Restriction on voting rights | Companies Act, 2013 |Case Laws

What is Voting Right?

Section 2(93) “voting right” means the right of a member of a company to vote in any meeting of the company or by means of postal ballot.

Restriction on Voting Rights.

(1) Notwithstanding anything contained in this Act, the articles of a company may provide that no member shall exercise any voting right in respect of any shares registered in his name on which any calls or other sums presently payable by him have not been paid, or in regard to which the company has exercised any right of lien.

(Interpitation:– The articles of a company can specify that a member will not be allowed to exercise their voting rights on any shares registered in their name if they have not paid any outstanding amounts, such as calls or other sums currently due on those shares. Additionally, voting rights may also be restricted if the company has a lien, or legal claim, on the shares. This rule applies regardless of what is stated elsewhere in the Act.)

(2) A company shall not, except on the grounds specified in sub-section (1), prohibit any member from exercising his voting right on any other ground.

( Interpitation:– A company cannot restrict a member from exercising their voting rights on any grounds other than those mentioned in sub-section (1))

(3) On a poll taken at a meeting of a company, a member entitled to more than one vote, or his proxy, where allowed, or other person entitled to vote for him, as the case may be, need not, if he votes, use all his votes or cast in the same way all the votes he uses.

( Interpitation:– During a poll at a company meeting, a member who has more than one vote, or their proxy (if proxies are allowed), or any other person voting on their behalf, is not required to use all their votes. Additionally, they can choose to cast their votes in different ways instead of voting the same way for all their votes.)

Relevant Case Law’s

1. Life Insurance Corporation of India v. Escorts Ltd. (1986 AIR 1370, 1986 SCR (3) 643)

• Fact: Life Insurance Corporation (LIC) was a major shareholder in Escorts Ltd. The company passed a resolution to transfer a portion of its shareholding, but LIC opposed this. The issue raised was whether LIC’s voting rights were being unjustly restricted by the company’s decision to transfer the shares.
• Judgment: The Supreme Court held that shareholders’ voting rights are an essential part of their rights in a company and cannot be interfered with, except when specifically provided by the company’s articles or by statutory provisions. In this case, the Court ruled that the voting rights of LIC could not be restricted arbitrarily and must be honored unless restricted by clear provisions in the company’s articles or the law.
• Source: https://indiankanoon.org/doc/796206/

2. Nanalal Zaver v. Bombay Life Assurance Co. Ltd. (1950 AIR 172, 1950 SCR 391)

• Fact: Nanalal Zaver, a shareholder, challenged a restriction placed on his voting rights by the company. The company had imposed restrictions on voting rights for shares where calls had not been paid.
• Judgment: The Supreme Court ruled that while the company’s articles of association could impose restrictions on voting rights in case of unpaid calls, these restrictions must align with statutory provisions of the Companies Act. The Court emphasized that voting rights cannot be arbitrarily denied and must be in compliance with the law.
• Source:- https://indiankanoon.org/doc/1292848/

3. Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965 AIR 1535, 1965 SCR (2) 720)

• Fact: Shanti Prasad Jain, a shareholder of Kalinga Tubes Ltd., contested the company’s actions that restricted his voting rights. The case focused on the validity of the company’s restrictions on voting rights.
• Judgment: The Supreme Court ruled that voting rights must be exercised in good faith and cannot be used to oppress minority shareholders or unfairly influence company decisions. The Court stated that such rights must be exercised transparently and for legitimate purposes only, and any attempt to misuse them would be invalid.
• Source: https://indiankanoon.org/doc/463468/

4. ICICI Bank Ltd. v. APS Star Industries Ltd. (2005 10 SCC 521)

• Fact: ICICI Bank, which held a lien over shares of APS Star Industries, imposed a restriction on voting rights. The shareholder contested this restriction, arguing it was unfair and arbitrary.
• Judgment: The Supreme Court held that while a company has the right to restrict voting rights if there is a lien or unpaid dues on shares, such restrictions must follow due process. The Court emphasized the need for fairness, transparency, and adherence to legal procedures when imposing such restrictions.
• Source: https://indiankanoon.org/doc/172721367/

Disclaimer: This content is written by Chiman Soni, a CS Executive student and founder of Corporate Laws Hub. The information provided herein is for educational and informational purposes only and should not be construed as legal advice or financial advice. While every effort has been made to ensure the accuracy and reliability of the information, readers are advised to consult a qualified legal professional, financial advisor, or refer to authoritative sources for specific legal or financial queries or concerns.