Circular Resolutions under Section 175: Companies Act and Board Powers

“Unlock the complexities of Circular Resolutions under Section 175: Companies Act. Dive into key agenda items, restrictions, and impactful decisions shaping corporate governance. Explore vital insights to navigate board powers effectively.”

Circular resolutions play a vital role in corporate decision-making, particularly under the Companies Act and board powers. This article delves into the specifics of Circular Resolutions, highlighting key restrictions, agenda items, and significant decisions that impact corporate governance.

Agenda items are not allowed to be passed by resolution by circulation

1. Chapter 12, rule 8 of the companies (meeting of board and its powers) rules, 2014.

• To Make Political Contributions;
• To Appoint Or Remove Key Managerial Personnel (KMP);
• To Appoint Internal Auditors  and   Secretarial   Auditor

2. Chapter 12, rule 4 of the companies (meeting of board and its powers) rules, 2014 The following matters shall not to be dealt with in a Meeting through Video Conferencing or Other Audio Visual Means:

• The approval of the annual financial statements;
• The approval of the Board’s report;
• The approval of the prospectus;
• The Audit Committee Meetings for consideration of financial statement including consolidated financial statement if any, to be approved by the board under sub-section (1) of section 134 of the Act]; and

• The approval of the matter relating to amalgamation, merger, demerger, acquisition and and takeover.

3. Section 179(3) of Companies Act, 2013

• To make calls on shareholders in respect of money unpaid on their shares;
• To authorise buy-back of securities under section 68;
• To issue securities, including debentures, whether in or outside India;
• To borrow monies;
• To invest the funds of the company;
• To grant loans or give guarantee or provide security in respect of loans;]
• To approve financial statement and the Board’s report;
• To diversify the business of the company;
• To approve amalgamation, merger or reconstruction;
• To take over a company or acquire a controlling or substantial stake in another company;

4. Secretarial standard -1, annexure A

i. General Business Items

• • Noting Minutes of Meetings of Audit Committee and other
  • Approving financial statements and the Board’s Report.
  • Considering the Compliance Certificate to ensure compliance with the provisions of all the laws applicable to the Company.
  • Specifying list of laws applicable specifically to the Company.
  • Appointment of Secretarial Auditors and Internal Auditors.

ii. Specific Items

• • Borrowing money otherwise than by issue of debentures.
  • Investing the funds of the Company.
  • Granting loans or giving guarantee or providing security in respect of loans.
  • Making political contributions. Making calls on shareholders in respect of money unpaid on their Shares.
  • Approving Remuneration of Managing Director, Whole-time Director and Manager.
  • Appointment or Removal of Key Managerial Personnel.
  • Appointment of a person as a Managing Director / Manager in more than one company.
  • In case of a public company, the appointment of Director(s) in casual vacancy subject to the provisions in the Articles of the Company.
  • According sanction for related party transactions which are not in the ordinary course of business or which are not on arm’s length basis.
  • Sale of subsidiaries.
  • Purchase and Sale of material tangible/intangible assets not in the ordinary course of business.
  • Approve Payment to Director for loss of office.
  • Items arising out of separate Meeting of the Independent Directors if so decided by the Independent Directors.

iii. Corporate Actions

• • Authorise Buy-Back of securities.
  • Issue of securities, including debentures, whether in or outside India.
  • Approving amalgamation, merger or reconstruction.
  • Diversify the business.
  • Takeover another company or acquiring controlling or substantial stake in another Company.

iv. Additional list of items in case of listed companies

• • Approving Annual operating plans and budgets.
  • Capital budgets and any updates.
  • Information on remuneration of Key Managerial Personnel.
  • Show cause, demand, prosecution notices and penalty notices which are materially important.
  • Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems.
  • Any material default in financial obligations to and by the company, or substantial non- payment for goods sold by the company.
  • Any issue, which involves possible public or product liability claims of substantial nature, including any judgement or order which, may have passed strictures on the conduct of the company or taken an adverse view regarding another enterprise that can have negative implications on the company.
  • Details of any joint venture or collaboration agreement.
  • Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property.
  • Significant labour problems and their proposed Any significant development in Human Resources/ Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc. Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material.
  • Non-compliance of any regulatory, statutory or listing requirements and shareholder services such as non-payment of dividend, delay in share transfer etc.

