Section 175: Passing Circulation by Resolution Decoded

In this article, we unravel the complexities surrounding the passage of resolutions by circulation as per Section 175 of the Companies Act, 2013. We’ll delve into the authority responsible for decision-making, the procedural intricacies, and the approval process involved in this method of passing resolutions.

Section 175 | Passing Resolution by Circulation 

175. (1) No resolution shall be deemed to have been duly passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the directors, or members of the committee, as the case may be, at their addresses registered with the company in India by hand delivery or by post or by courier, or through such electronic means as may be prescribed and has been approved by a majority of the directors or members, who are entitled to vote on the resolution:

Provided that, where not less than one-third of the total number of directors of the company for the time being require 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.

(2) A resolution under sub-section (1) shall be noted at a subsequent meeting of the Board or the committee thereof, as the case may be, and made part of the minutes of such meeting.

Passing of Resolution by Circulation

The Act requires certain business to be approved only at Meetings of the Board. However, other business that requires urgent decisions can be approved by means of Resolutions passed by circulation. Resolutions passed by circulation are deemed to be passed at a duly convened Meeting of the Board and have equal authority.

Authority for Passing of Resolution by Circulation

The Chairman of the Board or in his absence, the Managing Director or in their absence, any Director other than an Interested Director, shall decide, before the draft Resolution is circulated to all the Directors, whether the approval of the Board for a particular business shall be obtained by means of a Resolution by circulation.

Where not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a Meeting, the Chairman shall put the Resolution for consideration at a Meeting of the Board.

Interested Directors shall not be excluded for the purpose of determining the above one-third of the total number of Directors.

Procedure for Passing of Resolution by Circulation

A Resolution proposed to be passed by circulation shall be sent in draft, together with the necessary papers, to all the Directors including Interested Directors on the same day. The draft of the Resolution to be passed and the necessary papers shall be circulated amongst the Directors by hand, or by speed post or by registered post or by courier, or by e-mail or by any other recognized electronic means. The draft of the Resolution and the necessary papers shall be sent to the postal address or e-mail address registered by the Director with the company or in the absence of such details or any change thereto, any of the addresses appearing in the Director Identification Number (DIN) registration of the Director. Proof of sending and delivery of the draft of the Resolution and the necessary papers shall be maintained by the company for such period as decided by the Board, which shall not be less than three years from the date of circulation of such Resolution.

Each business proposed to be passed by way of Resolution by circulation shall be explained by a note setting out the details of the proposal, relevant material facts that enable the Directors to understand the meaning, scope and implications of the proposal, the nature of concern or interest, if any, of any Director in the proposal, which the Director had earlier disclosed and the draft of the Resolution proposed. The decision of the Directors shall be sought for each Resolution separately. Not more than seven days from the date of circulation of the draft of the Resolution shall be given to the Directors to respond and the last date shall be computed accordingly. An additional two days shall be added for the service of the draft Resolution, in case the same has been sent by the company by speed post or by registered post or by courier.

Approval for Passing of Resolution by Circulation

The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution, unless not less than one-third of the total number of Directors for the time being requires the Resolution under circulation to be decided at a Meeting. If any special majority or the affirmative vote of any particular Director or Directors is specified in the Articles, the Resolution shall be passed only with the assent of such special majority or such affirmative vote. An Interested Director shall not be entitled to vote.

Resolutions passed by circulation shall be noted at a subsequent Meeting of the Board and the text thereof with dissent or abstention, if any, shall be recorded in the Minutes of such Meeting.

Passing of Resolution by circulation shall be considered valid as if it had been passed at a duly convened Meeting of the Board. This shall not dispense with the requirement for the Board to meet at the specified frequency.

Illustrative list of items of business which shall not be passed by circulation and shall be placed before the Board at its Meeting

• Noting Minutes of Meetings of Audit Committee and other Committees.
• 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.
• 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.
• Appointment of Director(s) in casual vacancy subject to the provisions in the Articles of the company. To be subsequently approved in the immediate next general meeting.
• 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.
• Authorize 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.

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 material default in financial obligations to and by the company, or substantial non-payment for goods sold by the company
• Details of any joint venture or collaboration agreement
• Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property.
• Significant labor problems and their proposed solutions. 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.

Conclusion: Understanding the nuances of passing resolutions by circulation is essential for corporate governance and decision-making processes. By adhering to the provisions outlined in Section 175 of the Act, companies can ensure efficient and transparent decision-making while upholding regulatory compliance.