DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

CORPORATE LAW II

DR. DAYANAND MURTHY

AMIT TIWARI
2016011
SEMESTER VIII
 ACKNOWLEDGEMENT

I am using this opportunity to express my gratitude to everyone who has supported me

throughout the course of the project. First of all I would like to thank the supreme power the
almighty god who is obviously the one has always guided me to work on the right path of life.
Next are my parents because of their love, encouragement and support for doing this project and
also I am thankful to my teacher who aspired and guided me during the project work. I am
sincerely grateful to them for sharing their truthful and illuminated views on a number of issues
related to the project.

I express my warm thanks to Dr. Dayanand Murthy Sir for his support and guidance in the
given project without his help it would have been a little difficult for me. I have no valuable
words to express my thanks, but my heart is still full of the favour received from you. It was all
my pleasure to have you as my teacher throughout project for this I am thanking you from my
heart.

Signature
BLOCK CHAIN AND PUBLIC COMPANY: A REVOLUTION IN SHARE
OWNERSHIP TRANSPARENCY, PROXY VOTING AND CORPOTATE
GOVERNANCE

According to the theory of corporate law, shareholders are the owners of a company and control
it through the exercise of voting rights. However, for public companies, this system of settling
share transactions became highly inefficient by the 1960s in the US due to high volumes of
trading. This lead to the introduction of IHS(Indirect Holding System) 1. Although market
liquidity benefited from the IHS, it broke the direct relationship between companies and
shareholders, and introduced a discrepancy between “recorded shareholders” and “beneficial
shareholders.” Communication solutions were developed to bridge this distance and allow
“beneficial shareholders” to cast their votes through proxies. However, these communication
solutions currently rely on highly intermediated “pass-it-along” architectures that cause several
inefficiencies,2 the costs of which burden the shareholders themselves and raise concerns in the
context of securities collateral.

By increasing share “ownership transparency,” blockchain can streamline the entire share
ownership architecture. Indeed, blockchain could enable the tracking of share ownership through
the complete settlement cycle, enhancing the “shareholder democracy” of listed companies.
However, blockchain also brings risks, including those related to greater “ownership
transparency.” Consequently, a management system for the digital identity of share transactions
is necessary to foster the benefits of such blockchain-based voting architectures, while reducing
the risks.

Background and Context:

The Settlement of Share Transactions and Shareholding in International Financial Markets

Today:

1
Francisco J. Garcimantín Alférez, The UNIDROIT Project on Intermediated Securities: Direct and Indirect Holding
Systems, INDRET 3 (2006), http://citeseerx.ist.psu.edu/viewdoc/download?
doi=10.1.1.852.9352&rep=rep1&type=pdf.
2
Dirk Zetzsche, Shareholder Passivity, Cross- Border Voting and the Shareholder Rights Directive, 8 J. Corp. L. Stud.
289 (2008)).
The theory of corporate ownership and control is based upon the fundamental premise that
shareholders are the owners of a company. Secondly, while the company is ongoing,
shareholders exercise their ownership through voting and direct the corporate activity itself.

The reality of share ownership (as opposed to the theory)

Shareholders regularly change during a company lifecycle. When shares are transferred, the new
shareholder must be defined. According to corporate law, the shareholder is not the person who
merely has title to the shares of a company (i.e. the real shareholder) but the one who fulfills a
set of information-producing rules that crystallize the shareholding Indeed, only this registration
allows shareholders to exercise the rights conferred by shares, namely the above-mentioned
rights to dividends and to cast votes in shareholder meetings.3

Becoming a shareholder is always a two-step process. In the case of both the allotment and
transfer of shares, the contract (the first step) must be followed by the registration (the second
step). A buyer acquires legal title to shares only when his or her name is entered on the register
becoming a shareholder is a two steps process:4

Similarly, the transfer of shares can be depicted as a two-step process. Here, the first step
(generally referred to as “trading”) involves the buyer and the seller concluding a contract of sale
(agreeing on the price and other terms of the transaction). The second step is then referred to as
“settlement.” Settlement is the process by which the seller is paid, and the buyer is registered as
the owner of the shares purchased.

Similarly, the transfer of shares can be depicted as a two-step process. The second step is then
referred to as “settlement.” Settlement is the process, by which the seller is paid, and the buyer is

3
Regarding voting rights, see, e.g., Title 8 of The Delaware Code § 219(a): “The corporation shall prepare, at least
10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting]”
and “(c) The stock ledger shall be the only evidence as to who are the stockholders entitled to vote in person or by
proxy at any meeting of stockholders.”
4
Paul L. Davies & Sarah Worthington, Principles of Modern Company Law § 27 (9th ed. 2012).
registered as the owner of the shares purchased.5 Thus, both trading and settlements are at the
heart of any transfer of shares.

The settlement of shares was traditionally achieved through the physical delivery of the transfer
form (the contract) and the share certificates to the buyer. Thanks to this process, a company
could control the transfer of shares to new holders acquiring the (legal) title, and a direct
relationship between companies and shareholders would ensue. However, as the following
paragraphs highlight, drastic changes have arisen over the years mainly due to settlement
efficiency and security. In current international financial markets, it is common that when
someone purchases shares, his or her name is not registered on the register of members, with the
result that real and legal shareholders differ.

U.S. “paper blizzard” (1967-1970) and the choice to “immobilize” shares:

The physical settlement of share transactions inevitably requires “back office” paperwork (i.e.
processing and record keeping of transfers), of which the intensity is directly affected by trading
volumes; its costs can be massive. A clear example is the market failure in the US during the late
1960s, which culminated in the financial meltdown generally referred to as the “paper blizzard”.6

However, securities firms were not equipped to sustain this growth: they lacked sufficiently
skilled management, adequate levels of capitalization, and most of all proper back-office
processes.7

More specifically, firstly, transactions were processed by low-skilled and low-paid clerks who
physically delivered the share certificates to the issuer’s transfer agent, which recorded the
change in ownership and issued new certificates in the name of the buyer. These new certificates
were then delivered to the buyer.
5
Emilios Avgouleas & Aggelos Kiayas, The Promise of Blockchain Technology for Global Securities and Derivatives
Markets: The New Financial Ecosystem and the “Holy Grail” of Systemic Risk Containment 10 and following
(University of Edinburgh School of Law Research Paper Series, No. 2018/43), https://ssrn.com/abstract=3297052.
6
David C. Donald, Heart of Darkness: The Problem at the Core of the U.S. Proxy System and its Solution, 6 Virginia L.
& Bus. Rev. 41 (2011).
7
SECURITIES EXCHANGE COMMISSION, STUDY OF UNSAFE AND UNSOUND PRACTICES OF BROKERS AND DEALERS
11 (1971),
https://3197d6d14b5f19f2f4405e13d29c4c016cf96cbbfd197c579b45.ssl.cf1.rackcdn.com/collection/papers/1970/
1971_1201_SECUnsafe_01.pdf
Secondly, record-keeping of transactions was extremely complex. Securities firms maintained
two sets of books, one for cash and another for securities. In the latter, firms listed the securities
held and traded by the firm. This information had to balance for each individual issue. Moreover,
since securities were constantly traded for money, at the end of the day these two sets of books
had to agree.