Questions

1. Can a cost auditor be appointed through circular resolution?

The Section 179(3) of the Companies Act read with Rule 8 of the companies (meeting of board and its powers) rules, 2014 provides restriction on appointment of internal auditors and secretarial auditor through circular resolution, the cost auditor is an internal auditor, hence, he cannot be appointed through circular resolution.

2. Can members be appointed into statutory committees by circulation of resolution?

No provision under the Companies Act, 2013 restricts to appoint a member of Committee through a resolution by circulation. Therefore, as per our understanding, you can appoint such member through a resolution by circulation.

3. Can we transfer the shares by circular resolution?

There is no specific prohibition on approval of share transfer by passing a circular resolution. However, where not less than one-third of the total number of directors of the company for the time being required that any resolution under circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board.

4. Can we appoint Independent Director through Circular Resolution and the Notice of AGM can be approved by Circular Resolution?

In the Act, some agenda/business can be approved by the Board and some agenda is approved by the members (the board proposes and members approve the agenda).

Section 179 read with Secretarial Standard 1 (SS-1) provides the agenda items to be approved by the board which shall not be approved by circular resolution.

The Notice of the AGM can be approved by the circular resolution as the Financials and annexure thereto to be sent to the members along with the notice has already been approved by the Board at a meeting would not required detailed documents for decision. With regard to appointment of Independent Director, this agenda requires shareholder approval and therefore it is not mentioned in the prohibition list as stated in SS-1.

The board proposes the appointment of Independent Director to the Members. Independent Director Appointment would need the requisite qualification and experience and discussion on length which would be properly done at a meeting.

Though, a provision does not prohibit doing this by circular resolution, it is advisable to conduct a meeting.

5. Can a private company pass resolution by circulation for issuance of securities on right basis?

In accordance to Section 179 (3) of Companies Act 2013, there are certain matter that require the approval only at the Board and hence cannot be dealt through Circular resolution.

Draft of Resolution by Circulation RESOLUTION PROPOSED TO BE PASSED BY CIRCULATION

To,

Name of Director

This is with reference to passing of following resolution by Circulation as per the provisions of Section 175 of the Companies Act, 2013 read with the Rules prescribed thereunder.

A brief note containing the details of the proposal is as under:

None of the Director is in any way concerned or interested in this resolution.

The Board is requested to consider and pass the following resolution by Circulation:

Item No. 1:

Proposed Draft Resolution:

NOTES:

• The circulated resolution shall deem to have been passed by circulation when it is approved by majority of Directors.
• In case of where not less than one-third of the total number of present Directors of the Company require that this resolution under circulation must be decided at a duly convened meeting, this resolution shall be placed before the next meeting of the Board for their If you require this resolution to be decided at a duly convened meeting, please intimate us within 7 days of receipt of this notice.
• The Companies Act, 2013 allows the Company or its Authorised Person to send the circular resolution by hand delivery/post/ courier/electronic mode of communication to the Directors of the Company. In case of Hand deliver or by post or courier, the same shall be delivered to their address registered with the Company in India. In case of electronic mode delivery, the same shall be sent to the e-mail ID as provided and updated by the Directors with the Company as the case may be.
• You can send your acceptance/ rejection via hand delivery/post/courier to the Registered Office of the Company or through
• You are requested to send your acceptance/rejection in the format enclosed herewith within 7 days of receipt of notice

Format for Acceptance/ Rejection to the above Circular Resolution

I hereby convey my assent/ dissent to the above resolution as follows:

Name of the Director:

*Assent/ Dissent may be given by mentioning ‘YES’ in the respective field.

*Signature is not required in case of response through e-mail.

DISCLAIMER – IN NO EVENT THE AUTHOR SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION.