SENDING ANNUAL REPORT BY EMAIL – DOES IT REQUIRE CHANGE

[Dr. Sanjiv Agarwal]

As per Section 53 of the Companies Act 1956, a company has an option of modes by which it may serve a document on its members. In the case of any member, a company may serve a document on him/ her  either: (i) personally, or (ii) by sending it by post to him, to his registered address, or (iii) if he has no registered address in India, to the address within India supplied by him to the company for the purpose of giving notices to him.

A document to be served by any person on a Registrar of Companies can be served:

• by sending it to him at his office by post under a certificate of posting ; or
• by registered post ; or
• by delivering it to him at his office; or
• by leaving it for him at his office.

Based on the MCA Circular Nos 17/ 2011 dated 21.4.2011 and 18/ 2011dated 29.4.2011, towards green initiatives, companies can now send various notice/ documents (including notice calling annual general meeting, audited financial statements, directors report, auditor’s report etc) to their shareholders through electronic made (viz, email) at the registered email addresses of shareholders of the company. The full text of reports statements etc. will also be available to shareholders on company’s website and be sent to shareholders in physical form on request without any extra cost. Physical copies will also be available for inspection during office hours at registered office.  The companies intending to exercise this green initiative in lines with MCA Circular may wonder if this requires change in articles of association.

Articles of Association

Section 2(2) of the Companies Act,1956 defines the word ‘articles’ as articles of association as originally framed or as altered form time to time. The present section, by the expression ‘prescribing regulation for the company’ indicates that articles contain regulation for the company. As noted earlier, the articles are the rules or regulations, for the internal conduct or management of a company a document that governs the running of a company. They prescribe the rules and regulations for a company for governing its day-to-day administration; they are the rules for the internal management of the company.

The status of the articles was aptly described by Lord Cairns LC in Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875) LR 7HL 653 thus: “The memorandum is, as it were, the area beyond which the actions of the company cannot go; inside that area the shareholders may make such regulations for their own government as they think fit”. The articles cannot, thus, override the memorandum and neither the memorandum nor the articles shall override the Act.

The right to alter the articles is inherent, therefore, prohibition on the power of alteration cannot be implied without very strong reasons. Every company has power, by virtue of section 31, to alter its articles of association. This power is vested in the company to be exercised by it by a special resolution passed at a general meeting of its members.

Thus, whenever there arises a need to alter the articles, company can resort to alteration of articles by following the prescribed provisions. Also, communication with members and dispatch of documents has to be legally compliant in terms of Companies Act, 1956 and other applicable provisions so much so that no article shall be in contravention of any applicable law for the time being in force.

The provisions of Companies Act, 1956 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

Section 219- Annual Report

Under section 219 of the Companies Act, 1956, every member, the trustee for the debenture holders and every other person entitled to receive notices of general meetings of a company, is entitled to get from the company every year a copy of unabridged annual accounts, which are to be laid at a general meeting of the company, comprising –

(a)    Balance Sheet;

(b)    Profit & Loss Account;

(c)    Auditors’ Report;

(d)    Directors’ Report; and

(e)   Every other document required to be annexed or attached to the Balance Sheet under the Companies Act.

The company must send a copy of annual accounts to every member and the debenture trustee regardless of whether any member or the debenture trustee is entitled to receive notices of the general meetings of the company.

Information Technology Act

Information Technology Act, 2000 provides that where any law requires any information or matter should be in the typewritten or printed form then such requirement shall be deemed to be to be satisfied if it is in an electronic form.

Section 5 provides for legal recognition of digital signatures. Time and place of dispatch and receipt of electronic record is also prescribed the time of receipt of an electronic record shall be determined as follows, namely:-

(a)    if the addressee has designated a computer resource for the purpose of receiving electronic records-

(i)         receipt occurs at the time when the electronic record enters the designated computer resource ;or

(ii)        if the electronic record is sent to a computer resource of the addressee that is not the designated computer resource, receipt occurs at the time when the electronic record is retrieved by the addressee.

(b)   If the addressee has not designated a computer resource along with specified timings, if any, receipt occurs when the electronic record centres the computer resource of the addressee.

An electronic record is deemed to be dispatched at the place where the originator has his place of business, and is deemed to be received at the place where the addressee has his pace of business.

Section 81 of the Information Technology Act, 2000 provides for an overriding effect of the provisions of Information Technology Act. Accordingly, the provisions of the Information Technology Act shall have overriding effect over the other law (eg, Companies Act, 1956). Not only overriding effect has been prescribed, it shall have effect notwithstanding any thing inconsistent therewith contained in any other Act.   

Green Initiative

The Ministry of Corporate Affairs has taken a “Green Initiative in the Corporate Governance” by allowing paperless compliances by the Companies after considering sections 2, 4, 5 and 81 of the Information Technology Act, 2000 for legal validity of compliance under Companies Act through electronic mode.

