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Common stock shareholders in a company have certain rights relevant to their equity investment.
A significant right of shareholders is the right to vote on definite corporate matters. Shareholders
characteristically have the right to vote in elections for the board of directors and on anticipated
corporate changes namely, change of corporate endeavour and goals or elemental structural
changes.
Section 47 of the Companies Act 2013 relates to voting rights of shareholders in a Company.
The following are some of the highlights of the provisions in Companies Act. Each member of a
company that is limited by shares in adding up to holding equity share capital in that will have a
right to vote on every resolution related to the company. The voting right on a poll will be in
percentage of his share in the paid-up equity share capital associated with the company. Hence,
if a shareholder owns 51% of the company in terms of paid-up equity, he will have the rights to
exercise majority control over the company.
Generally voting rights are available only to the equity shareholders of the company.
Preference shareholders do not enjoy normal voting rights like equity shareholders. The
basis for not allowing the preference shareholders to vote is that the preference shareholder
is in a relatively secure position and therefore should have no right to vote. But under certain
circumstances voting rights will also be available to the preference shareholders of the
company.
(1) Where a share capital of the company is divided into different classes
of shares, the rights attached to the shares of any class may be varied with
the consent in writing of the holders of not less than three-fourths of the
issued shares of that class or by means of a special resolution passed at a
separate meeting of the holders of the issued shares of that class,
(2) Where the holders of not less than ten per cent. of the issued shares of
a class did not consent to such variation or vote in favour of the special
resolution for the variation, they may apply to the Tribunal to have the
variation cancelled, and where any such application is made, the variation
shall not have effect unless and until it is confirmed by the Tribunal:
Provided that an application under this section shall be made within twenty-
one days after the date on which the consent was given or the resolution
was passed, as the case may be, and may be made on behalf of the
shareholders entitled to make the application by such one or more of their
number as they may appoint in writing for the purpose.
(3) The decision of the Tribunal on any application under sub-section (2)
shall be binding on the shareholders.
(4) The company shall, within thirty days of the date of the order of the
Tribunal, file a copy thereof with the Registrar.
(5) Where any default is made in complying with the provisions of this
section, the company shall be punishable with fine which shall not be less
than twenty-five thousand rupees but which may extend to five lakh rupees
and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to six months or with fine which
shall not be less than twenty-five thousand rupees but which may extend
to five lakh rupees, or with both.
Case Law
In the case of SURYAKANT GUPTA vs RAJARAM CORN PRODUCTS (Punjab), it
was held that if dividend to preference shareholders is in default for a long time, they
became entitled under section 87 of the companies act 1956 for exercise voting rights
on preference shares.
But the act is silent on certain matters it leads to several queries ,
(a) The act mentioned about the voting rights in failure of payment of dividend in
respect of a class of preference shares for 2 years or more. Here the question arises,
the period of 2 years means whether consecutive years or any two years from the
issue of preference shares ?
(b) Whether the right will be a permanent or temporary? The act does not provides a
clarification too.
(c) Is there any remedy available once the preference shareholders gets subsequent
payment?
Exemption
Section 47(2) of the companies act 2013 shall not apply to a private company where
a memorandum and articles of association of the company so provide. (Vide
Notification No.461(1) dated 5th June 2015)
Conclusion
As per the language provided in section 47(2) of the companies act 2013, in our
view,the period of 2 years mentioned shall be any 2 years from the date of issue and
it will not be consecutive. In case of Cumulative preference shares, payment of
dividend in the subsequent years after defaults may be taken as a remedial step.
Notes
(i) Dividend- Dividend includes any interim dividend.
(ii) Cumulative preference shares- Cumulative preference shares are entitled to
receive the dividend for a year in which dividends could not be paid due to losses or
inadequate profit in the subsequent years when there are sufficient profits.