Resolution by circulation under Companies Act 2013 read with SS-1

PASSING OF RESOLUTION BY CIRCULATION

Section 175 of Companies Act 2013 read with the Secretarial Standard (SS)-1 as prescribed by the ICSI

Introduction:

Resolution-by-circulation means the resolution which is passed by the circulation among the directors or members of the Board. Generally, the resolution was proposed to be passed when there is urgency or sometimes the resolution by circulation is preferred to avoid the procedural requirements of convening the physical Board Meeting.

Authority

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.

Resolutions:

Every resolution shall be passed by the circulation except the following resolutions:

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:

• Noting minutes of Board Meetings of the unlisted subsidiary.
• Quarterly, half-yearly and annual financial results for the listed company.
• Recruitment and remuneration of senior officers just below the level of the Board of Directors.
• Agreement by the company with existing share transfer agent/ the new share transfer agent in the manner as specified by the Board from time to time.
• Statement of all significant transactions and arrangements entered into by the unlisted subsidiary.
• 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.
• 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.

Approval:

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:

If the approval of the majority of Directors entitled to vote is not received by the last date specified for receipt of such approval, the Resolution shall be considered as not passed.

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.

“Total number of Directors” above means the “total strength of the Board” which does not include Directors whose places are vacant.

Decision at the Meeting

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.

Illustration

A Company has 9 Directors for the approval of the resolution-by-circulation it shall be required that the said resolution be approved by the majority of Directors (i.e. 5 directors). However, if the one-third of the total directors (i.e. 3 Director [9*1/3] ) demand that the said resolution need to be passed at the meeting then Chairman shall be proposed at the meeting.

Interested Directors:

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

Illustration

A company has 9 Directors, out of which say, 3 Directors are interested in the Resolution. In such a case, for the purpose of reckoning the 1/3^rd stipulation as above, the total number of Directors should be taken as 9 and not 6 (9-3 Interested Directors). Thus, if 3 Directors (1/3rd of 9), (which number may include Interested Directors), require the Resolution under circulation to be decided at a Meeting, the Resolution by circulation should not be proceeded with.

However, this does not mean that Interested Directors shall be entitled to participate and vote when the said item of business is taken up at a Meeting of the Board.

For a Resolution under circulation to be passed, it should be approved by a majority of dis-interested Directors, who are entitled to vote.

Illustration

If there are 9 Directors of whom 2 are interested, the Resolution should be assented by at least 4 Directors (out of the 7 dis-interested Directors).

Illustration

If, out of the Board strength of 10 Directors, 6 Directors communicate their assent, the Resolution shall not be considered as passed until the stipulated last date has expired, or, if ahead of the said date, 2 more Directors have also signified their assent/dissent so that the possibility of 1/3rd asking for a physical Meeting is no longer possible.

Prohibition on voting by Interested Director.

Manner of Sending and to whom send:

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 words “necessary papers” should be interpreted to mean all those papers that are necessary for the recipient to arrive at an informed decision in relation to the subject matter of the Resolution proposed to be passed by circulation.

If an Alternate Director is appointed, the draft should also be sent to the Original Director for information only.

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 recognised electronic means.

In case of Directors residing abroad, the draft Resolution and the necessary papers may be sent by e-mail or any other recognized electronic means.

Records Maintaining:

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 the Meeting.

Annexures:

Notice and Agenda are not necessary for passing of a Resolution by circulation. However, necessary papers which explain the purpose of the Resolution should be sent along with the draft Resolution to all the Directors, or in the case of a Committee, to all the members of the Committee.

It would be advisable to also explain the reasons as to why approval is sought by circulation.

Time period of response:

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.

Depending upon the necessity and urgency, the company may give seven days or less time for responding to the proposal.

Effective date of resolution:

The Resolution, if passed, shall be deemed to have been passed on the earlier of:

(a) the last date specified for signifying assent or dissent by the Directors; or

(b) the date on which assent has been received from the required majority, provided that on that date the number of Directors, who have not yet responded on the resolution under circulation, along with the Directors who have expressed their desire that the resolution under circulation be decided at a Meeting of the Board, shall not be one third or more of the total number of Directors;

And

shall be effective from that date, if no other effective date is specified in such Resolution.

Illustrations

Company XYZ has 9 Directors. It circulated a Resolution on 1st May among the Directors and requested them to respond on or before 8th May.

Scenario I:

• 3 Directors sent their assent to the proposed circular Resolution on 2nd May.
• 1 Director sent a request on 4th May for convening a Meeting.
• 2 Directors sent their assent for the Resolution on 5th May.
• 1 Director sent his assent on 6th May
• 1 Director sent his dissent on 6th May
• 1 Director sent his assent on 7th May.

Effect:

In this case, the Resolution would be carried through since 7 Directors (forming majority) have assented. The date of passing shall be deemed to be 6th May since the eventuality of 1/3rd of the Directors requesting for a Meeting becomes improbable on that day.

Scenario II:

• 5 Directors sent their assent to the proposed Resolution on 2nd May.
• 1 Director sent a request on 4th May for convening a Meeting.
• 2 Directors sent their dissent on 5th May.
• 1 Director sent the assent on 6th May.

Effect:

In this case, the Resolution would be passed since 6 Directors (forming majority) have approved. The date for passing the Resolution shall be deemed to be 5th May since the eventuality of at least 3 Directors (i.e. 1/3^rd of the Directors) requesting for a Meeting becomes improbable on that day.

Manner of response:

Directors shall signify their assent or dissent by signing the Resolution to be passed by circulation or by e-mail or any other electronic means.

A scanned copy of the signed response may also be sent.

Take Note of Resolution:

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.

Resolution No.

(Name of Company)

Date:

To,

Name of Director

Dear Sir/Ma’am,

RESOLUTION BY CIRCULATION

The following Resolution is intended to be passed by circulation as per the provisions of Section 175 of the Companies Act, 2013. A note explaining the urgency and necessity for passing the said Resolution by circulation and the supporting papers (if any) are enclosed.

“RESOLVED THAT……………………

(Resolution intended to be passed is to be reproduced)”

None of the Directors are deemed to be concerned or interested in the Resolution.

Name of Director	Assent	Dissent	Require Meeting	Signature	Date of Signing

Mark (V) on the column agreed upon.

Kindly indicate your response to the aforesaid Resolution, by appending your signature and the date of signing in the space provided beneath the Resolution and return one copy to the undersigned or by e-mail at the address mentioned below so as to reach us on or before……………………………………………

Yours faithfully,

For……………………………. (Name of Company).

Company Secretary

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