SEBI

Does Investor Shareholder have the right to hold an EGM?

An EGM, or extraordinary general meeting, is a gathering of members of an organisation, shareholders of a business, or staff members of an official body that takes place at an unusual time. The phrase is typically used when a group would usually hold an annual general meeting (AGM). Still, a situation arises that needs the opinions of all members and is too severe or urgent to wait until the next AGM. Any resolutions adopted at the EGM are only valid if members and shareholders are informed of its purpose and are able to participate in the discussion and make informed decisions.

The potential to strengthen bonds between an issuer and its investors is provided by an extraordinary general meeting (EGM). By convening an EGM, you demonstrate that you prefer to handle urgent business now rather than postpone it until the annual general meeting (AGM). By doing this, you may win over shareholders and demonstrate your dedication. 

Extraordinary General Meeting (EGM)

A firm or organisation will conduct an Extraordinary General Meeting (EGM) to discuss issues that need the immediate attention of senior executives, the Board of Directors, and all shareholders that cannot wait until the upcoming annual general meeting. For the purpose of handling a crisis, the EGM is called at an unusual time. The Board frequently uses the EGM to solicit investor consent before proceeding with a particular course of action. In certain situations, shareholders may also be able to compel an EGM. 

Any business conducted at an EGM is regarded as unique. An extraordinary general meeting can have as its agenda, for instance, the dismissal of a senior executive. EGM may also be referred to as an emergency or special general meeting.

When and why to hold an EGM?

There are numerous potential reasons for calling an EGM. They consist of the following:

• Seeking consent from the shareholders before taking any steps, such as the removal of a director, must act before the AGM.
• Describing how the corporation handled a crisis, like a pandemic or financial collapse.
• Addressing urgent legal issues.
• Upon demand of a specific shareholding proportion and it depends on the company’s jurisdiction.

Right of shareholders for requisition of an extraordinary general meeting

A company’s members or shareholders can call an extraordinary general meeting. To call for an EGM, however, only a select group of members with a significant stake in the company are permitted. The Companies Act of 2013 lists them as follows. 

According to sub-section (2) of section 100, the Board is under obligation to call an extraordinary general meeting on the requisition made by the following number of members:

In the case of a company having a share capital – Members with voting rights regarding the proposed resolution and who hold 10% or more of the paid-up share capital as of the date of receipt of the requisition.

In the case of a company not having a share capital – Members holding 10% or more of the voting power on the date, the requisition was received with reference to the resolution that is planned to be proposed.

EGM called by Board – The Board has 21 days from the time it receives a legitimate requisition to call an EGM. The EGM should be held within 45 days from the date of the EGM being called.

EGM called by the requisitioner – In the event that the Board chooses not to call for an EGM, the requisitioner themselves may do so within three months of the day the requisition was deposited. The EGM may be postponed to any day after the three months if it is held within the allotted three months.

Recent case law

In the case of Invesco Developing Markets Fund v. Zee Entertainment Enterprises Limited, ZeeEntertainment Enterprises had received a requisition from Invesco Developing Markets Fund and OFI Global China Fund LLM, collectively holding 17.88% in zee enterprises in terms of Section 100(2)(a) of the Companies Act, 2013 calling for an Extra Ordinary General Meeting. The request suggested holding an EGM to remove three non-independent ZEE board members. It also wanted to add six independent directors to the Board of Zee.

Invesco had filed a company petition with the National Company Law Tribunal, Mumbai Bench (“NCLT”) under Section 98 (1), read with Section 100 of the Act, requesting the relief of an order asking for the EGM to be called. Zee was given permission by the NCLT to consider the request. Zee’s Board came to the conclusion that the Requisition was illegitimate or unlawful as a result, and as a result, it noted that it was unable to call the EGM. Zee then filed a petition with the Bombay High Court (Single Judge Bench) asking for an injunction to stop Invesco from acting further on the requisition. An injunction was issued prohibiting Invesco from calling and holding an EGM in accordance with Section 100(4) of the Act, among other actions or steps related to the Requisition.

Invesco appealed the abovementioned ruling to the Bombay High Court (Division Bench) (“Court”) after becoming upset by it. Invesco’s appeal against the order, as mentioned above, was accepted by the Court in the case of Invesco Developing Markets Fund v. Zed Entertainment Enterprises Limited.

In addition, the Court relies on the decision of LIC v. Escorts3 to hold that every shareholder of a business has the authority to summon an extraordinary general meeting in line with the provisions of the Companies Act, subject to statutorily defined procedural and numerical requirements.

Judgment

The Court determined that the terms “valid requisition” as they appear in Section 100(4) of the Act are limited to numerical and procedural conformity and nothing more, relying on the precedents mentioned above. According to a plain reading of the law, the Board of a Company must request a meeting if the conditions outlined in subsections (2) and (3) of Section 100 are met. It goes without saying that the shareholders’ decision at the general meeting will determine whether or not the proposed requisition should be implemented. The Board was required to call the meeting even if the requisition was unlawful or invalid.

The Court also relied on Section 430 of the Act, which forbids Civil Courts from having jurisdiction over any case that the NCLT or NCLAT^[1] has the authority to decide. Second, it stipulates that no Civil Court may issue an injunction on any action taken or to be taken by the NCLT or NCLAT in accordance with any authority granted to them. According to the Court’s ruling, the single-judge bench had no authority to prevent Invesco from calling the requisition in compliance with the bar established under section 430.

Procedure to conduct an EGM

The Board of Directors completes the resolutions that members and shareholders will discuss at the EGM before convening. The resolutions and their significance should be made known to the members well in advance so they can conduct their own study and effectively voice their ideas and concerns during the meeting.

Unless otherwise specified in the bylaws of the company, an EGM must be attended personally by at least five members in the case of a public company and at least two members in the case of any other firm.

The chairman typically conducts the EGM and reads the resolutions. The Board, which is expected to have a complete understanding of the issue, informs the members of the resolution’s advantages and responds to their questions.

Members vote in the best interests of the shareholders and the business, and the result is announced. Members who are unable to attend the EGM may choose another member as their “proxy” in order to cast their votes. Various organisations have different proxy voting policies.

Reporting under SEBI (LODR) Regulation, 2015 

Every listed business is required to notify the proceedings of its annual and extraordinary general meetings at the stock exchange where its securities are listed within 24 hours of the event, as stated in rule 30 read with Schedule III Part A of SEBI (LODR) Regulations, 2015 (the “SEBI (LODR) Regulations”), which is in effect as of today.

Conclusion

From the above understanding, an EGM can be convened by the Board as well as by specific members/shareholders of the company that fulfil certain criteria under Section 100 of the Companies Act. The MCA is empowered to step in if any corporation refuses to comply with shareholders’ requests to schedule an EGM or add agenda items indicated in a special notice. Aggrieved shareholders can file a complaint with the MCA for remedy.

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