When trading volumes peaked, the complexities of these processes made the settlement of all
transactions impossible. Consequently, delivery delays lengthened, and many obligations
remained unperformed. Until cash flow was strong, firms used to cover their positions through
short-borrowing. To conceal such defaults, frauds such as “Ponzi” schemes became frequent.8

However, when the market turned downward, firms defaulted on outstanding obligations (where
securities were lost or misplaced) as well as on dividend or interest payments. US exchanges
tried to find remedies to the “paper blizzard.” For instance, trading days and trading hours per
day were reduced. However, securities firms were overwhelmed by paperwork and bankruptcies
increased. Since the Securities Acts Amendments of 1975,9 the settlement of securities
transactions has rested on more efficient systems characterized by the “immobilization” of shares
at CSDs, regardless of the existence and location of the underlying paper certificates.

In these settlement systems, issuing companies open accounts on an electronic accounting

system maintained by the central depository and, if need be, deposit their share certificates into
it. Transactions are settled by “book entries,” which consist of crediting and debiting the
transferee’s and transferor’s accounts.

Such a settlement system is highly beneficial for the safety and efficiency of transactions,
because it eradicates the risk of shares getting lost or misplaced. Moreover, it ensures that the
payment for and delivery of shares occur relatively simultaneously, reducing the counterparty
risk for the transferee and transferor. In addition, by “immobilizing” shares at a central
depository, economies of scale are leveraged, and market liquidity increases.10

8
Donald, supra note 6, at 51.
9
The Act can be found at https://www.gpo.gov/fdsys/pkg/STATUTE- 89/pdf/STATUTE-89-Pg97.pdf.
10
David C. Donald, Heart of Darkness: The Problem at the Core of the U.S. Proxy System and its Solution, 6 VIRGINIA L. & BUS. REV.
41 (2011).
Indirect Holding System:

Holding system where the shares are either issues in the name of central depositories or
intermediaries but in the name of shareholder (beneficial owner) that system is called “indirect
holding system”. Worldwide extension and the countless “links” that CSDs have with each other,
the other layers within the IHS can always access the securities markets irrespective of countries
& legal differences between those countries. In this way, it creates an unprecedented degree of
financial integration.11 One of the highlighting features of IHS is “omnibus” it is a main account
all the shares are kept in this account.

The other main trait of an IHS is that financial institutions regularly make use of accounting
structures commonly known as “omnibus accounts.” In “omnibus accounts,” shares are pooled
although owned by different investors.12

The exceptions conceptually belong to a system that is transparent and in which ultimate
investors having their own accounts directly in the CSD. Unlike the IHS, in the transparent
system, intermediaries simply act as operators of these accounts and never hold securities on
behalf of investors. Although enabling more transparency, such a system is not suitable for
transnational shareholdings because operating accounts in a CSD are highly integrated with each
national framework. Financial markets have developed settlement systems more efficient than
the physical delivery of certificates, the accounting structure currently used for the safekeeping
of securities increases the opacity within the shareholding system.

Negative Externalities of the IHS on the Corporate Governance of Public Companies:

In recent years, financial markets have made “settlement process” more efficient in comparison
to the old physical delivery of certificates, the accounting structure currently used for the
maintaining the record of securities and also have increased the transparency within the
shareholding system. However as every system has its disadvantage, and one of the advantages
of this system is that it creates a distance between issuing companies and their shareholders that
11
Delphine Nougayrède, Towards a Global Financial Register? Account Segregation in Central Securities
Depositories and the Challenge of Transparent Securities Ownership in Advanced Economies 11 (draft) (May. 2021)
12
Joanna Benjamin & Madeleine Yates, The Law of Global Custody - Legal Risk Management in Securities
Investment and Collateral (2nd ed. 2002), at 27
inevitably breaks the direct relationship between them and dilutes shareholders rights and control
over share.13 Indeed, in these circumstances, a shareholder “discrepancy” inevitably arises: those
intermediaries whose names are on the register of members are “recorded shareholders,” while
those who have a real economic interest in the company shares and a title on them are “beneficial
shareholders.” This discrepancy between “recorded” and “beneficial” shareholders implies that
the latter always interact only with the intermediaries holding the record on the register of
members, while exercising the rights attached to the shares only to (and through) them. Control
over their shares. The distance inevitably introduced between companies and shareholders by the
establishment of the IHS makes the exercise of these rights more difficult.

The fundamental of investor ownership is composed both of the right to receive the firm’s net
earnings and the right to control the firm.

The right to control the firm is exercised through voting rights of shareholders on the
appointment (and removal) of the members of the board of directors, while, in turn, the board is
supposed to oversee management, particularly when management decisions may be suboptimal
because its interests are misaligned with those of shareholders.

Also, shares being indirectly held by intermediaries greatly complicate voting processes. 14 Every
time before votes are cast (or proxies assigned), identifying and locating beneficial shareholders
is must. This identification process typically requires several steps: firstly, issuing companies
send enquiries to CSDs asking for lists of IHS participants that hold share records on their
accounts.

Secondly, when this information is received, companies send “search cards” to the identified IHS
participants, asking for the number of proxy materials needed.15 Then, IHS participants identify
the corresponding depositories holding share records on their accounts, and indicate the
approximate number of beneficial shareholders directly linked to the corresponding depositories.
After the identification of beneficial shareholders can issuing companies provide intermediaries

13
Marcel Kahan & Edward Rock, The Hanging Chads of Corporate Voting, 96 Geo. L. J. 1227, 1243 (2008).
14
Concept Release on the U.S. Proxy System, Securities And Exchange Commission.
https://www.sec.gov/rules/concept/2010/34-62495.pdf.
15
Marcel Kahan & Edward Rock, The Hanging Chads of Corporate Voting, 96 Geo. L. J. 1227, 1243 (2008).
with proxy materials. Eventually, materials are distributed to the beneficial shareholders, who
can finally cast their votes or assign proxies.16

Proxy voting: Theoretically correct, practically inefficient:

What is proxy voting?

