Passing of Resolution By Circulation

Resolution are generally passed in the meetings of the Company in order to arrive at a particular decision for any items of the businesses. It may so happen that at times there is some urgency for passing of resolutions but it may not be possible for the directors to gather for the meeting or it may not be possible to wait till the approval of the item until the next meeting. In such cases we can pass by resolution by circulation.

According to Section 175 if the Companies Act, 2013,

 (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 the 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:

Restrictions:

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.

Now let us understand this in accordance with Secretarial Standard-1.

Procedure-

a) Authority: The Chairman of the Board or in his absence managing director or any director other than interested director shall decide whether approval of particular business shall be obtained by means of circular resolution.

b) Draft Resolution:

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 either by hand or by speed post or by registered post or by courier or e-mail.

• • Proof of sending and delivery of the draft resolution to be maintained by the Company which shall not be less than three years from the date of the meeting.
  • The resolution proposed to be passed by circulation shall be explained by a note setting out the details of the proposal and the material facts that will enable the director to understand the meaning and scope and implications of the proposal, the nature of concern or interest if any, of any director in the proposal and the draft resolution proposed.
  • The note shall also indicate how a director shall signify the assent or dissent to the resolution proposed and the last date by which the director shall respond.

c) Each resolution shall be separately explained. The decision of the directors shall be sought separately for each resolution.

d) Time Limit:

• • Not more than seven days from the date of circulation of the draft 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.

e) Approval: The resolution is passed when it is approved by majority of the Directors entitle to vote on the resolution, unless one –third of the total no of directors requires the resolution to be decided in the meeting. Directors shall signify their assent or dissent by signing the resolution to be passed by circulation or by any electronic means.

If the approval of the majority of directors is not received on the last date specified for the receipt of such approval, the resolution shall be considered as not passed.

 In case director does not respond on or before the last date specified, it shall be presumed that the director has abstained from voting.

f) Noting: Such resolution passed by circulation shall be noted at a subsequent meeting of the Board and shall be recorded in the minutes of the meeting.

g)Validity : The resolution passed by circulation shall be considered valid as if it had been passed at a duly convened meeting of the Board.

Items prohibited of passing by circular resolution-

General Business Items

1. Noting Minutes of Meetings of Audit Committee and other Committees.

2. Approving financial statements and the Board’s Report.

3. Considering the Compliance Certificate to ensure compliance with the provisions of all the laws applicable to the Company.

4. Specifying list of laws applicable specifically to the Company.

5. Appointment of Secretarial Auditors and Internal Auditors.

Specific Items

1. Borrowing money otherwise than by issue of Debentures.

2. Investing the funds of the Company.

3. Granting loans or giving guarantee or providing security in respect of loans.

4. Making political contributions.

5. Making calls on shareholders in respect of money unpaid on their shares.

6. Approving Remuneration of Managing Director, Whole-time Director and Manager.

7. Appointment or Removal of Key Managerial Personnel.

8. Appointment of a person as a Managing Director / Manager in more than one Company.

9. In case of a public company, the appointment of Director(s) in casual vacancy subject to the provisions in the Articles of the Company.

10. According sanction for related party transactions which are not in the ordinary course of business or which are not on arm’s length basis.

11. Sale of subsidiaries.

12. Purchase and Sale of material tangible/intangible assets not in the ordinary course of business.

13. Approve Payment to Director for loss of office.

14. Items arising out of separate Meeting of the Independent Directors if so decided by the Independent Directors.

Corporate Actions

1. Authorize Buy-Back of securities.

2. Issue of securities, including debentures, whether in or outside India.

3. Approving amalgamation, merger or reconstruction.

4. Diversify the business.

5. Takeover another company or acquiring controlling or substantial stake in another Company.

Additional list of items in case of Listed Companies

1. Approving Annual operating plans and budgets.

2. Capital budgets and any updates.

3. Information on remuneration of Key Managerial Personnel.

4. Show cause, demand, prosecution notices and penalty notices which are materially important.

5. Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems.

6. Any material default in financial obligations to and by the Company, or substantial non-payment for goods sold by the Company.

7. 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.

8. Details of any joint venture or collaboration agreement.

9. Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property.

10. 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.

11. Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material.

12. Non-compliance of any regulatory, statutory or listing requirements and shareholder services such as non-payment of dividend, delay in share transfer etc.