Curious case of Rule 20 of Management and Administration Rules

This blog post has a poll on a question – Whether Explanations to Rule 20, placed just after sub – Rule (2) are still part of Rule 20? Read and take part in the poll.

Section 108 read with Rule 20 of the Companies (Management and Administration) Rules, 2014 regulate the applicability and procedure of voting through electronic means. Original Rule 20 was substituted by new set of Rule 20 by the Companies (Management and Administration) Amendment Rules, 2015 with effect from 19^th March 2015.

Thereafter, an interesting amendment was made through the Companies (Management and Administration) Amendment Rules, 2016 with effect from 23^rd September 2016. We discussed Rule 20 with effect from 19^th March 2015 here and its amendment with effect from 23^rd September 2016 here.

Recently, the Executive Program company law question paper 321 of December 2018 attempt had a question:

“2. Distinguish between the following – (a) Cyber security vs. Secured System under the companies (Management and Administration) Rules 2014” (4 marks each)

This question divided student and professionals alike. A group says, these two definitions are not part of these rules after the 23^rd September 2016 and another group including me says that these definitions are still part of these Rules. This does not only matter of professional opinion and interpretation but of the drafting of Rules.

Before these amendments, the original scheme of Rules 20 is hereunder:

• Sub-rule (1);
• Sub-rule (2)
• Explanation to Rule 20 with clauses (i) to (vi);
• Sub-Rule (3); and
• Sub-Rule (4) with Clauses (i) to clause (xviii)

As you may notice, after sub-rule (2), I mentioned explanation to Rule 20. I have this interpretation from the language of the opening wording of explanation, which read, “For the purpose of this rule…”

It is also a matter of undeniable fact that none of the words, explained under these explanations, appears in sub-rule (2).

However, this is not a suitable place for an explanation to whole Rule 20. These explanations due to its placing should be part of sub-rule (2) of Rule 20. The logical place of these explanations, if applicable to whole rule 20, is after sub-rule (4).

We also notice that Explanation to Rule 20 placed between sub-rule (2) and (3) explain terms which are not used in sub-rule (2) but only in sub-rule (3) and (4).

To understand this, I reproduced language amendment to these rules made by the Companies (Management and Administration) Amendment Rules, 2016:

“6. In the principal rules, in rule 20, for sub-rule (2), the following sub-rule shall be substituted, namely:-

“(2) Every company which has listed its equity shares on a recognised stock exchange and every company having not less than one thousand members shall provide to its members, facility to exercise their right to vote on resolutions proposed to be considered at a general meeting by electronic means:

Provided that a Nidhi, or an enterprise or institutional investor referred to in Chapter XB or Chapter XC of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 is not required to provide the facility to vote by electronic means:

Explanation.- For the purpose of this sub-rule, “Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.”.

Here, you can notice there is an explanation in substituted sub-rule (2) which clearly says – “for the purpose of this sub-rule…” We can notice that the Explanation to Rule 20 place after sub-rule (2) clearly said, “For the purpose of this rule…”

This amendment places a pertinent question: whether these Explanations to Rule 20, placed just after sub – Rule (2) are still part of Rule 20 or not?

You can read carefully and vote, here: