Board Meeting or Circular Resolution? – How to Decide
We all know that in case of a company, major decisions are taken by Board of Directors by convening Board Meeting. The matter which needs the approval of Board depends upon requirement of Companies Act, Secretarial Standards and internal policies of the company.
In order to have better Internal Control System, many a times many companies may draft internal policies in such a manner that even non-statutory items may need the approval of the Board.
Generally these decisions are taken at Board Meeting by way of passing resolutions (either majority or in some cases unanimously) and some of these resolutions will have the effect subject to approval of shareholders.
Companies Act and Secretarial Standards in India provides guidelines to conduct Board Meetings. Normally the decisions are taken at Board Meetings. However due to paucity of time or non-availability of few directors, resolutions are also passed through circulation.
Under resolution passed through circulation, the proposed resolution along with the details are provided to all the applicable directors and they can give their assent / dissent to proposed resolution within a period of 7 days (additional 2 days in case sent by post).
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). 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. Those who don’t respond, it is presumed that the they have abstained from voting.
The above clause related to assent/ dissent and abstain from voting can be explained with held of following example:
Majority Requirement for Passing Board Resolutions by Circulation – Illustrative Examples
| Case | No of Directors eligible to vote | No. of Directors’s | Required majority | Majority Achieved | Resolution | |||
| Assent | Dissent | Abstain from Voting | Total | |||||
| A | 5 | 2 | 1 | 2 | 5 | 3 | 2 | Not passed |
| B | 5 | 2 | – | 3 | 5 | 3 | 2 | Not passed |
| C | 5 | 3 | 1 | 1 | 5 | 3 | 3 | Passed |
| D | 5 | 4 | 1 | – | 5 | 3 | 4 | Passed |
| E | 4 | 2 | – | 2 | 4 | 3 | 2 | Not passed |
| F | 7 | 3 | 1 | 3 | 7 | 4 | 3 | Not passed |
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.
A very common question arises whether all the items can be passed through Circular Resolution or there is some restrictions on the same.
Companies Act (under relevant provisions of the Act) and Secretarial Standard prescribes the items which are to be approved by the Board only at its Board meeting. It implies that the items which are not specifically mentioned in the above can be passed through Circular Resolution.
Under companies Act there is no single clause or section which provides such list and whether an item can be approved by Circular Resolution can be determined by going through whole provisions of different applicable section.
In order to simplify the same, below is the list of items which can only be passed by conducting a Board Meeting. In other words, the items which are not covered under the given list can be passed by Circulation.
Matters That Can Only Be Approved at a Board Meeting (Not by Circular Resolution) under the Companies Act, 2013 & SS-1
| S. N | Section/ Rule/ Secretarial Standard | Event |
| 1 | Section 41 read with Rule 4 of the Companies (Issue of Global Depository Receipts) Rules, 2014 | Take note of Compliance Report of Merchant Banker/ Practicing Company Secretary/Practicing Chartered Accountant/Practicing Cost Accountant, as the case may be, post issue of Global Depository Receipts |
| 2 | Section 73 read with Rule 7 of the Companies (Acceptance of Deposits) Rules, 2014 | Removal of Depositor Trustee after issue of Deposit circular/advertisement but before expiry of his Term |
| 3 | Section 118 & Annexure A to SS-1 (General Business Items, S.N 1) | Noting Minutes of Meetings of the Board and Committees. |
| 4 | Section 123 and SS-3 | Declaration of Interim Dividend by Board (SS-3 being a recommended standard by ICSI, this is recommended to be passed ata Board Meeting) |
| 5 | Section 123 and SS-3 | Recommendation by Board for declaration of Dividend to the members of the Company (SS-3 being a recommended standard by ICSI, this is recommended to be passed at a Board Meeting) |
| 6 | Section 138 and Section 179(3)(k) read with Rule 8(4) of the Companies (Meetings of Board and its Powers) Rules 2014 and Annexure A to SS-1 (General Business Items, S.N 5) | Appointment of Secretarial Auditors and Internal Auditors |
| 7 | Section 148 read with Rule 6(2) of the Companies (Cost Records and Audit) Rules. 2014 | Appointment of Cost Auditor |
| 8 | Section 149 read with Schedule IV & Annexure A to SS-1 (Specific Items, S.N 14) | Items arising out of separate Meeting of the Independent Directors if so decided by the Independent Directors. |
| 9 | Section 161(4) & Annexure A to SS-1 (Specific Items, S.N 9) | Appointment of Director(s) to fill in the casual vacancy subject to the provisions in the Articles of the company. To be subsequently approved in the immediate next general meeting. |
