NATIONAL LAW SCHOOL OF INDIA UNIVERSITY
SUBJECT: CORPORATE GOVERNANCE
UNDER THE SUPERVISION OF
Dr. Versha Vahini
National Law School of India University, Bangalore
SUBMITTED BY:-Ronak Karanpuria
LL.M. (Business Law)
Student ID No.: 534
I express my deep sense of obligation and gratitude to Dr. Versha Vahini, National Law
School of India University, Bangalore, for his invaluable guidance and persistent
encouragement in the preparation of this project work.
I am deeply indebted to all the Indian and foreign writers and judges whose writings and
decisions have been duly cited in this work and have given me inspiration and light during
preparation of this work.
Aim and Objective
The Aim of the research paper is to determine the scope of “Electronic Evidence” w.r.t.
modern digital environment.
The researcher will address proxy voting in context with its right and power
to vote by proxy, proxy holder unauthorised acts, revocation and
termination of proxies.
In this paper the researcher has primarily used descriptive and analytical methodology
of research. The researcher mainly relied upon the secondary sources which include
books, Reports, Journal, magazines, online articles and legal databases.
The scope of this paper is to find out the legal aspects of proxy voting
The field study would have been desirable but due to paucity of time this paper is
limited only to the theoretical aspect of electronic evidence which have been gathered
from various sources including books, articles, and journals.
In this paper various secondary source have used by the research student in the form of
books, article from various journals and also internet sources have been used.
Mode of Citation
A Uniform mode of citation is followed throughout this paper.
Table of Content
The existing regime
Misuse & Fraud’s
Revocation of proxies
Every company has a mission or objective bearing social responsibility using common
fiduciary tools to enhance their mission and protect the investment where their portfolios to be
managed in a way vision by shareholders. Capital market dealing with crores of transaction
involving billions invested in equity of the companies with more responsibility to pay towards
how publicly traded companies managed their portfolios. Some institutional investors such as
pension funds and mutual funds are required to manage their funds in a way that support both
their mission and their financial goals. Securities regulations allow investors to engage
management of companies they hold on important governance and social issues. Also in India,
shareholders do not study much while investing in companies & unconsciously vote their
proxies, reluctant to monitor every issues raised in meetings, unaware of their rights, foster
abuses of accounting and management issues. Such abuses resulted in fall of big tycoons or
scandal of billions of rupees of profit from financial market. Voting allows them to make their
voice to be heard against a proposed plan which if they believe in the best interest of the
company. The outcomes of votes at meetings may affect the value of your shares.
In Cousins v International Brick Co Ltd1, defined proxy as a person representative of
shareholder. Similarly, in the same case, Lawrence U (at 102) stated '[t]he proxy is
merely the agent of the shareholder, and as between himself and his principal is not
entitled to act contrary to the instructions of the latter'. Whitlam v Australian Securities
and Investments Commission2, where the Court commented (at 160) that a proxy 'certainly
had a duty as a fiduciary to the proxy givers to act in accordance with their directions'.
Proxy voting promotes and protects shareholders value and the company objectives like
proposal getting approval from directors now getting sanction from shareholders. But at the
same time adverse effects of fraud committed in proxy voting cannot be undermine. So it is
puzzling that many foundations get many proposals for voting by proxy generally in a public
limited company where shareholders are diversified and improbable for them to attend the
By not thoughtfully voting on proxy issues, many foundations are ceding the considerable
power of their shareholder status to engage management on social and environmental issues
that are often at the heart of a foundation’s work. Due to this number of times efficacy of
corporate accountability has been in question about shareholder participation which in turns
affect the growth of the company and its general welfare.
Why participation is needed at all? It is consistent with the principles of shareholders
democracy, which provide equal opportunity to all shareholders to participate in democratic
system of corporate governance.
 2 Ch 90,100.
Lord Hanworth MR defined a proxy as '[a] person representative of the shareholder who
may be described as his agent to carry out a course which the shareholder himself has
 NSWCA 183
THE EXISTING REGIME
The principles of corporate governance like the role played by shareholders indirectly in the
managing the company affairs, where management is vested in the board of directors and in
the annual general meeting which is required to held within 15 months 3 and in each year, so
shareholders are not invited for day to day transaction. In terms of participation shareholder
control certain rights mainly a) Election & removal of directors b) Adoption, repeal or
amendments of byelaws, resolutions c) Approval of extra-ordinary matters. The shareholders
controls the affairs and give further direction to directors whether to continue with project or
look in different ways by voting at annual general meeting. Voting can be done by show of
hands or one can demand for poll and unless the articles of the company provide for a larger
number, five members personally present in case of public company and two in case of private
company, if the meeting is adjourned then a quorum is not present within half an hour from the
time appointed for holding the meeting, the members present shall be a quorum. The issues
attached with it is the length of notice, service of notice, persons to be called, voting rights in
shares held in trust etc. but researcher confined the discussion to the proxy voting issues.