Proxy voting is the alternate method adopted, where the actual owner (beneficial owner) is not
able to attend the voting process of the corporate or company. The beneficial owner is having
control indirectly, where he can instruct the proxy as to how the voting rights have to discharged
on his/her behalf. And also the beneficial owner is liable for the actions of his proxy.

Current proxy voting structure is complex: Because of the multiple layers of intermediaries
involved (both holding shares and managing corporate communications). Because of this, proxy
voting systems still suffer from several inefficiencies that increase their costs and those of
“shareholder democracy.” These costs are ultimately borne both by shareholders.

Inefficiencies proxy voting structure: Complexity of current proxy structure: Proxy voting
systems still suffer from several inefficiencies that increase their costs and those of “shareholder
democracy.” These costs are ultimately borne both by shareholders.

Transparency in the ownership of shares: Generally, happens when shares are lent in the
securities lending market, and the record date is due. Various cases showing the issue of over
voting that the designated number of beneficial owner is a usual things. In this case, confusion
over who is entitled to cast votes can easily arise and lead to over-voted ballots, which heavily
undermine the reliability of decisions made at meetings.17

Blockchain has significant potential in the context of managing information related to company
shareholders, an issue directly related to securities settlement. Under this approach, companies
would be able to issue digital shares (or “smart securities”) that allow transactions to be settled
potentially on a real-time basis, further reducing the current settlement latency as well as

16
Kahan & Rock, supra note 14, at 1243 and following.
17
Vice Chancellor J. Travis Laster, The Block Chain Plunger: Using Technology to Clean Up Proxy Plumbing and
Take Back the Vote, Council of Institutional Investors. http://www.cii.org/files/04_05_21_laster_remarks.pdf
transaction costs.18 In addition, and most of all, blockchain could allow corporations to maintain
a single and comprehensive register of members which is secure, transparent and immutably
reflective of ownership. Such an innovation should then finally eradicate the discrepancy
between “recorded” and “beneficial” shareholders.19 Thus, thanks to blockchain, issuing
companies should be able to retake control of the transfer of their shares and know who their
shareholders.

There are certain country Estonia, who have already adopted and country like Australia who are
on the verge of adopting blockchain looking into the potential impact making feature in
increasing efficiency, effectiveness as well as reducing shares settlement period. On country on
the verge of adopting of blockchain is Australia.

In a nutshell, blockchain could enable the direct relationship between issuing companies and
shareholders to be finally re-established. Returning control of shares to where it belongs it would
also allow shareholders to cast votes much more quickly and effectively, bringing reality back
into line with the theory that states that shareholders not only own the company, but also control
it through the exercise of voting rights. Due to its distributed nature, blockchain increases
transparency within the whole voting process and shareholders can leverage it to better monitor
their proxy assignments as well as their votes.

(a) Increasing ownership transparency of shares within the IHS, blockchain lays the groundwork
for a better proxy voting architecture.

(b)Benefits for “shareholder democracy”: more voting accuracy and decision legitimacy

(c) Reduction of costs in voting procedures.

(d) Higher accuracy of ballots and stronger legitimacy of decisions.

(e) Increased transparency between stakeholders in corporate governance.

Along with benefit it has certain concerns also:

18
Dario de Martino & Spencer Klein, Don’t Want To Be The Next Kodak? Embrace Blockchain, The CLS Blue
Sky Blog
https://www.law360.com/articles/960825/don-t-want-to-be-the-nextkodak embrace-blockchain.
19
Laster, supra note 16.
(a)Risk to identity of beneficial owner:

With the increase in the transparency of the beneficial owner all the concerned details will be
available to the public at large and this paves the way for the identity theft and could be
compromising with the digital security of the beneficial owner. Blockchain operates in
distributed network, also shares the relevant details of the beneficial owner over different
authorized computer (nodes), ultimately spreading information across the platform.

(b)Blockchain immutability and risk of incorrect ballots:

Blockchain is simply a database where information is stored digitally. And one of its feature is
that it creates “golden copy” of the data making it impossible to make changes later on the
blockchain making unalterable. For instance, if shares are mistakenly transferred, it will take
time before the transaction is declared null and void by a judicial authority, the transaction is
reversed on the ledger, and the data is thereby updated. 20 But this feature has negative side,
which is if while entering the details some error occurred making it impossible to remove the
error subsequently thus causing problems.

Conclusion:

No doubt blockchain is a potential solution to the current existing problems of securities market
as mentioned above. However, these mechanisms suffer deeply from the lack of share ownership
transparency within the IHS. Moreover, due to the high level of intermediation, they end up
being extremely complex. Consequently, major inefficiencies arise, and demands for change are
compelling.

The rise of blockchain technologies now offers the opportunity to increase share ownership
transparency within the IHS and sets the grounds for creating a more efficient proxy voting
architecture. With blockchain-based voting, processes can be dramatically streamlined and costs
reduced, with significant benefits not only for the shareholders but also for corporate governance
It can be game changer for the securities market. Providing relief to all the players involved in

20
Adam T. Ettinger, FinTech: Taking Stock in Blockchains, Nat’l L. Rev. (May. 5, 2021),
https://www.natlawreview.com/article/fintech-taking-stock-blockchains.
the market (beneficial owner, and issuing company are the significant ones), only addressing the
concerns along with the makes changes in the current sphere of law related to securities market.
As of now there is regulatory uncertainty with respect to the future of blockchain based offering
as there no significant steps taken or announcement from the government side. At the same time,
blockchain also carries some risks which must not be underestimated. In addition to creating new
losers, these risks can also result in a loss of confidence in blockchain, obstructing the next
logical improvement to current proxy voting mechanisms.

Making provision for:

(i) Recognition of “digital securities,”

(ii) Broad-based trading of equity-equivalent “digital securities,”

(iii) Margining of “digital securities.”

Ultimately if the government is able to address all the concerns currently arising in the field of
blockchain21 and take steps positively for the development of blockchain market along with
keeping the safety of all the players involved in the whole process of block chain based shares
issuing.

