Section 175 of the Companies Act, 2013 (the Act) read with Rule 5 of Companies (Meeting of the Board and its Powers) Rules, 2016 and Standard 6 of Secretarial Standards-1 issued by the Institute of Company Secretaries of India allows the Company to pass a resolution by circulation without convening a Board meeting or a Committee meeting, as the case may be.
According to Section 175 of the Act, in order to pass a resolution by circulation, the draft of the resolution proposed to be passed along with the necessary documents if any, shall be circulated to all the directors of the Company or the members of the committee of the Company, as the case may be, by either of the following ways:
- By hand delivery;
- By registered post at the address registered with Company;
- By courier at the address registered with Company or
- By email at their mail ids registered with the Company
However, if 1/3rd of the directors of the Company or the members of the committee of the Company, as the case may be, require that the resolution which is proposed to be passed by circulation must be passed at the physical meeting, then the Chairperson shall put the said resolution at the duly convened meeting.
As per SS-1, every resolution which is proposed to be passed by circulation shall be explained by a note setting out the details of the proposal, relevant material facts that enable the directors of the Company or the members of the committee of the Company, as the case may be, to understand the meaning, scope and implications of the proposal. The note shall also indicate how a directors of the Company or the members of the committee of the Company, as the case may be, shall signify assent or dissent to the Resolution proposed and the date by which the directors of the Company or the members of the committee of the Company, as the case may be, shall respond.
One must ensure that not more than seven days from the date of circulation of the draft of the Resolution shall be given to the directors of the Company or the members of the committee of the Company, as the case may be, to respond and the last date shall be computed accordingly. Further, 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.
The resolution which is passed by circulation must be taken note in the subsequent meeting of the Board or Committee, as the case may be, and shall form the part of minutes of such subsequent meeting.
It should be noted that the resolution passed 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.
However there are certain matters which cannot be approved by way of passing a resolution by circulation. These are enumerated below:
General Business Items
- 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.
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.
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.
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 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.
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