Vide Circular No 17/2011 dated 21.4.2011, MCA has issued clarification regarding service of documents by e- mode instead of Under Posting Certificate (UPC). 

Section 53 of the Companies Act, 1956 provided service of documents under ‘Certificate of posting’ as one of the accepted mode of service. Whereas the Department of posts has recently discontinued the postal facility under ‘Certificate of posting’ vide their letter dated 23.02.2011. The information Technology Act, 2000 also permits service of documents etc., in electronic mode.

Keeping in view of above, it is has been clarified by MCA that a company would have complied with Section 53 of the Companies Act, if the service of document has been made through electronic mode provided the company has obtained e-mail addresses of its members for sending the notice / documents through email by giving an advance opportunity to every shareholders to register their email address and changes therein from time to time with the company.

In cases where any member has not registered his email address with the company, the service of document etc will be effected by other modes of service as provided under section 53 of the Companies Act. 1956.

MCA Circular No 18/2011 dated 29.4.2011 allows service of Documents including Balance Sheets and Auditors report etc through e-mail addresses.

In order to reduce cost of posting and speedy delivery of documents, service of documents through electronic mode has been permitted under section 53 of the Companies Act, 1956 in place of service of document under certificate of posting.

Similarly, to reduce the consumption of papers and speedy delivery, service of copies of Balance Sheet and Auditors Report etc. to the members of the company as required under section 219 of the Companies Act, 1956 has been allowed to be served through electronic mode by capturing their e-mail addresses available with the depositories or by obtaining directly from the shareholders.

The Ministry of Corporate Affairs (MCA) has taken a Green Initiative in the Corporate Governance” by allowing paperless compliances by the companies after considering section 2,4,5 and 81 of the Information Technology Act, 2000 for legal validity of compliances under Companies Act, 1956 through electronic mode.

Circular No 18 also  provides for guidelines and safeguards which companies ought to comply with or ensure so as to be compliant with section 219 (1) of the Companies Act, 1956 in case of copy of balance sheet etc is sent through email to its members. The companies are expected to follow the following –

(a)        obtaining e-mail address of its member for sending the Notice with Balance sheet, Profit & Loss Account, Auditors Report, Directors Report, and Explanatory Statement etc through e-mail, after giving an advance opportunity to the member to register his e-mail address and changes therein from time to time with the company or with the concerned depository.

(b)        Company’s website display full text of these documents well in advance prior to mandatory period and issue advertisement in prominent newspapers in both vernacular and English stating that the copies of aforesaid documents are available in the website and for inspection at the Registered Office of the company during office hours. Website must be designed in a way so that documents can be opened easily and quickly.

(c)        In cases where any member(s) has not registered his e-mail address for receiving the Balance Sheet etc through e-mail, the Balance Sheet etc., will be sent by other modes of services as provided under section 53 of the Companies Act, 1956.

(d)        In case any member(s) insist for physical copies of above documents, the same should be sent to him physically, by post free of cost.

The companies, as a responsible corporate citizen, are expected to support MCA initiatives in the interest of stakeholders under corporate governance/ corporate social responsibility programmes.

As directed by MCA vide its Circulars, companies should make available the documents etc. on the company’s website for perusal and download by the shareholders. Also, the physical copies of annual report would have to be made available at the registered office of the company for inspection during the office hours. Shareholders would be entitled to be furnished free of cost with a copy of balance sheet and all other document required to be attached thereto by law, including the profit and loss account and auditors reports, upon receipt of requisition, from a member of the company.

The Ministry of Corporate Affairs has taken a “Green Initiative in Corporate Governance” by allowing paperless compliances by Companies through electronic mode. In accordance with the recent Circular No. 17/2011 dated 21.4.2011 and Circular No. 18/2011 dated 29.04.2011 issued by the Ministry, Companies can now send various notices and documents, including annual report, to its shareholders through electronic mode to the registered e-mail address of shareholders.

It is a welcome move for the society at large, as this will reduce paper consumption to a great extent and allow shareholders to contribute towards a greener environment.

Following are the advantages for of e-communication.

• Receive communication promptly
• Reduce paper consumption and save trees
• Eliminate wastage of paper
• Avoid loss of document in postal transit
• Save costs on paper and postage

Inference

Based on the statutory provisions of the Companies Act 1956, provisions and over riding effect of the Information Technology Act, 2000 and MCA circulars under reference, it can be said that company can go ahead with the implementation of green initiatives of Ministry of Corporate Affairs, Government of India. Compliance of MCA’s directive Circulars is advisable for the company from the point of view of company law administration as well as good corporate governance practice / CSR initiative. Keeping in view the underlying theme and circulars issued by MCA, company can propose to send all documents to be sent to shareholders in electronic form, to the email addresses provided by them / depositories. Such an action will be in compliance of section 219 of the Companies Act 1956. Moreover, such an action shall not contravene any provisions of the applicable laws and shall be as per directions contained in Circular Nos 17 and 18 issued by MCA.

= = = = = = = =