| 10 | Section 179(3)(a) & Annexure A to SS-1 (Specific Items, S.N 5) | Making calls on shareholders in respect of money unpaid on their shares |
| 11 | Section 179(3)(b) & Annexure A to SS-1 (Corporate Actions, S.N 1) | Authorise Buy-Back of securities |
| 12 | Section 179(3)(c) & Annexure A to SS-1 (Corporate Actions, S.N 2) | Issue of securities, including debentures, whether in or outside India |
| 13 | Section 179(3)(d) & Annexure A to SS-1 (Specific Items, S.N 1) | Borrowing money otherwise than by issue of debentures |
| 14 | Section 179(3)(e) & Annexure A to SS-1 (Specific Items, S.N 2) | Investing the funds of the company |
| 15 | Section 179(3)(f) & Annexure A to SS-1 (Specific Items, S.N 3) | Granting loans or giving guarantee or providing security in respect of loans |
| 16 | Section 179(3)(g), Section 134 & Annexure A to SS-1 (General Business Items, S.N 2) | Approving financial statements and the Board’s Report |
| 17 | Section 179(3)(h) & Annexure A to SS-1 (Corporate Actions, S.N 4) | Diversify the business |
| 18 | Section 179(3)(i) & Annexure A to SS-1 (Corporate Actions, S.N 3) | Approving amalgamation, merger or reconstruction |
| 19 | Section 179(3)(j) & Annexure A to SS-1 (Corporate Actions, S.N 5) | Takeover another company or acquiring controlling of substantial stake in another company |
| 20 | Section 179(3)(k) read with Rule 8(2) of the Companies (Meetings of Board and its Powers) Rules 2014, Section 196(4), Section 203, Section 169 & Annexure A to SS-1 (Specific Items, S.N 7) | Appointment or Removal of Key Managerial Personnel (Not applicable for appointment or removal of non-executive directors i.e Nominee Directors/ Independent Directors since they are not Key Managerial Personnel) |
| 21 | Section 179(3)(k) read with Rule 8(1) of the Companies (Meetings of Board and its Powers) Rules 2014, Section 182 & Annexure A to SS-1 (Specific Items, S.N 4) | Making political contributions |
| 22 | Section 184 | Disclosure of Interest or Concern by Directors |
| 23 | Section 186(5) | Approval of Loans or Guarantee or Security and Investment by the Company |
| 24 | Section 188 & Annexure A to SS-1 (Specific Items, S.N 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 |
| 25 | Section 197 & Annexure A to SS-1 (Specific Items, S.N 6) | Approving Remuneration of Managing Director Whole-time Director and Manager. |
| 26 | Section 203 & Annexure A to SS-1 (Specific Items, S.N 8) | Appointment of a person as a Managing Director/Manager in more than one company |
| 27 | Annexure A to SS-1 (Specific Items, S.N 13) | Approve payment to Director for loss of office |
| 28 | Annexure A to SS-1 (General Business Items, S.N 3) | Considering the Compliance Certificate to ensure compliance with the provisions of all the laws applicable to the company |
| 29 | Annexure A to SS-1 (General Business Items, S.N 4) | Specifying list of laws applicable specifically to the company |
| 30 | Annexure A to SS-1 (Specific Items, S.N 11) | Sale of subsidiaries |
| 31 | Annexure A to SS-1 (Specific Items, S.N 12) | Purchase and Sale of material tangible/intangible assets not in the ordinary course of business |
| 32 | Annexure A to SS-1 (Additional list of items in case of listed companies) | Additional list of items in case of listed companies |
| 33 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 1) Approving Annual operating plans and budgets. |
| 34 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 2) Capital budgets and any updates. |
| 35 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 3) Information on remuneration of Key Managerial Personnel. |
| 36 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 4) Show cause, demand, prosecution notices and penalty notices which are materially important |
| 37 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 5) Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems. |
| 38 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 6) Any material default in financial obligations to and by the company, or substantial non-payment for goods sold by the company. |
| 39 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 7) Any issue, which involves possible public or product liability claims of substantial nature, including any judgment 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. |
| 40 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 8) Details of any joint venture or collaboration agreement. |
| 41 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 9) Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property. |
| 42 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 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. |
| 43 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 11) Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material |
| 44 | Annexure A to SS-1 (Additional list of items in case of listed companies) | 12) Non-compliance of any regulatory, statutory or listing requirements and shareholder services such as non-payment of dividend, delay in share transfer etc. |
Hope the users will find it useful.
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