The Supreme Court has held that where rival factions within a society dispute the authority to exercise voting rights attached to shares held in a company, the validity of the vote must be determined on the basis of lawful authorisation under the society’s governing documents and the applicable statutory framework, and not merely on the basis of which vote was cast first.
The Bench of Justice Vikram Nath and Justice Sandeep Mehta made these observations while setting aside a judgment of the Calcutta High Court Division Bench, which had held that in cases involving competing claims over voting authority, the vote cast first in point of time would prevail.
The dispute arose in relation to voting rights attached to shares held by three societies, namely Hindustan Medical Institution, Eastern India Educational Institution and Belle Vue Clinic, in Birla Corporation Limited. Internal disputes within these societies had resulted in rival groups asserting competing claims regarding their authority to nominate representatives and exercise voting rights at the company’s Annual General Meetings (AGMs).
The controversy centred around an interim arrangement devised by the High Court, under which the scrutiniser was directed to recognise and count the vote cast first where competing votes were submitted on behalf of the same society. The High Court had held that the first vote cast would prevail irrespective of whether it was exercised through the Board of Trustees or the Managing Committee.
Disagreeing with this approach, the Supreme Court held that the statutory framework governing remote electronic voting under the Companies Act, 2013 and the Companies (Management and Administration) Rules, 2014, did not recognise chronology as the determining factor for the validity of votes. Instead, voting rights could only be exercised by a person duly authorised to act on behalf of the member concerned.
The Bench observed that where rival individuals claimed authority to vote on behalf of the same juristic entity, the dispute could not be resolved by granting primacy to the vote cast earlier in time. Such an approach effectively substituted chronology for legal authority and ignored the internal governance structure and hierarchy established under the constitutive documents of the society.
The Court further held that the validity of a vote cast on behalf of a society must be traced to lawful authority derived from the society’s governing instruments and the statutory regime regulating corporate voting. It could not be determined solely on the basis of priority in time.
Rejecting the reasoning adopted by the High Court, the Bench observed that while the statutory framework prohibited a member from changing or recasting a valid remote e-vote once it had been exercised, it did not authorise a court to conclude that the first vote cast automatically became valid regardless of the authority of the person casting it.
Holding that the vote-cast-first principle has no basis in company law or the statutory framework governing electronic voting, the Supreme Court concluded that the impugned direction of the High Court was legally unsustainable. The Court accordingly allowed the appeals and set aside the Division Bench judgment.
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