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Companies need to print ‘janata’ versions of annual reports By Mohan R. Lavi

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Companies could print ‘janata’ versions of their annual reports which contain all the relevant information sans the glitzy paper and high-resolution photographs at a fraction of the cost.

By Mohan R. Lavi
Ordinary shareholders in companies look forward to two documents from the investee probably in order of priority — the dividend cheque and the annual report. With the days of triple-percentage dividends almost history now, the annual report is a much-awaited document to gauge the performance of an entity. The Ministry of Corporate Affairs (MCA) — courtesy a green initiative — has put a roadblock in the way of the shareholder receiving the annual report by post. The ongoing annual general meetings have seen shareholders vent their angst against this move.

Companies Act/Companies Bill

Circular no. 18/2011 dated April 29, 2011 issued by the MCA is the Circular that implemented the green initiative, apparently at the behest of industry bodies. The MCA made sure that there is legal backing to the initiative by quoting Section 4 of the Information Technology Act, 2000 which states that where any law requires provision of information in written, typed or printed form, the requirement would be satisfied if the said information is provided in electronic form and accessible so as to be usable for a subsequent reference. The Circular stated that Section 219 of the Companies Act — which provides a right for members of companies to receive copies of the balance sheet and the auditors’ report — would not be violated if companies e-mail these documents to shareholders.

The company has to ensure that the e-mail ID of the shareholder is registered either with the company or the depository and the company’s Web site displays a full text of these documents well in advance. In case the email ID of the shareholder is not registered, Section 53 of the Companies Act which details service of documents on members of a company takes over. The Circular makes a closing statement that in case a shareholder insists on physical copies of the documents, it shall be provided to him free of cost.

The Circular preceding this Circular also dealt with the green initiative and found succour in the electronic mode specified in Section 4 of the Information Technology Act to tide over the fact that the Department of Posts had effectively discontinued the certificate of posting scheme — one of the delivery modes specified in Section 53. The “go-green” motto has ensured that Section 192A of the Companies Act, 1956 along with the Companies (Passing of Resolution by Postal Ballot) Rules, 2001 have been amended to bless voting by electronic mode for postal ballot. Section 121 of the Companies provides for similar provisions with a proviso specifying that the Central Government may prescribe the manner of circulation of financial statements of companies having such net worth and turnover as may be prescribed. The intention appears to be to mandate certain class of companies to compulsorily use electronic communication.

Shareholder angst

Shareholder angst on this initiative range from infrastructure issues to the perils and inconsistencies of electronic communication. Complaints are already being made that requests for physical copies have not been executed.

The annual report of a company contains much more information now than the balance sheet and the report of the auditors. Whether it is the management discussion and analysis, the risk-management report or the notes on accounts, shareholders would be analysing all the data provided therein to pass judgement on their investments. If the local version of International Financial Reporting Standards is implemented, shareholders would have more information on the financial statements at their disposal as disclosure requirements in Ind-AS are intense.

The middle path

Companies would welcome the green initiative in view of the substantial savings in printing and postal costs that would accrue if annual reports are not printed and circulated.

The shareholders though would retort that the company can save costs in other areas. When there are two extremely divergent views, the middle path is normally the best solution. Companies could print janata versions of their annual reports which contain the relevant information sans the glitzy paper and high-resolution photographs at a fraction of the cost.

(The author is a Bangalore-based chartered accountant.)

(Sourced from The Hindu Business Line)

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Posted by on Oct 23 2011. Filed under Corporate Governance. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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