Conclusion:

No doubt blockchain is a potential solution to the current existing problems of securities market
as mentioned above. It can be game changer for the securities market. Providing relief to all the
players involved in the market (beneficial owner, and issuing company are the significant ones),
only addressing the concerns along with the makes changes in the current sphere of law related
to securities market. As of now there is regulatory uncertainty with respect to the future of
blockchain based offering as there no significant steps taken or announcement from the
government side.

Making provision for:

21
Philipp Paech, The Governance of Blockchain Financial Networks, 6 Mod. L. Rev. 1073 (2016).
(i) Recognition of “digital securities,”

(ii) Broad-based trading of equity-equivalent “digital securities,”

(iii) Margining of “digital securities.”

Ultimately if the government is able to address al the concerns currently iarising in the field of
blockchain and take steps positively for the development of blockchain market along with
keeping the safety of all the players involved in the whole process of block chain based shares
issuing.

Is there any law on India:

As of now there is no law related to this issue in India.

BLOCK CHAIN PLUMBING: A POTENTIAL SOLUTIN FOR SHAREHOLDER

VOTING

The 2017 proxy season, lasting from March to June, saw upwards of 437 billion shares voted
across more than four thousand shareholder meetings. 22 In 2008, a Delaware attorney stated that
proxy contests with election results closer than fifty-five percent to forty-five percent could not
be accurately verified.23
22
BROADRIDGE, 2017 Proxy Season Key Statistics and Performance Ratings,
https://www.broadridge.com/_assets/pdf/key-statistics-and-performance-ratings-for-the-2017-
proxy-season.pdf [https://perma.cc/4B8S-ZRD4].
23
Marcel Kahan & Edward B. Rock, The Hanging Chads of Corporate Voting, 96 GEO. L.J. 1227, 1279 (2008).
 Distinct roles regarding the ownership and control of the current form of companies are now a
common practice. And there is a difference of opinion of experts regarding the both, some
experts support increase in the participation of the shareholder 24 and at the same time another
group of experts hold the contrary view.25 But still shareholder participation is one of the
important issues in corporate law. the importance of shareholder vote can be seen during the
voting session where the shareholder votes acts as an check on the managerial boards power,
where the scheme or the plan proposed by the board can only be passed by the shareholder after
the reasonable satisfaction by the shareholder. The current proxy voting mechanism in united
states is outdated.

The current solution to this outdated proxy voting system is “distributed ledger technology”
commonly known as “block chain technology”, it has the potential to efficiently upgrade
shareholder voting , so that these shareholders can exercise their rights efficiently and
effectively. But along with all these there are some doubts arising in the mind of experts:

1. How will blockchain technology will work for shareholder?

The current shareholder voting structure:

Shareholder franchise:
The right to vote to a shareholder in a shareholders meeting is considered is considered as a very
important under common law and it cannot be delegated to some other person.26
The concept of “proxy voting ” was introduced in the united states securities in order to make
shareholder fully informed as hold power which they previously had, in this the shareholder are
not voting by themselves instead a third parties are being hired by the companies to vote on their
behalf. In current scenario significant numbers of people are not attending the shareholders
meeting and are using the option of “proxy shareholder”.

24
The Role of Shareholder Proposals in Corporate Governance, 17 J. CORP. FIN. 167 (2011) (supporting
shareholders’ right to propose new bylaw amendments and participate heavily in corporate governance).
25
LYNN STOUT, THE SHAREHOLDER VALUE MYTH: HOW PUTTING SHAREHOLDERS FIRST HARMS INVESTORS,
CORPORATIONS, AND THE PUBLIC (2012) (calling into question the growing focus on shareholder wealth
maximization and participation);
26
FRANK D. EMERSON & FRANKLIN C. LATCHAM, SHAREHOLDER DEMOCRACY: A BROADEROUTLOOK FOR
CORPORATIONS 4 (1954).
 Shareholder right to vote is a the byproduct of state law and stock exchange rules, but under
delware law, they have go ahead and provided the shareholder with right to vote in the selection
of board of directors, bring any changes in the bylaws, approve mergers and in order to approve
sales of significant portions of assets shareholder voting are required to be done. The new York
stock exchange also requires the shareholders approval for any transaction related to the issuance
of stocks which increases the number of outstanding shares by 20% or more.27

2. Proxy voting structure:

The current United States is very complex, this problem arising from the system of share
ownership wherein the other organization holds almost all the shares, instead of shareholder.
Even though this system is really effective for fast and accurate clearance and settlement of
securities transaction, but it also increases the complexity of the proxy voting mechanism. 28 The
present voting process had already included a number of third parties involved in the process
(banks, brokers, transfer agents, securities depositor, proxy service provider etc). Most often
these third party are the main cause for inefficiency of the proxy mechanism which results in
increasing the expense and the cause for increase in the error committed in the whole proxy
voting process.

Initially when the stock exchange was established, when the shares certificates were delivered
manually, this process was slow paced and this lead to the amendment in the concerned act,
paving the way for the banks and brokers to hold the securities of the their clients, securities
which included stock certificates can now be held in the “street name” in the central depository,
there completely eliminating the concept of the manual transfer of shares to the shareholder. As
of 2008, DTCC held securities worth more than $40 trillion in street name. 29 “Street name” refers
to the certificates of shares in the name of concerned financial institute as against the name of the
original shareholder to significantly make the transaction easy. And that these shares are kept in

27
NYSE, Inc., Listed Company Manual 312.03(c).
28
FINAL REPORT OF THE SECURITIES AND EXCHANGE COMMISSION ON THE PRACTICE OF RECORDING THE
OWNERSHIP OF SECURITIES IN THE RECORDS OF THE ISSUER IN OTHER THAN THE NAME OF THE BENEFICIAL
OWNER OF SUCH SECURITIES PURSUANT TO SECTION 12(M) OF THE SECURITIES AND EXCHANGE ACT OF 1934.
29
Larry Garvin, The Changed (and Changing?) Uniform Commercial Code, 26 FLA. ST. L. REV. 285, 315 (1999)
(estimating that as much as seventy or eighty percent of shares of public companies are held by DTCC and its
subsidiaries).
 the organization called “DTCC”,30 which will keep a record of ownership of the shares
accordingly. This process is helps in quickly clearing of the shares in the market. This holding
system does not disclose the names of the “shareholder” & quantity of the shares owned by him.
The law require these share issuing organisation to maintain to maintain the full fledge record of
all the security holder list in order to maintain the process hassle free and effective, and the
record holder are required to follow the instructions of the beneficial holder in the meeting.
Generally proxy service provider are hired who provides necessary proxy materials either
through mail or electronically, and these based on the information provided by the issuers to the
intermediaries as to how many numbers of proxies are required. Currently in U.S. almost 90% of
the proxy service is provided by the single “service provider”. Also it has been clearly held by
the courts that, the beneficial owner owns the responsible on the part of record owner for any
mistakes committed by him.31 And regarding the counting of the votes in the law requires the
organisation to hire a vote tabulator who will be final authority on the counting of the votes of
given by the shareholder as well as proxy. Generally, the intermediaries often submit more
number of votes than they are originally entitled to vote, creating situation where the authority is
either no to accept the votes for organization causing error or simply accept the votes on first-in
basis.

