Section 188 of the Companies Act, 2013 (“the Act”) is ordinarily associated with related party transactions. But sub-section (5) of Section 188—carried forward in substance from Section 188 of the Companies Act, 1956—creates a distinct and often overlooked shareholder right: the right of a qualifying number of members to require the company to circulate a resolution and an accompanying statement to all members entitled to receive notice of a general meeting. This is the statutory precursor to the modern shareholder proposal, and it operates independently of the requisition power under Section 100.
The Qualifying Threshold and the Mechanics of Requisition
The right under Section 188(5) is available to members who hold not less than one per cent of the total voting power, or members who hold shares on which an aggregate sum of not less than ₹1,00,000 has been paid up. The requisition must be deposited at the registered office of the company not less than six weeks before the meeting, in the case of a requisition requiring notice of a resolution, and not less than two weeks before the meeting in the case of any other requisition. The requisition must be signed by the requisitionists and must set out the resolution and the statement.
The company is bound to circulate the resolution and the statement to every member entitled to receive notice of the meeting. The circulation may be in writing or through electronic mode. The company must also give notice of the resolution in the same manner as it gives notice of the meeting. The expenses of the circulation are borne by the requisitionists unless the company resolves otherwise, in which case the company bears the expenses.
The Grounds of Refusal: The Proviso to Section 188(5)
The company is not bound to circulate a statement if, on the application of the company or any other aggrieved person, the Central Government is satisfied that the rights conferred by the section are being abused to secure needless publicity for defamatory matter. The proviso is narrow. It requires a determination by the Central Government, not a unilateral decision by the Board. The company cannot refuse circulation merely because the resolution is inconvenient or because the Board disagrees with its merits.
The jurisprudence on the proviso is sparse but consistent. The Central Government’s satisfaction is a jurisdictional fact, and the refusal must be based on material that establishes abuse, not merely on the company’s assertion. The statement accompanying the resolution must be relevant to the business of the meeting, and it must not be defamatory. A statement that criticises the Board’s performance is not, without more, defamatory; it is the exercise of the shareholder’s right to dissent.
The Interface with Section 100
Section 188(5) and Section 100 operate on different planes. Section 100 empowers members holding one-tenth of the voting capital to requisition an EGM. Section 188(5) empowers members holding one per cent of the voting power to require the circulation of a resolution and a statement in respect of a meeting that is already called or is proposed to be called. The two provisions are cumulative, not alternative. A member who satisfies the Section 188(5) threshold can place a resolution on the agenda of an AGM or EGM without satisfying the higher Section 100 threshold.
The distinction matters in practice. A Section 100 requisition compels the Board to call an EGM. A Section 188(5) requisition compels the company to circulate a resolution and a statement to the members entitled to receive notice. The former is a power to convene; the latter is a power to communicate. Both are instruments of minority voice, but they operate through different procedural mechanisms.
Practical Failure Modes and the Record
The most common failure mode is the company’s refusal to circulate on grounds that do not satisfy the proviso. A Board that treats the requisition as a hostile act and refuses circulation without an application to the Central Government acts in breach of Section 188(5). The remedy lies in a writ petition or in proceedings before the NCLT, depending on the nature of the relief sought.
The second failure mode is the defective statement. The statement must be relevant to the resolution and must set out the reasons for the resolution. A statement that is vague, that does not identify the specific action proposed, or that is defamatory in its language may be refused circulation. The requisitionists must draft with the same precision that the company would apply to its own explanatory statement under Section 102.
The right under Section 188(5) is a limited but potent instrument. It allows a minority that cannot command the numbers to compel the circulation of its case. A company that respects the right demonstrates a commitment to deliberative governance; a company that obstructs it invites litigation and regulatory censure.
Call to Action
Anuj Desai & Associates advises shareholders, boards, and company secretarial teams on the exercise and resistance of Section 188(5) rights—from the drafting of requisitions and statements to the company’s response, the Central Government application, and the NCLT’s supervisory jurisdiction. If you are navigating a shareholder resolution requisition or a disputed circulation, we can help you protect your position.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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