Understanding the Extra-Ordinary General Meeting (EGM)

Every company is required to conduct an Annual General Meeting (AGM) as per Section 96 of the Companies Act, 2013, except for one-person companies. The AGM is scheduled on a fixed date each year to review past performance and discuss future plans. However, certain urgent matters arise outside the AGM cycle that require immediate attention. These issues cannot be postponed until the next AGM, necessitating the need for an Extra-Ordinary General Meeting (EGM). An EGM enables shareholders to convene and make decisions that safeguard the company’s interests, reputation, and objectives.

Situations That Require an EGM (As per Section 100 of the Companies Act)

EGMs are called when crucial and time-sensitive matters need to be addressed. Some common reasons for convening an EGM include:

If the company is facing litigation, it is crucial to inform shareholders and discuss a course of action to mitigate reputational and financial damage. Similarly, in cases where there is a proposal for the removal of an executive, all shareholders must be involved in the decision-making process, with provisions for those unable to attend physically to participate via electronic means. Additionally, any situation that poses a threat to the company’s operations, financial stability, or work culture and requires immediate attention, rather than waiting for the next Annual General Meeting (AGM), must be addressed through an Extraordinary General Meeting (EGM).

Notice and Scheduling of an EGM

Since EGMs are called on short notice due to urgency, all shareholders must be informed in advance about the meeting’s purpose. The meeting primarily focuses on decisions concerning major transactions, changes in company articles, director appointments, financial approvals, and capital restructuring. EGMs ensure transparency, accountability, and active shareholder participation in crucial company matters.

Voting Rights and Calling an EGM

• In companies with share capital, members holding at least one-tenth of the paid-up share capital, with voting rights as of the requisition date, can demand an EGM.
• If the company does not have share capital, members holding one-tenth of the total voting rights can call for an EGM.
• As per Section 100(4), the board must schedule the meeting within 21 days of receiving a valid requisition, with the meeting to be held within 45 days from the requisition date.
• If the board fails to act within this period, the requisitionists themselves can organize the EGM within three months of the requisition date.

Requirements for an EGM Notice

• A written or electronic notice must be sent at least 21 clear days before the scheduled date.
• The notice must mention the venue, date, time, and agenda of the meeting.
• Meetings should take place at the company’s registered office or within the same city on a working day (excluding national holidays).
• If the meeting is convened by requisitionists, no explanatory statement is required, though they may provide reasons for the proposed resolutions.
• Notices must be sent via registered post, speed post, or email to all members within three days of filing the requisition.

Consequences of Non-Compliance & Expenses (Section 100 of the Companies Act)

If the board fails to convene an EGM, the costs incurred by requisitionists in organizing the meeting are reimbursed by the company. These expenses are deducted from the directors’ remuneration, as per Section 197 (not applicable to private companies). Non-compliance with Section 100 can result in:

• A fine of ₹10,000 imposed on the company and its officers.
• A daily penalty of ₹1,000 for continuing violations.
• Violations that are only subject to fines can be settled under Section 441 of the Act.

Conclusion

An Extra-Ordinary General Meeting serves as a critical tool for corporate governance, enabling swift decision-making when urgent matters arise. By ensuring compliance with legal provisions, timely communication, and active shareholder participation, companies can maintain transparency and uphold their business interests effectively.

Related Resources

• Section 96, The Companies Act 2013
• Section 100, The Companies Act, 2013
• Section 197, The Companies Act 2013
• Section 441, The Companies Act 2013

This article is presented by CA B K Goyal & Co LLP Chartered Accountants, your trusted partner in audit and compliance solutions. For expert assistance, feel free to contact us