Generally, under principles of corporate law, management issue the proxy application to give
notice of an upcoming shareholders' meeting, to form a quorum and to notify shareholders of
corporate matters. The management of company affairs is a tedious task involving adjournment
of meeting or meeting on a day where involvement of all the shareholder mainly in public
limited company is difficult to attain the meeting in person, so overcome this and encourage
them to participate in corporate affairs they vote on the decision by issue of proxies. Instead,
they generally execute proxies which authorize other interested parties to represent and vote
WHO CAN VOTE
The power of shareholder to execute proxies are governed by sec- 1764, which entitle any
member of the company to attend and vote at the meeting to appoint any person whether he is
member of the company or not to vote on his behalf but rights of proxy shall be limited with
no right to speak, which means proxy can only vote.
The word “member”5 instead of shareholder is used in the sec-176 which means proxy
appointment is not limited to shareholder. So to become member either he subscribes to
memorandum of a company or his name is register of members or an equity holder whose name
The Companies Act, 1956: Sec- 166 ANNUAL GENERAL MEETING
The Companies Act, 1956: Sec- 176 PROXIES
5 Companies Act, 1956: Sec-41 Definition of “Member”
(1) The subscribers of the memorandum of a company shall be deemed to have agreed to become
members of the company, and on its registration, shall be entered as members in its register of
(2) Every other person who agrees in writing to become a member of a company and whose name is
entered in its register of members, shall be a member of the company.
[(3) Every person holding equity share capital of company and whose name is entered as beneficial
owner in the records of the depository shall be deemed to be a member of the concerned company
is registered as beneficial owner in the records of depository. The word “registered owner”
means who hold shares either directly with the company, as the registered owner or record
holder, or indirectly (for example, through a bank or broker-dealer), as a beneficial owner.
Beneficial owners holding their shares at a broker-dealer or bank are sometimes said to be
holding shares in “street name”. There are no significant differences between registered and
beneficial owners regarding the value of your shares. Both have the same rights to dividends,
stock splits, and any appreciation or depreciation in the value of the stock. But in case of voting
Registered owners (or record holders) receive a proxy and cast votes directly with the company
that issues the shares. Beneficial owners, on the other hand, receive a “voting instruction form”
directing their broker or other financial institution how to vote their shares.
In Strang v. Edson6, court held that receiver has the power to vote stock placed in his care by
the court. In Atkinson v. Foster7, Also, where a receiver has been appointed and the property
assigned includes stock of a corporation, the court may compel the giving of a proxy to the
receiver enabling him to vote the stock at meetings of the stockholders of the corporation.
In White v. Ferris8, A bankrupt has the right to vote stock in his name on the books of a
corporation, even though his property vests in the trustee.
The instrument appointing proxy must be in writing and signed by the appointer and in case if
its body corporate then such instrument must be sealed and signed by duly officer authorised
by it. Also the proxy rules are not applicable in case if the company not having a share capital.
Another issue raised, where securities may be held in the name of banks, broker-dealers and
trust companies. Increasing numbers of these financial institutions deposit their securities with
depositories that register and hold the securities in their own nominee name. Such depositories
effect deliveries of securities among participating financial institutions. The broker-dealer then
casts the proxy vote with the company after receiving instructions from its customer, the
beneficial owner. Large institutional investors like FII, bank trust department, who possess
substantial amount of corporate share shows the great discretionary power and their
involvement in the proxy system has a profound impact on corporate behaviour.
Similarly the President of India & the Governor of state under sec- 187, 187-A of the act and
in case of public company a member can issue more than one proxy to vote on behalf of them.
Proxies to be deposited within company or to authorize person before 48 hours of meeting to
be held valid or as provided under articles of association. However, proxy cannot appoint
another proxy with exception for body corporate being an artificial person and President &
Strang v. Edson, (C. C. A. 8th, 1912) 198 F. 813.
