- Preference shareholders have voting rights on resolutions directly affecting their rights or in the event of unpaid dividends over two years. - The 2013 Act does not distinguish between cumulative and non-cumulative preference shares unlike the 1956 Act. - Voting rights of preference shareholders are proportional to paid-up capital amounts of preference and equity shares. - Preference shareholders may be entitled to vote if dividends are unpaid, even if the company has no profits to declare dividends.

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3.  Preference shares may be cumulative or non-cumulative.
 The holders of preference shares have voting right on any resolution of
the Company which is directly affecting their rights, for winding up of
the company, for payment or reduction of share capital(whether equity
or preference)
 Preference shareholders have a voting right on all resolutions of
the company at any meeting if their dividends are in arrears for an
aggregate period of not less than two years. Here, the 2013 Act does not
make a distinction between cumulative and non-cumulative preference
shares, unlike 1956 Act.
 Voting rights of one preference shareholder in relation to voting rights
of one equity shareholder shall be directly proportional to the
proportion between paid-up equity shares (per shares),i.e.,
 Voting Rights of Preference shareholders /Voting Rights of equity
shareholders = Paid-up preference capital/Paid-up equity capital.
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4.  A provision in a company’s articles that the preference share
dividend ‘shall be deemed to be payable’ was taken to mean that the
dividend was deemed payable whether or not there were profits out
of which it could be paid. Consequently, as the dividend on the
preference shares was in arrears the preference shareholders were
held to be entitled to vote on all matters affecting the company.
However, one significant omission under the 2013 Act is the
explanation to Sub-section (2)(b) of section 87 of the 1956 Act which
provided that dividend should be deemed to be due on preference
shares in respect of any period, where a dividend had been declared
on such shares or not. As such, irrespective of whether the dividend
was declared, if the preference shareholders had not received
dividend for the stipulated time, then they would be entitled to vote
on all resolutions placed before the business registration.
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The issue as to whether a preference shareholder of a company which had incurred
losses due to which it could not declare dividend, was entitled to voting rights was
examined by the Supreme Court. Relying on the Explanation to sub-section (2)(b)
of section 87 of the 1956 Act, the Supreme Court held that notwithstanding the
provision of section 205 of the 1956 Act, which prohibited declaration of dividend
except out of profit, in view of the Explanation in Section 87, the said preference
shareholder was entitled to voting on all resolutions of the company. Now, with
the omission of this Explanation in the 2013 Act, and Section 123 therein providing
that no dividend shall be declared or paid by a company except out of profit, the
issue as to whether a preference shareholder of a company which has no profits
can exercise voting rights on the preference shares has been kept open. The
preference shareholders are not even allowed to have a say in management of the
preference shareholders are not even allowed to say in a management of
the company; such a situation may work against the interest of preference
shareholders. In essence, what the author views is that the position remains the
same notwithstanding the omission of the explanation. Therefore, it should not
make any difference whether the dividend is declared or not; a mere fact that
preference shareholders have not been dividend will vest them with the power to
voting on all resolutions.

7.  Where a private company allotted shares to more than fifty persons
and for the reason became a public company by operation of law, it
was held that its preference shareholder became entitled to voting
because their dividend was in default for the requisite period. It was
immaterial that the formalities for compliance with the requirements
consequent upon conversion were still to be complied with.
 Where the directors proposed to increase the share capital of
the company by the issue of further equity shares, by capitalizing an
amount standing to the credit of the company’s reserve account, and
applying the same in paying up the new equity shares, and
distributing the same as fully paid among the equity shareholders
and could, therefore, be only carried out with their sanction. Rights
of preference shareholders are held not “affected” by the issue of
additional ordinary shares, through their voting rights are thereby
weekend.
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8.  The 1956 Act provided for three modes of voting – show of hands
(section 177 of the 1956 Act) and by poll (Section 179 of the 1956
Act) and by postal ballots (Section 192 A of the 1956 Act).In the 2013
Act an additional mode has been added i.e., voting through
electronic means. Thus we have four modes of exercising voting
rights under the 2013 Act.
