RESEARCH NOTE
Section 47(2) of the companies Act reads,
(a) Where every member of the company limited by shares and holding any preference share
capital shall have a right to vote in respect of such capital
(i) Where resolutions placed before the meeting which directly affects the rights to his
preference shares and
(ii) Any resolution for the winding up of the company or for the repayment or reduction of its
equity or preference share capital and
(iii) his voting right on a poll shall be in proportion to his share in the paid up preference
share capital of the company
(b) The portion of the voting rights of equity shareholders to the voting rights of the
preference shareholders shall be in the same proportion as the paid up capital in respect of the
equity shares bears to the paid up capital in respect of the preference shares. (c) Where the
dividend is not paid such class of preference shares for a period of 2 years or more, such class
of preference shareholders shall have a right to vote on all the resolutions placed before the
meeting.
(c) Where the dividend is not paid such class of preference shares for a period of 2 years
or more, such class of preference shareholders shall have a right to vote on all the
resolutions placed before the meeting.
But the act is silent on whether such voting right still accrue if a company has failed to pay
dividend due to incurrence of loss.
Relevant Cases
1. Landmark ruling in Ram Parshotam Mittal and Ors. vs. Hillcrest Realty
Sdn. Bhd. and Ors
In this case, the court had put the argument to rest by pronouncing that notwithstanding
anything mentioned under Section 205 of the then operative Companies Act 1956, the
company is required to give voting rights to preference shareholders in terms of all
resolutions if they don’t declare dividend for such shareholders. This judgment was given on
the basis of the explanation attached to Section 87 of the Companies Act 1956, which stated
that due would mean to include the dividend which is either not paid or not declared by the
company in the two years.
Though the explanation to Section 87 has been omitted by the new Companies Act 2013, the
legal situation, as mentioned already, remains unfazed by the changes. Thus the judgment that
was given by the court in the Ram Parshottam Mittal case still holds, despite the numerous
changes brought to the legislation.
2. Bollore Africa Logistics vs Hillcrest Realty Sdn on 1 September, 2022
Issue- whether a preference shareholder of a company which has no profits can exercise
voting rights on the preference shares has been kept open.
The court emphasized that preference shareholders gain voting rights if dividends on their
shares are not paid for two or more years, as per Section 47(2) of the Companies Act, 2013.
However, this provision applies only if the dividend is indeed payable and not paid. In this
case, since the company incurred losses and dividends were not payable, the preference
shareholders did not acquire voting rights.
3. SURYAKANT GUPTA vs RAJARAM CORN PRODUCTS (Punjab) 2009
Under the Sec 87 of the Companies Act, 1956 which corresponds to Section 47 of the
Companies Act, 2013, the court recognized that when dividends on preference shares are in
arrears for a period of two years or more, the preference shareholders become entitled to vote
on all resolutions placed before the company. This includes those resolutions typically
reserved for equity shareholders. This was a significant assertion of their rights to ensure that
they could influence corporate decisions, especially in situations where their financial
interests were directly impacted by the company's performance and dividend policies.
Concluding Note
Section 47(2) of the Companies Act, 2013, provides specific scenarios under which
preference shareholders are entitled to voting rights, particularly when dividends on their
shares are unpaid for two years or more. The judicial interpretations of this provision
emphasize that preference shareholders can vote on all resolutions if their dividends remain
unpaid, ensuring their interests are protected in critical company decisions.