27 Ill. App. 63 (1887), affd. 134 11. 472, 25 N. E. 528 (189o).
8 42 Conn. 560 (1875)
MISUSE & FRAUD
The appointer and proxy holder relation are based on trust, acting in the fiduciary relation, in
the same way as director and shareholder relation but sometimes an arrangement is made where
shareholders agrees to vote its shares are directed by another in exchange for consideration
personal to shareholder.9 The vote buying arrangement even in the interest of corporation &
stakeholders to be determine subject to the intrinsic fairness test. In 1982 Schreiber case10 and
the 2002 Hewlett-Packard case11 through some light on the arrangement whether such
arrangement is void per se or voidable.
In Schreiber case: The Court held, however, that “[b]ecause vote-buying is so easily
susceptible of abuse it must be viewed as a voidable transaction subject to a test for intrinsic
fairness.” Finding no fraud in the fact that no warrant holder other than Jet Capital received
a loan from TIA, and fi nding that TIA’s decision was based on the stockholders’ best interests,
the Court ultimately held that the loan transaction “was not void per se because the object and
purpose of the agreement was not to defraud or disenfranchise the other stockholders but
rather was for the purpose of furthering the interest of all [TIA] stockholders.12
In HP case13: There is no reason for management to disclose preliminary reports that are
generated early in a planning process, based on imperfect information, and limited both by the
unfamiliarity of the people creating the report with the business and by the desire of those
people to commit to conservative numbers that are definitely attainable. The court's willingness
to hold an expedited three-day hearing provides a warning that shareholder votes can be set
aside for 'vote-buying' through improper influence by management or for material
misstatements to shareholders.14
To overcome this situation, corporate bodies issue proxy rules which require full disclosure of
material information, prohibit proxy fraud, installing proxy management machinery &
prohibition of false & misleading statements.
See Hewlett v. Hewlett-Packard Co., 2002 WL 549137, at *4 (Del. Ch. Apr. 8, 2002); This article is
concerned with “vote-buying” arrangements between the corporation and its stockholders. The Court in
Hewlett-Packard recognized this distinction, stating: “Shareholders are free to do whatever they want
with their votes, including selling them to the highest bidder,” so long as corporate assets are not
exchanged for votes.
10 Schreiber v. Carney, 447 A.2d 17 (Del. Ch. 1982)
11 Hewlett v. Hewlett-Packard Co., 2002 WL 549137 (Del. Ch. Apr. 8, 2002).
12 Schreiber, 447 A.2d at 26
13 At issue in the case—at the motion-to-dismiss stage—were efforts by the Hewlett-Packard Company
(HP) to garner approval for a merger between HP and Compaq Computer Corporation. Before the
merger vote, the proxy committee of Deutsche Asset Manage-ment (Deutsche Bank) “determined to
vote its shares against the proposed merger” and submit-ted proxies to that effect. Around the same
time, “HP closed a new multi-billion dollar credit facility to which Deutsche Bank had been added as a
co-arranger.” Deutsche Bank became concerned that its no vote would cause HP to “end the ongoing,
and desired future, business dealings between HP and Deutsche Bank.” On the morning of the special
meeting, Deutsche Bank and HP management held a telephone conference, after which Deutsche Bank
switched its votes—nearly 17 million votes—to vote in favor of the merger
A proxy fight or proxy battle is an event, where stockholders oppose some aspect of the
corporate governance like director position or any other management decisions. In which
shareholders were persuade to use their proxy votes to make new management for any of a
variety of reasons.15
In Hilton Hotels v. ITT Corp case, it involves power and duties of directors in hostile takeovers,
coupling with an unsolicited tender offer with a proxy contest to replace the incumbent board.
Delayed tactics were used to postpose annual general meeting. There arise a conflict of interest
where shareholders are not permitted to exercise free rights, so the major issues which are seen
is whether it will affect the interest of corporation or shareholder, generally proxy fight is
contested in mergers, takeovers etc.
In Paramount v. Time,16 a hostile acquiring corporation would propose a tender offer
contingent of the redemption of the poison pill by the Board of the target corporation. But in
addition, the hostile acquiring corporation would nominate a new slate of directors and seek
the proxies of other shareholders to elect this new Board of the target corporation at its next
annual meeting or a special meeting of the shareholders. The board of directors can redeem or
eliminate poison pill but can’t prevent proxy contest. However, they can prevent shareholders
from entering into certain agreements that can assist in a proxy fight, such as an agreement to
pay another shareholder's expenses.
