Information to shareholders - queries on published accounts and their replies by chairman in annual general meeting, a healthy company practice - Companies Law - No. 129-AC,

Circular: No. 129-AC, dated 7-7-1972 issued by ACCI. Subject:- Information to shareholders - queries on published accounts and their replies by chairman in annual general meeting, a healthy company practice In a communication just received, the Department of Company Affairs has sought the views of ASSOCHAM on a suggestion made to Government for the amendment of the Companies Act so as to provide that when any shareholder sends to the company comments on the published accounts and board s report, the chairman should disclose the name of each such shareholder with the question or subject-matter he has raised in his letter in brief, irrespective of its relevancy, and should deal with the same separately in his speech at the annual general meeting of the company. Details of the suggestions as received from the Government are enclosed. The company law as it stands now seeks to ensure and to secure protection to the members by enabling the members of a company to obtain all relevant information about the working of a company through the compulsory disclosure of its financial position through its published accounts, certified by a professional auditor and the individual member s right in this behalf is evident from the statutory provisions provided under section 219. Under the said section, it is true that every member of the company and every debenture holder is entitled to receive 21 days before the date of the general meeting a copy of the balance-sheet together with the profit and loss account, the auditor s report and other documents required under the Companies Act to be annexed or attached to it, such as, the board s report. The board s report is virtually a general stock-taking to the working of the company over the year and is intended to explain to the shareholders the company s affairs including that of its subsidiaries, if any, the amount of appropriation from profit, which is proposed to be carried over to reserve and the recommendations relating to dividend, if any. The object of this is to provide the shareholders, who have rarely any opportunity of meeting one another and getting in touch with the directors to do so on the occasion of the annual general meeting and to enable them to exercise their right and privilege of calling the directors to account in the full knowledge of their record and performance during the year of their stewardship of the affairs of the company. Constant vigilance on the part of shareholders will help to secure that the undertaking of which they are members function satisfactorily. Nevertheless, it is not possible for great majority of shareholders to participate directly in general meeting but a tendency has grown up among some shareholders to be keen of knowing what is going on in the company s affairs and in their attempt they occasionally send comments on the published accounts and reports to the board of directors with an expectation that the same would be answered and/or dealt with properly with particulars by the chairman in his statement at the annual general meeting. This is very clear from the statement made by Sir Biren Mookerjee, Chairman of the Indian Iron Steel Co. Ltd. at the 54th annual general meeting of the Company held on September 22, 1971, where he stated inter alia, ... as usual I have received many letters from shareholders... . It is rather an healthy sign in the corporate management and shareholders should be encouraged by positive provisions of law and/or by some administrative directives as regards how the chairman should deal with all these letters, in particular, in his statement to the shareholders at the annual general meeting. The administrative directions as warranted in this regard is that the chairman should disclose the name of each of such shareholders with the question or subject-matter he raised in his letter in brief irrespective of its relevancy and should deal with separately in his speech. In dealing with this aspect by the chairman it is to be borne in mind that majority of shareholders do not possess the legal and/or technical qualifications which is required in putting forward questions to the board regarding company affairs and in consequence thereof their questions may be lacking particulars, irrelevant and /or immaterial still they want that their letters are, properly respected, dealt with and replied to by the chairman and in any event the chairman should not be allowed to avoid the answer. If this is not done it is feared, the shareholders will lose interest to raise any issue in writing to the board regarding company affairs and they may also feel shy to invest their resources for the industrial development and promotion of industries in private sector which is very urgently required for rapid development of the Indian economy. Last but not the least, it will be impossible to maintain the confidence of shareholders in corporate management which the Legislature sought to achieve.