The Board of Directors of the company play vital role in the day-to-day management of the company. All the decisions shall be approved by the Board. Some decisions are taken at the duly held meetings of the Board. However, due to urgency at times it becomes difficult to gather all the directors around a single table. In such circumstances Board may utilise an alternate called as Resolution by Circulation or Circular Resolution.
As the name indicates a resolution which requires approval of the Board members is circulated among the Board members via post/courier/hand delivery/e-mail. Directors will provide their decision on such circulated resolution and based on decision of the board members the resolution will be considered either passed or not. Here physical presence of board members is not required, and decision on the resolution will be obtained by the members of the Board at comfort of their place.
Recently on January 2024 Institute of Company Secretaries of India revised the Secretarial Standards on Meetings of the Board of Directors (hereafter called as “SS-1”) which will come into effect from 1st April 2024 (Third Revision), till than i.e upto 31st March 2024 the current SS-1 (Second Revision) will be in force. Now let us understand the resolution by circulation in accordance with the revised SS-1.
Circular resolutions are deemed to be passed at the duly convened meeting of the Board and have equal authority. But these resolutions shall not be counted for determining frequency for meetings, i.e minimum 4 board meetings in a calendar year and gap between 2 consecutive meetings shall not be more than 120 days. However, only those items of business shall be passed by circulation, which does not require approval compulsorily passed in the meetings of the Board as prescribed in the Companies Act, 2013 and SS-1. List of such item of business are detailed in Annexure ‘A’ of recently revised SS-1 available at https://www.icsi.edu/media/webmodules/SS-1_1_2024.pdf
AUTHORITY TO PASS RESOLUTION BY CIRCULATION:
1. The Chairman of the Board or Managing Director or any Director other than interested Director shall have authority to decide on passing the agenda by means of Resolution by Circulation.
2. If not less than 1/3 of the total number of directors object for resolution by circulation than such resolution shall be decided in the Board Meeting. (Interested directors shall be counted for calculating 1/3 strength).
PROCEDURE TO PASS RESOLUTION BY CIRCULATION:
1. Each circular resolution shall carry Serial Number.
2. Draft resolution shall be sent together with other necessary papers to all directors including interested directors by hand/registered post/speed post/courier/e-mail.
3. A note shall also be provided along with draft resolution to indicate how directors shall signify their consent or rejection and date by which they shall respond. Not more than 7 days shall be given from the date of circulation to the directors to respond (Additional 2 days shall be given in case resolution is sent by registered or speed post)
4. The resolution shall be considered as passed when it is approved by majority of the directors entitled to vote. An interested director shall not entitle to vote.
5. The resolution shall be deemed to be passed on the earlier of-
– The last date specified in the note for the consent or rejection by the board members, or
– Date when majority of the directors provided their consent.
Note: If number of directors who have not responded to the circular resolution along with directors who desire that resolution shall be decided at the board meeting and they communicated it to the Board before the expiry of last date provided for response, is 1/3 or more of the total strength of directors, then same shall be considered in the meeting of the board.
6. The resolution shall be noted by the Board in subsequent board meeting along with brief text on dissent or non-participation, if any.
DIFFERENCE BETWEEN EXISTING SS-1 AND REVISED SS-1 WITH REFERENCE TO RESOLUTION BY CIRCULATION:
|
Existing SS-1 |
Revised SS-1 |
| Proof of sending the delivery of the draft resolution and necessary papers shall be maintained by the company for such period as decided by the Board which shall not be less than 3 years from the date of subsequent meeting at which circular resolution was noted by the Board. | Proof of sending the delivery of the draft resolution and necessary papers shall be maintained by the company for such period as decided by the Board which shall not be less than 3 years from the date of circulation of such resolution. |
Note: The companies shall pass board resolutions for deciding the period for which, proof of sending the delivery of draft resolution and necessary papers shall be preserved by the company.
CONCLUSION:
Resolution by circulation is one of the significant tool provided by the Companies Act, 2013 and SS-1, and it is more relevant to current scenario where management of the company consist of Board members across the globe. Board members can take decisions of the company at their convenient place and time. However, resolutions shall be passed as per the provisions of said Act and the standards of SS-1.
Author: CS Deepa, Company Secretary. For any further queries reach me at [email protected]
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