Public Companies & Shareholders- Scope of Mediation and Suggestions

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The shareholders of a public company, even though having several rights and protections in law, often suffer the outcome of the agency problem. In spite of being the part-owners of the public company, shareholders often have little or no voice in the day-to-day management and decision making of the company, unless they are shareholder – manager/employee of the company. Some of the important rights of an individual shareholder of a public company are:

  • To receive the share certificates, on allotment or transfer (if opted for transaction in physical mode) as the case may be, in due time.
  • To receive copies of the Annual Report containing the Balance Sheet, the Profit & Loss account and the Auditor’s Report.
  • To participate and vote in general meetings either personally or through proxy.
  • To receive dividends in due time once approved in general meetings.
  • To inspect the statutory registers at the registered office of the company.
  • To apply to Company Law Board (CLB) to call or direct the Annual General Meeting with requisite number of shareholders.
  • To apply for the winding up of the company with requisite number of shareholders.
  • To receive offer to subscribe to rights shares in case of further issues of shares.
  • To receive offer in case of takeover or buyback under SEBI Regulations.

Besides the above rights, shareholder, also enjoys the following rights as a group:

  • To requisite an Extra-ordinary General meeting.
  • To demand a poll on any resolution.
  • To apply to CLB to investigate the affairs of the company.
  • To apply to CLB for relief in cases of oppression and/or mismanagement.

Though these rights are well protected under law, the procedures for enforcement of these rights are often long-winded, expensive and tedious, both for the shareholders as well as the company.

There is a growing trend in the world today towards the use of Alternative Dispute Resolution methods for all and any type of differences that may arise between parties. One of the most effective of these methods is “Mediation”. Mediation is not only in the interest of the public company, it is also beneficial to its shareholders. Some obvious benefits of mediation are:

  • Mediation can effectively resolve differences speedily, economically and in a collaborative manner bridging the communication gap before a mediator which is invariably not possible in courts.
  • The matter is conducted with confidentiality and with minimum publicity.
  • Resolution could be fashioned in a mutually beneficial/acceptable, creative and durable solution benefitting from the direct interface amongst the parties.
  • The dispute resolution is without the delays, risks and uncertainties of litigation.
  • It is likely to facilitate a better understanding of issues and commercial realities which may be the context of the differences.
  • Sometimes resolution of such differences may require cultural and cross-border bridges that are only possible when parties are directly face-to-face.

The Parliament has taken a commendable step to recognise Alternate Dispute Resolution as a method of resolving differences that may arise under the Companies Act, 2013, by the introduction of section 442[1] therein. This section has for the first time introduced “Mediation & Conciliation” as an optional mode of settling any matter that may be pending before the Central Government, Company Law Tribunal or Company Law Appellate Tribunal. It does not make mediation a mandatory pre-condition to initiation of disputes with an opt-out clause unlike the EU Directives of 2013, but it does strengthen the position of mediation in companies. This section provides inter alia, that

  • The Central Government shall maintain a panel of experts to be called as the Mediation and Conciliation Panel.
  • Any pending proceeding, may be referred to the panel, either upon application by a party to the proceeding or suo moto by the Central Government, or the Tribunal or the Appellate Tribunal, before which the proceeding is pending.
  • The fees of and the procedure to be followed by the Panel is to be as may be prescribed provided that the matter referred is to be disposed of within a period of three months from the date of such reference.
  • Any party aggreived by the recommendation of the Mediation and Conciliation Panel can file objections to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be.

The Mediation Rules and a Panel of Mediators required to effectively operationalize it are yet to be put in place.

However, the following suggestions may be taken into account[2]:

  • “Mediation” and “Conciliation” are two distinct processes. Mediation is a strictly voluntary non-binding negotiation between parties, before a neutral mediator whose role is limited to facilitating the dialogue between and possible mutual settlement between the parties. In conciliation, the conciliator has a stronger role in suggesting and making proposals for settlement between the parties. This distinction has not been made in the section 442. In order to make the proceedings under this section more effective, it is necessary to clearly separate the two processes.
  • Further, section 442 limits references to Mediation to only those proceedings that are already pending before the Central Government, Tribunal or Appellate Tribunal. Shareholders and companies should have the option to refer any differences that may arise between them to mediation prior to the filing of any proceedings under the law. This may effectively solve a majority of differences between a public company and its shareholders, well before the stage of litigation.
  • Finally, for effective mediation, it is necessary to specify that for any person to be empanelled as a mediator on the Mediation and Conciliation Panel, he/she must have the requisite training (and continued refresher training), as well as at least 10 years practice as experts can be advocates, or subject matter experts like, chartered accountants, company secrataries, etc.

[1] Enforced with effect from 01.04.2014

[2] These can be easily be implemented by the Ministry of Corporate Affairs notifying a suitably worded Removal of Difficulty Order under section 470 of the Companies Act, 2013

ABOUT THE AUTHOR

Sarita Kapur LL.B is a lawyer with over 28 years of standing at the Bar and is a certified Mediator, having successfully completed 40 Hours Training Program on Civil & Commercial Mediation and Negotiation, conducted by IICA in July 2016. Her practice is focussed on commercial litigation and arbitrations (domestic and international) besides advising/representing corporates and high commissions on diverse advisory mandates. Her work has primarily focussed on contractual and commercial matters; issues of public and private international laws including aspects like diplomatic immunity, immigration, refugee rights etc; employment laws; personal laws; succession and trusts.

She has served on the Editorial Board of the “Indian Advocate”, the journal of the Bar Association of India as editorial assistant/joint editor for over 15 years. Sarita believes in the efficacy of alternate dispute resolution, especially mediation as an expeditious and inexpensive solution to delays in the justice delivery system, and wishes to strengthen this area of work. ‎

For more information on the 40 hours training program on commercial mediation and negotiation by IICA, Ministry of Corporate Affairs, visit mediationiica.in or email us at mediation.iica@gmail.com.

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