3. Issues and problems with the current voting mechanism:

Broken always allow their customer to buy a shares in margin and giving them the shares that
they hold for their clients. The standard loan agreement states that the voting right of the
shareholder also transfer from the transfer of shares. Since both the beneficial owner as well as
the borrower are not aware of this fact, both fill the form to vote and give instructions and then
submits the form to the broker for further execution. This is one of the reason for wrong or over
voting due to failure on the part of the broker to determine exact number of shareholding by the
respective shareholders. In one of the case, where “P&G claimed victory by a tally of about six
million votes out of more than two billion cast. 32 However, Peltz’s fund Trian Partners was quick

30
http://www.dtcc.com/about/businesses-and-subsidiaries/dtc [https://perma.cc/YFN6-YQF9].
31
Enstar Corp. v. Senouf, 535 A.2d 1351, 1354-55 (Del. 1987) (noting that since holding shares in street name is
voluntary, shareholder must bear the risk of holding their shares through nominees)
32
Procter & Gamble Co., Submission of Matters to a Vote of Security Holders (Form 8-K) (Oct. 16, 2017),
https://www.sec.gov/Archives/edgar/data/80424/00011931251731102 8/d451432d8k.htm
[https://perma.cc/NZF5-W68H].
to challenge that number and demanded a recount by an independent proxy tabulator, asserting
that the vote was actually “too close to call.” After a recount that lasted more than a month, Peltz
turned out to be the victor—winning by a mere 42,780 votes, a margin of 0.0016% 33 Out of
billions of votes it came down to just a few thousand, many of which might not have been
accurately voted as a result of the layers of intermediaries interposed between the beneficial
owners and the voters of record”.

These kinds of case where the mistake can change the course of action for certain organisation
and it remains unknown since the mistake hasn’t been found. In another instance where in 2008
during a proxy fight for the the control of Yahoo!’s board, the company announced that it had
received approval for its slate of directors from eighty percent of stockholders. However, a major
error occurred: Broadridge misattributed about twenty percent of the vote because it failed to
include millions of votes in its final tally34. These cases acts of moment of remainder as to some
mistake can cost destruction of an entire organization. And this is where the importance of the
effective and efficient alternative of proxy voting requirement becomes significant. In another
case of “2003 proxy contest at Unilever. The voter turnout appeared outrageously low, so the
company inquired as to why its shareholders did not vote in force on a very important proxy
contest. Following the investigation, it was discovered that three of Unilever’s largest
stockholders did not have their votes executed by their voting intermediary because Institutional
Shareholder Services (“ISS”) had improperly filed its voting cards. In this way, more than twelve
million votes were “lost.”35

The phenomena of emptying voting is also prevalent, in this the concerned person borrows the
shares just by paying a nominal fees and the the who borrowed the share can also vote without
having any economic interest in the concerned company or organization, this practice is
indirectly affecting whole voting process and is also illegal in my own opinion.

33
David Benoit & Sharon Terlep, Activist Peltz Narrowly Wins P&G Board Seat, New Count Shows, WALL ST. J. (Nov.
15, 2017), https://www.wsj.com/articles/activist-nelson-peltz-elected-to-p-g-board-1510782775
[https://perma.cc/XYG6-VP2Q].
34
Yi-Wyn Yen, Yahoo Recount Shows Large Protest: Yang’s Approval At 66 Not 85 Percent, HUFFINGTON POST Aug. 6, 2008,
http://www.huffingtonpost.com/2008/08/06/yahoo-recount-shows-large_n_117195.html [https://perma.cc/TW7P-XT3J].
35
Adam Jones, Riddle of the Missing Unilever Votes Solved, FIN. TIMES, Aug. 16, 2003,
In another scenario, generally investor buys shares from lender at a low cost and then sale at high
price to make profit out of the transaction, and they again buy those shares in near future at a low
price to return those share to the lender.

Other than being a error prone process, it is also a expensive procedure for which the shareholder
are responsible to pay. In one of the studies it was found that the market where the amount of
public traded shares annually worth 100 billions dollars per year, there the issuers have to pay
more than 200 million dollar per year.36

Block chain as a solution:

Distributed ledger technology is basically a set of instruction that is made of block chains.
Maximum number of blockchain are based on peer to peer basis that is they don’t have a central
computing server, rather the blockchain software is the connection of random remote connected
computer which works as the decentralized network making You can also view it is as a
operational database, where all the information regarding the purchase and sale of shares
transaction will be posted in seconds as the transaction happens in real time, providing all the
information regarding all the aspects providing the efficiency as well transparency of these
transaction which it does not have previously. You can think of blockchain as a “star fish, it does
not have a head. The central body of the star fish is not in charge, rather all the arms of the
starfish are important. The decentralized structure of blockchain uses a method where all the
decentralized connected computer work as a nodes to verify the concerned transaction and
provides a authentic information to prevent illegal and fraud acts. Nodes as you now are
decentralized computers which records and verify the transaction on the blockchain. These
nodes acts as fuel to this blockchain network running. These nodes works together and records
the transaction concerned transaction permanently that is posted in the blockchain network.
These transactions cannot be deleted and can only be updated in sequence.

