Section 175 of Companies Act, 2013 and Rule 5 of Companies (Meeting of Board and its Powers) Rules, 2014 provides for passing of Resolution by Circulation (RBC).
Section 175 of the Companies Act, 2013 governs the passing of resolutions by circulation in India. It provides the legal framework for passing resolutions without holding a meeting of the Board of Directors or members of a company. The procedures and detailing with respect to the same have been provided under Secretarial Standard 1 (SS-1) issued by the Institute of Company Secretaries of India.
1. 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.
2. Notice and Circulation of Resolution: The company must send a notice to all the directors or members along with the text of the resolution, and specify a deadline for their written consent. The notice should also state that the resolution will be considered passed if the written consent of all the directors or members entitled to vote is received within the specified deadline. 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.
3. Approval: 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 require the Resolution under circulation to be decided at a Meeting.
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
4. Recording: 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.
5. Validity of Resolution: A resolution passed by circulation is valid and binding on the company and its directors or members, and has the same effect as a resolution passed at a meeting.
6. Passing resolution at meeting only: Where not less than 1/3rd of the total number of Directors require that RBC must be decided at a Meeting.
Matters not to be passed through circular resolution:
The act requires following matters to be decided and approved only at the duly convened Board Meeting:
- To make calls on shareholders in respect of money unpaid on their shares;
- To authorize 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 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;
- Any other matter as may be prescribed.
Rule 8 of Companies (Meeting of Board and its Powers) Rules, 2014
- To make political contribution;
- To appoint or remove KMP;
- To appoint internal auditors and secretarial auditor.
Conclusion: Resolution by circulation can be a useful tool for companies, especially those with dispersed ownership, as it allows them to pass resolutions quickly and efficiently without the need for a physical meeting. However, it is important for companies to ensure that they comply with the provisions of the Companies Act, 2013 to ensure the validity of resolutions passed by this method.
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