so on. At best, we have protection and facilitation of shareholders’ right as a foremost principle of corporate governance suggested by Adi Godrej committee. In the case of next corporate fraud, we may find that the relevant information was not determined by Authorities and Management as “material information”.

May a shareholder ask for any information related to a particular board decision from ‘his’ company?

The answers that he might expect are sequenced‐ First, wait for Annual Report. Second, visit Stock Exchange web site for some mandatory disclosures. Third, pay to view public document of ‘your’ company on MCA21 portal. Fourth, inspect certain registers and records of ‘your’ company. Finally, shut up. There is an age-old settled law through Circular No.8/15(169)/63‐PR Dated 11th February, 1963. In layman’s language this circular reads like this: “The Companies Act contains no provision either specifically permitting or prohibiting inspection by/or supply of copies to, the shareholders of a company of the minutes of the meetings of the Board. This Department of Company Affairs is of the view that unless the Articles of Association provides to the contrary, a shareholder has no right of inspection or of obtaining copies of the minutes of its Board m

This settled law needs to be unsettled immediately. This should read, “unless the Article of Association of a company provides to the contrary, a shareholder has right of inspection or of obtaining copies of the minutes of its Board meetings. Further, a shareholder also has right to the information that leads to decision-making process by the Board”

Please note blog post is not a professional advice but general information about the subject covered here. I appreciate if my readers share this post on social media and with friends and colleagues.