36
Blockchain in Capital Markets: The Prize and the Journey, OLIVER WYMAN at 20 (February 2016),
http://www.oliverwyman.com/content/dam/oliver-wyman/global/en/2016/feb/BlockChain-In-Capital-Markets.pdf
[https://perma.cc/99SN-BS9L].
Nodes work in concert to record transactions permanently “in a way that cannot be later erased
but can only be sequentially updated, in essence keeping a never-ending historical trail. 37 All the
blocks of the blockchain have all the record of each and every previous transaction resulting in
complete transparency. All these blocks are joined to each other. In order to remove the
information without updating, if someone is trying to delete all the information related to a
certain transaction have to remove the details of that transaction from all the other connected
nodes to that network, which is an impossible task. Also “DLT” uses hashes as it “unique
fingerprint” it helps in verifying that a certain piece of information is correct, when the hash
function is kept in a mathematical process, where it takes data of any size, conducts the required
operation on the given set of information and gives the output of a fixed size.

The blockchain also provide a concept of “public & private key”, since public key serves as a
process of recording ownership and the private key can be used by the beneficial owners to
access its assets. We can think of private key as a security password of the beneficial owner it
will only allow the user with the private key to access its account on the blockchain. To make
sure that the data that is shared is authentic and correct, block chain uses a method called
“consensus”, where all the connected nodes or computer contact and controls each other and
each other nodes is aware of all the information that all the other nodes contain and all the
information contained is known as well as nodes have to agree in all the information contained to
come to “consensus”, which is a important procedure to verify the information. If in a scenario
where there is a dispute between two persons, this is dealt through a process where between two
person, the sequence of the transaction wins, which is backed by the most number of nodes. And
there is no need for the third party, which in this case is expensive as well as time taking process.
“DLT offers a mechanism of “radical transparency” that puts governance on display in an
indisputable ledger.”38

Shareholders Voting and Blockchain:

37
HENNING DIEDRICH, ETHEREUM 94 (2016) (“It’s not a blockchain if its copies are not stored, identically, across
massively many computers. . . . Fundamentally the data a blockchain holds is a sequence of transactions. And as of
today it is essential that no transaction is ever forgotten.”).
38
Alex Tapscott, Blockchain Democracy: Government Of The People, By The People, For The
People,https://www.forbes.com/sites/alextapscott/2016/08/16/blockchain-democracy-government-of-the-people-
by-the-people-forthe-people/#39e35d6e1fb5.
 The corporate voting scenario in U.S. is suffering from problems such as: Lack of transparency,
verification of votes, identification of authentic voter, lack of efficient and effective voting
process all these problems can be solved with the use of Distributed ledger technology (block
chain). Shareholder votes can be recorded in distributed ledger technology and can either be
managed by company or the shareholder themselves. Blockchain also has 2 variants:
“permissioned” & “unpermissioned” ledgers respectively39. As the name suggests one of the
ledger needs permission or access code to open that ledger, it is a kind of private ledger which a
certain specific people can only access having the access code and the other one doesn’t require
permission, it can be accessed by public.

How will the block chain as well permissioned ledger can work together?

For this the concerned company or organization will have to set the dates for the voting and
intermediaries should upload the list of beneficial owner as soon as the voting date is fixed. The
concerned beneficial owner will be allotted the “tokenized votes” as per the number of shares
holded by them. And these “tokenized votes” will be submitted to their public address and the
shareholder or his authorized proxy will be having access to this public address. The shareholder
can send his voting instruction or voting preference in the public address using a consensus
method as per the blockchain rules and regulations.

Shareholder can vote himself or can appoint a proxy in his/her place. It this can be done either by
two methods,

1. By transferring his/her tokenized votes to the public address of the designated proxy.
2. Or by providing the proxy with the private keys.

The recommended method is to provide the private keys to the designated proxy. This will allow
the voters to determine how exactly how the shares is voted, if the “tokenized votes” are simply
transferred to the proxy then the issue of fungible bulk of “tokenized share” will be replicated.
This method will lead to the voting of the shares as per the beneficial owner wish, as well as the
unnecessary or unauthorized voting will be restricted. Both the company management and
39
Cristoph F. Van der Elst & Anne J.F. Lafarre, Blockchain and the 21st Century Annual General Meeting, 14 EUR.
CO. L. 167, 168 (2017).
shareholder can access the real time vote tabulation. And these factors highlighted above will
lead to quick and transparent voting process will is the primary issue.

The primary question is whether the shareholder considers their vote as important tools to makes
significant change in the corporate governance. There are several theories that suggest that
shareholder doesn’t have enough economic importance on their votes, and that their votes often
will not matter anyway given the reality of current corporate boards, the structure of corporate
control transactions, and other methods of undermining the shareholder franchise.

Proxy contest is bad for shareholder as the shareholders even after being the owner of shares are
not voting and there is no check on the power of corporate board, since voting after analyzing the
steps and scheme proposed by the board or member of boards is very important in order to take a
informed decision making. Only then voting makes sense. Currently, significant percentages of
shareholder are from working class and they don’t have enough time to 100 pages and to analyse
the report, and without analyzing voting doesn’t makes the process effective. Reducing the time
for proxy voting will already increase the pressure on the already intense process.

In a 1988 study, “John Pound found that shortening the amount of time between announcement
of a proxy contest and its outcome indicated a lower chance of dissident success. 40 Seemingly,
management may use quicker proxy votes to sway contests in their favor.” Although blockchain
provides more accuracy in vote tabulation and transparency of those results, management can use
the more rapid time frame to manipulate those results.

There is difference the people who are voting as a owner of the company and the person who is
making investment decision. This difference has caused the management to ask the
recommendation from proxy advisor to in order to take their voting decision. The investors
should be analyzing market trends, assessing management’s ideas, and understanding economic
fundamentals, not wasting their time on trivial corporate governance issues.41 Reducing the time
of shareholder voting will lead to increase in the reliance on these proxy advisors and in this way
proxy advisor have gained a significant power over the shareholders vote.

40
John Pound, Proxy Contests and the Efficiency of Shareholder Oversight, 20 J. FIN. ECON. 237, 258-59 (1988).
41
Robert D. Hershey, Jr., A Little Industry With a Lot of Sway on Proxy Votes, N.Y. TIMES, June 18, 2006, at S3.
One of the biggest drawbacks of blockchain is that when a transaction is posted on the
blockchain it cannot be changed and the ledger cannot be omitted again. A simple error on the
entering details causing a loss of a vote, the detail cannot be changed subsequently. Makes it a
risky option.

More intriguing, however, is that the benefits derived from the accuracy of blockchain can easily
be realized with already-established technologies as simple as websites. Reducing the
shareholder voting has its own pros as well as cons, we have to analysis them and then take the
decision as to whether it should be applied or not.

Is there any law on India:

As of now there is no law related to this issue in India.

