Passing Resolution By Circulation

There are instances where certain decisions are required to be taken on an urgent and immediate basis in a company and it is not very feasible for conducting the board meeting. In such situations, it is resorted to passing a resolution by circulation, provided that there must be a provision to pass a resolution by circulation in the articles of the company and the subject matter of resolution shall not be restricted to be passed by circulation as per the provisions of Companies Act.

As per the provisions of section 175 of the companies act, 2013, Companies (Meetings of the Board and its Powers) Rules, 2016, and Secretarial Standards, in order to pass a resolution by circulation, the draft resolution proposed to be passed along with the necessary documents shall be circulated to all the directors of the company or the directors who are members of the committee of directors the company.

Provided that such resolution shall be deemed to be passed if it is approved by the majority of the directors who are entitled to vote on such resolution.

PROCEDURE:                                                                                                                                

• A resolution that is proposed to be passed shall be circulated in the draft form to all the directors or the committee members in case of committee meetings along with an explanatory note stating the details of the business to be conducted.
• Such draft resolution along with necessary papers shall be circulated by hand, by post, by email, or by any other electronic mode.
• The resolution is deemed to be passed if it is approved by the majority of the directors other than the interested directors who are entitled to vote on such resolution.
• Provided that if the approval of a majority of directors is not received by the specified last date, the resolution shall be considered as not passed.
• All the resolutions passed by circulation should be taken on a note in the next board meeting or the committee meeting and the decision shall be recorded in the minutes of such meeting.
• Such resolution passed by circulation shall be deemed to be passed in the duly convened board meeting.

POWER OF DIRECTORS TO CALL FOR A MEETING:

Provided that if at least one-third of the directors of the company wants the resolution to be passed at a board meeting in place of passing such resolution by circulation, the chairperson shall put such resolution at the duly convened meeting.

SPECIFIC RESTRICTIONS FOR RESOLUTIONS THAT CAN NOT BE PASSED BY CIRCULATION:

There are various matters where holding a board meeting is an important and passing resolution by circulation is not allowed:

• To issue debentures.
• To take decisions regarding investing the funds of the company.
• To make investments in shares of the other companies.
• To approve the transactions related to merger or acquisition.
• To shift the location of the plant or the registered office of the company.
• To make calls on shares in respect of the unpaid share capital of the company.
• To take a decision regarding the commencement of the new business activity.
• To enter into a joint venture or collaboration agreement.
• To fill the casual vacancy of the board.
• To consider the adoption of the common seal
• To consider forfeiture of shares
• For granting loans to the directors of the company
• For appointment and removal of a chief financial officer or company secretary
• To accept fixed deposits and related matters
• Noting directors shareholding
• Noting directors interest
• Transactions involving substantial payments towards goodwill, brand equity, or intellectual property
• Any material default related to financial obligations
• Sale of investments, subsidiaries, etc. which is not in the normal course of business.
• Appointment of sole selling agents.
• To appoint internal or cost auditors.

Henceforth passing resolutions by circulation provides a great avenue for the companies to take fast decisions in urgent matters and every company shall abide by the provisions of section 175 of the Companies Act, 2013 along with the Secretarial Standard-7 and the applicable rules to pass such resolution.

Need more clarity or guidance on any of the provisions of Companies Law

Write to us at info@cs-india.com

Share this post?