 By show of hands
 by electronic means
 by poll
 by postal ballots
 To elaborate, postal ballot under Section 110 of the 2013 Act is an
alternative to a meeting. In a postal ballot as well,
certain companies will be required to offer the facility of electronic
voting. Postal ballot is permissible for every matter other than the
ordinary business of the AGM and matters that involve a right of
representation. Postal ballot is mandatory for several items of
business. If the company opts for the meeting .Voting at the
meeting may happen, in the first instance, by show of hands.
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10.  Section 12 of banking regulation Act, 1949 as
amended by the banking Regulation (Amendment)
Act, 1994, provides and the section 2 of that Act says
that the provisions of that Act shall be in addition to
and not, save as otherwise expressly provided in that
Act, in derogation of the Indian Companies Act. A
regulation adopted under State Bank of India Act
providing that a member of the bank shall have only
one voting in respect of each block of 50 shares during
3 months prior to the date of the meeting was held to
be not valid. Any such restriction could have been
envisaged under the provisions of the Act only, and
not under regulations.
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11.  Voting rights of a member are not affected by that fact that his
shares have been attached or pledged or a receiver has been
appointed. This is even if the member is a company whose
management is taken over by the Central Government under the
Industries (Development & Regulations) Act, 1951. Nor the member
be prevented from issuing the notice requisitioning a meeting under
section 169 or from exercising voting rights at the requisitioning
meeting merely because a receiver has been appointed of those
shares. However the pledges to exercise voting rights, the voting
rights vest with the pledge. Unless there is some provisions in the
articles which empowers to say that the bankrupt is no longer a
member and is therefore unable to vote, the bankrupt still remains a
member as long as he is on the register , notwithstanding that by
taking appropriate steps under the appropriate provisions the
trustee in bankruptcy may be able to secure business registration as
to proprietor of the shares .
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12.  The shareholder pledged his shares to a bank. He
executed an agreement in favour of the pledge bank
authorizing it to exercise voting rights.
The company was also a party to the agreement. It was
held that the pledge bank was entitled to exercise voting
rights at a meeting of the company on filing with
the company the transfer documents. The entry in the
register of members of the name of the pledge bank is a
mere formality in such cases. The question of validity of
the pledge agreement and associated documents could
not be decided by the chairman of the company under
the in-house procedure.
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13.  While a pledge is a mere
transfer of possession of
shares coupled with a right to
sell in the event of default, a
mortgage is transfer of
property, with the
understanding that the
mortgagor may clear the debt
and redeem the property.
Hence, in a mortgage will
enjoy the voting rights also,
unless a different intent
transpires from the mortgage
document.
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14.  Where shares in a private company had been transferred without the
correct procedures as laid down in the articles of association having
been complied with, the transfers were still effective to pass beneficial
ownership in the shares. Accordingly the transferees were entitled to
exercise the votes attached to the shares in question. The error had
been one of from rather than of substance. An interim interdict to stop
the exercise of the votes was therefore refused. Transfers of shares
were effected in favour of a group of foreign investors without
obtaining prior acknowledgement of the Reserve Bank. The
Companies Act recognizes property rights in shares and also confers
voting rights as a statutory right irrespective of any restrictions in the
contract or the articles or Banking Resolution Act. But under Section
12(2) of the banking resolution Act, Voting rights can be restricted to
10% but could not be washed out.
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15.  In a novel case Vinelott J held that the court has inherent
jurisdiction, similar to that exemplified by the Mareva injunction
remedy, to restrain a shareholder from doing something to the
asserts of the company so as to constitute a detriment to the interests
of the creditors. Such jurisdiction was, however, only to be exercised
in the extreme cases. In this particular case leading shareholders in a
company that was in a financial difficulties were ordered not to
oppose a scheme of reconstruction which had as a key element their
removal as Directors, because, if the rescue of the company failed,
their shares would become worthless and damage would be done to
creditors. Majority shareholders were restrained in an Australian
case from exercising their voting power for removing existing
management and to replace it with a set of directors who to all intent
and purpose wanted to use asserts of the company for the benefit of
the majority shareholders only.
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