BLOCK CHAIN BASED SECURITY OFFERINGS:

In the last few decades the growth of company has been significant throughout the world. Along
with the growth of the company there has been a huge increase in the participation of the general
public in the company as a “shareholder”. Previously the shares of a company were transferred
physically and it could take a couple of days to issue the shares in the name of a person, making
this process time taking. Now this process has become significantly less time consuming. In the
last decade the shareholders have increased drastically.

WHAT IS A SHARE HOLDER?

Shareholder is the person who has been allotted a certain number of shares of a company, he/she
will be getting dividends from the company as an when the company declares it and he/she will
be getting the voting rights in proportion to the number of shares he/she is holding respectively.

In this paper we will talking about the Shareholders voting right and the use of “Block chain”,
Whether block chain can be a effective solution or we should be continue with the contemporary
method which involves the use of various third parties. In these modern times, where a company
which is floating its share in the stock market having millions of shareholder, there the voting
process becomes “Hectic, Time consuming and expensive”.

Analyzing evolution of the issuing of the shares of a company from being issued manually
(physically) to electronic issuing. Disparity between the board members of a company and the
share holders of a company, how the problem exist and what could be the potential solution
according to author of the research paper.

As we already know that these days there are companies with millions of the subscribers who are
entitled to the dividends and allowed to the vote in the crucial decision making of the company.
For the these companies holding annual general meeting for the millions of the subscriber can be
expensive and time taking. As per the law the company has to hold the meeting in order to
introduce any change in the Memorandum of association of the company or before any. As per
the concept of corporate law, there is separation of ownership and control between Shareholder
and board of Directors respectively. And since then, there has been a constant debate among the
scholars regarding whether there should be increased shareholders participation or otherwise.

Corporate law principle of “Principle & Agent” where the principle has delegated its power on
its behalf to its agent to do a job, and “Shareholder’s” will act as constant check on the workings
of the “Agent” and this is the main rationale behind giving importance to the voting procedure
related to the corporate governance of a company. Where the law requires the companies to
disclose certain critical information which is not available to the general public as opposed to the
Shareholder during the voting process so that shareholder is well informed about any transaction
or the procedure for which he is supposed to vote. The concept of “voting procedure” will hold
any importance only if, the person who is supposed to vote for that purpose i.e. Shareholder. In
these modern times where most of the Shareholders are working people who are busy in their
daily routine.

While voting procedure requires review of the concerned related documents related to a
particular transaction or procedure so that the shareholder is taking informed decision, otherwise
taking a decision without having any relevant information on that particular topic is of no
importance. This article discuss the evolution of the way the transaction of the shares of the
companies used to take place from a span of couple of days to in just few minutes in these days.
This paper also analysis the current shareholders structure in United States and the various
facilities provided to facilitate the voting process. This paper also highlights the complicated
structure of the shareholders voting process and the role played by proxy voting mechanism in
influencing various voting outcomes.

BLOCKCHAIN BASED SECURITY OFFERINGS

Whenever we talking of “BLOCKCHAIN BASED SECURITY OFFERINGS”, it is basic to first

understand what “BLOCKCHAIN” & What is “SECURITY OFFERINGS”.
WHAT IS “BLOCKCHAIN”?

A block chain is a shared digital ledger or database that maintains a continuously growing list of
transactions among participating parties regarding digital assets together described as “blocks.”
The linear and chronological order of transactions in a chain will be extended with another
transaction link that is added to the block once such additional transactions are validated, verified
and completed. The chain of transactions is distributed to a limitless number of participants, so
called nodes, around the world in a public or private peer-to-peer network. The technology
provides significant opportunities and applications in peer-to-peer interactions and transactions
in a decentralized network where all participants are equal and verification and validation of each
transaction is provided by all parties in the network through the blockchain technology.

WHAT IS “SECURITY OFFERINGS”?

The term “SECURITY OFFERING” is a general term which is used to describe the all kinds of
securities which are offered by the company in the security market in order to meet the gather the
money from the security market in exchange of the securities offered by the company. There are
various kinds of securities like – equity shares, preferential shares and debentures are the
examples of some of the most frequent securities used in the security market.

So now we have the above examples we have a fair idea as to what are block chain based
securities offering. Basically this can be seen as a modern way of issuing securities in the
security market. The transfer of the shares via block chain be will be completely digital and also
block chain creates an unprecedented history (records the transaction sequentially) of the owners
which cannot be manipulated. The primary reason as to the growing popularity of these block
chain based security offerings are that these method of issuing securities will increase
“transparency” in the exchange of the shares in the security market, reduction in the cost
involved due to the involvement of the various agencies, which this method if adopted by the
security market would reduce the cost significantly.

The current ledger structure of share offerings have a lot of loopholes while for individual firms
batch-processing is the norm, this model creates numerous dependencies, multi-day settlement
times, unique operational risks, and duplicative costs. Legacy systems use multiple firms to trade
the same securities utilize multiple ledgers, which increases operational risks and costs.

The first Securities and Exchange Commission ("SEC") “digital securities” that uses block chain
technology was issued by OSTK. The offering reveals the possible disruptiveness that block
chain technology can bring to the old market method:

(i)Long-standing processes of offering and selling shares to the public in the United States,

(ii) Conventional positions of those involved in the offering of securities offering process e.g.,
underwriters, transfer agents, custodians, etc., including through disintermediation.

A public corporation performed the OSTK offering. It generates a model as part of a shelf
registration and highlighting the possible benefits of block chain based securities offering.

Securities offering block chain technology, and it highlights the various significant regulation
loopholes which exist in the United States security market.

OSTK, a publicly traded online retailer founded on Utah in December 2015, completed the sale
of securities on the Bitcoin blockchain [('digital') Securities')]. 42 OSTK's wholly-owned
subsidiary named Medici's t0.com a technology based on the block chain. Medici's t0.com ('t0')
program, offers instant settlement and clearing compared to the industry standard of three Days
(T+3), offers the technology required to complete the offer of securities on the block chain
network.