REVOCATION OF PROXIES
There is a contract between appointer and the proxy holder, where proxy holder is acting in
fiduciary duty. Proxy holder must exercise the power in accordance with the instructions of the
giver of the proxy. Where the giver of the proxy holder did not instruct him how to vote, he is
free to vote how he please.
In Cousins v. International Brick Company ltd.17 Lord Handworth held that shareholder may
exercise the right to vote personally notwithstanding that he or she has given proxy and not
revoked it. Similarly in Ansett v. Butler Air Transport ltd18, Proxies was given for meeting on
31 dec 1957, which was then adjourned on 21 jan 1958. Many shareholder who has given proxy
for dec attended meeting personally, issue raised was whether the proxies of the shareholder
present at the meeting had been revoked or valid for poll. Court held that it is clear that
notwithstanding their personal attendance, their wishes is their proxy should vote for the poll.
In Oliver v. Dalgleish19 issue is regarding disobey by proxy holder as instruction given to him,
court held: first that vote is invalid because outside the authority of proxy, second vote is valid
Klein, Ramseyer, and Bainbridge. Business Associations: Cases and Materials on Agency,
Partnerships, and Corporations. (7th Ed.) Foundation Press
16 571 A.2d 1140, 565 A.2d 280 (Del. 1989)
17  ch 90
18  75 WN (NSW) 306
19  3 All ER 330
and proxy disobedience is a matter purely between the proxy holder and appointer and hence
it does not affect the voting result.
Revocation of proxy is to be communicated to the company and it shall be received by the
company at its registered office before the commencement of the meeting. Proxy shall itself be
revoked in case of death or insanity of the shareholder appointing the proxy. Where more than
one proxy issued to cast vote for the same matter, then the last proxy so issued will be valid.
Voting being an essential process can’t be undermine to maintain democratic system as a means
of corporate governance, simultaneously securing the voting rights of shareholders. However
voting by shareholder in public company is a tedious task, which involves large gathering and
due to which sometimes shareholder passes their right to vote by the means of proxy voting.
Voting by proxy involves fiduciary duty, where proxy is under duty to oblige and to do things
as guided by appointer. Such mechanism is to be controlled by the way of rules either in articles
of association or by statutes because decision of shareholders can affect the fate of company,
major decisions like director appointment, restructuring of company, mergers, amalgamation
etc. such a controversial decisions needs to be taken with care and precaution, where an
individual shareholder can be persuaded to vote in a different manner, fraud, misuse and proxy
contest are the major issues.
Company act, 1956
i. Klein, Ramseyer, and Bainbridge. Business Associations: CASES AND
MATERIALS ON AGENCY, PARTNERSHIPS, AND CORPORATIONS. (7th
Ed.) Foundation Press
ii. DDRJ Prentice Holland , CONTEMPORARY ISSUES IN CORPORATE
iii. Weston Situ Johnson, TAKEOVERS, RESTRUCTURING & CORPORATE
Richard Smerdon, A PRACTICAL GUIDE TO CORPORATE GOVERNANCE,
v. Bob Tricker, CORPORATE GOVERNANCE: PRINCIPLES, POLICIES AND
Rockefeller Philanthropy Advisors “Unlocking the power of proxy”
Available at www.asyousow.org/publications/powerproxy.pdf
Investment company institute “Trends in Proxy Voting by Registered
Investment Companies” Available at www.ici.org/pdf/per16-01.pdf
http://www.jstor.org/stable/1339801 Accessed: 31/08/2013 03:23
Roundtable on Proxy Voting Mechanics: “Topic One: Share Ownership and Voting”
Available at www.sec.gov/spotlight/proxyprocess/proxyvotingbrief.htm
4. Case laws:
Cousins v. International Brick Co Ltd  2 Ch 90,100.
Whitlam v. Australian Securities and Investments Commission  NSWCA 183
Strang v. Edson (C. C. A. 8th, 1912) 198 F. 813.
Atkinson v. Foster 27 Ill. App. 63 (1887), affd. 134 11. 472, 25 N. E. 528 (189o).
White v. Ferris 42 Conn. 560 (1875)
Schreiber v. Carney, 447 A.2d 17 (Del. Ch. 1982)
Hewlett v. Hewlett-Packard Co., 2002 WL 549137 (Del. Ch. Apr. 8, 2002)
Hilton Hotels v. ITT Corp case
Paramount v. Time 571 A.2d 1140, 565 A.2d 280 (Del. 1989)
Ansett v. Butler Air Transport ltd  75 WN (NSW) 306
Oliver v. Dalgleish  3 All ER 330