Keystone Capital Company Inc, The sole broker-dealer is allowed to give investors access to
Series A. Preferred shares by means of the PRO Securities ATS ('PRO'). 43 During the first OSTK
trade, the broker will be responsible for all "know your customer's" rules.44 The primary
difference between the OSTK offering and the conventional method of offering securities is that
the purchaser of OSTK must keep the record directly and, As the beneficial owner of the

42
https://www.globenewswire.com/news-release/2015/06/05/742576/10137582/en/Overstock-com-Launches-
Offering-of-World-s-First-Cryptosecurity.html.
43
Overstock.com, Prospectus (Form 424B2) 5 (Aug. 9, 2018).
44
Overstock.com, supra note 27
.
securities, the authority to keep the securities cannot be delegated. The securities to the broker,
e.g. the securities is held directly and not in the name of the "streetname". t0 is the software
being used to run PRO. PRO currently operates under a waiver from the SEC, which permits the
trading of blockchain securities. During the initial year of issuance of these types of shares, only
accredited investors were legally authorized to deal on these kinds of the platform. many in the
brokerage industry were eagerly waiting for these digital securities to be introduced and sold via
a stock exchange instead of exclusively available on the ATS platform. It operates on ATS
platform due to an exclusive exemption provided from the SEC, which requires the trading of
blockchain securities ATSs to be structured exclusively for institutional investors to liquidate
their interests. In 1998, the SEC introduced Regulation ATS in an attempt to encourage business
innovation and to protect investors.

By registering as an ATS, the trading scheme will function under the exception of Section 5 of
the Securities and Exchange Act of 1934.45 Previously only major investment banks used to set
up ATSs (Goldman Sachs—SIGMA X, Deutsche Bank— SuperX, etc.) with the primary
purpose of executing large sums of block orders and thereby generating a block order. Liquidity
in the market. Registration as an ATS means that broker-dealer laws and regulations apply,
instead of exchange laws and regulations. The general practice includes registration as a broker-
dealer and filing an ATS form with the SEC. By filing an ATS form with the SEC, the ATS shall
provide general notice of its operations as provided by law The ATS rules and regulation laid
down by the Security Exchange Commission and the Financial Industry Regulatory Authority
will be of binding nature.

OSTK has completed the sale of two crypto bonds via "private offering" as per the rule 50(c) of
regulation D. With the help of regulation D, OSTK for the first time issued a 25 million dollars
in bonds in t0 mechanism (reduce settlement cycle), and is the first of its kinds of securities to be
sold with the help of block chain technology. In December 2016, OSTK completed a seasoned
equity offering of $10.9 million, which included $1.9 million of digital securities46.

Various leading security trading and brokerage firms have already realized the advantage of
trading over the block chain technology and have started to experiment on it. These institutions

45
15 U.S.C. § 78(e) (2019).
46
https://www.coindesk.com/overstock-first-day-blockchain-stock-trading.
involve few leading trading firms like BTL energy, Barclays, and a joint project between IBM
and Northern Trust.47

If the settlement window of the shares is of 3 days, which is the current standard time given.
Where the traders are given 3 days time to record all the transaction of the shares taken place.
Shares were allegedly subject to an illegal “out-of-the-box short” whereby an investment bank
lent out shares that didn’t exist so that its clients may short. The result is unfair manipulation
driving the price of the stock down. This tactic is only possible because it takes three days to
settle a trade. By eliminating the window between trade and settlement, the blockchain
eliminates out-of-the-box shorting.

ADVANTAGES OF SECURITIES OFFERING THROUGH BLOCKCHAIN:

When it comes to the advantages offered by the block chain securities in comparison to the
traditional offerings of the securities are multifold:

1. Lower issuing, operating and administrative cost.

Blockchain technology allows the companies to eliminate cost resulting from the human error in
the record maintenance. It also helps to eliminate any accounting error resulting from human
error which can cause an irreparable damage.

2. Cost Reduction.

With its adoption it can help the organization reduce its cost related to the agency, resulting the
agency to reduce its overall cost related to issuing of securities. Trading same securities across
different platforms requires different ledgers in the legacy system, increase the operational cost
as well as risk associated with it. Conventional legacy system involves batch processing which
involves multiple day settlement system, duplicative cost, unique operational risk, multiple
dependencies among others. Introduction of blockchain reduces the settlement period
significantly, reducing the credit risk which was significantly high in the “legacy system”.

47
Enerchain and BTL energy trading platform, Barclays derivative trading, Northern Trust / IBM joint fund
administration project, 28-bank SWIFT real-time account reconciliation project, etc.
3. Proof of ownership.

The significant advantage of trading of shares over block chain is that the proof of ownership,
since the block chain is based on the digital ledger any transaction over these digital shares, the
ownership of these automatically gets recorded and the subsequent change in the ownership. One
of the main the reason of block chain getting attention is the significant reduction of the cost.
Each of the digital traded shares can have a single owner, unlike the conventional method this
process reduce the overlapping of the ownership and no two people can claim the ownership
over a piece of share.

4. Reduced Settlement Cycle.

With the help of block chain technology where the regulating agency will be provided
information regarding the real time transaction information and real time information regarding
the trade of the digital shares over block chain. As per the current industry standard regarding the
settlement duration is T+2, where there is 2days of delay in recording the settlement. With the
advent of block chain where the completed transaction of the digital shares will immediately be
posted in the ledger without any error every time.

And this is considered as the x factor of the block chain technology where the transaction are
quick, reliable and have a error free transaction history of each and every transaction done on the
block chain platform. One of the most important aspect of the of the transaction completed
within seconds is that this reduces the risks related to the counterparty and systematic risk
completely. all the regulation related to the systematic risk regulation and counter party risk
regulation will become obsolete. With the reduced time of settlement of shares within seconds
would significantly reduce the cost of settlement involved.

Conventionally, the cost of settlement of disputes was a very tedious, cumbersome, expensive
and time taking process. the dispute settlement process involved courts and motion practice
regarding the particular dispute. And in various cases after the taking a lot of time in courts,
when involved parties had already taken a long time then the parties optes for Alternate Dispute
Resolution for the settlement of the dispute in almost all of the cases settles these things happen
and so this whole settlement procedure of courts to ADR mechanism leads to increase in the cost
of settlement making it alot difficult. As we know every step of the settlement procedure
involves various agencies involved such as mediator & arbitrator and number of fees such as
lawyer charge, filling chares and various other charges needs to be payed, making it more
expensive and costly to the parties overall. and all these charges can be eliminated by adopting
the block chain which uses a the ledger to record transactions error free and recording
transactions instantly and leaving no gaps to be exploited resulting in dispute and the process of
dispute settlement never comes into the picture where bock chain are used to trade in digital
shares.

Is there any law on India:

As of now there is no law related to this issue in India.