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, at their addresses registered with the company in India by hand delivery or by post or by courier, or through such electronic means and has been approved by a majority of the directors or members, who are entitled to vote on the resolution. [Section 175(1)]
If not less than one-third of the total number of directors of the company for the time being requires 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. [Section 175(1)]
A resolution passed by circulation shall be noted at a subsequent meeting of the Board and made part of the minutes of such meeting. [Section 175(2)]
Mandatory Requirements for Passing of Board Resolution by Circulation
- There are certain resolutions that cannot be passed by Circulation, wherein the Board of Directors shall exercise their powers by means of resolutions passed in its meetings given in Annexure A.
- For companies incorporated under Section 8 of the Act, the board of directors may decide the following matters by circular resolution (instead of meeting):
- to borrow monies
- to invest the funds of the company
- to grant loans or give guarantee or provide security in respect of loans. [Section 179(3) of the Act and Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014]
The Following Procedure is to be followed for passing a Board Resolution by Circulation [Section 175 and Rule 5 of the Companies (Meetings of Board and its Powers) Rules, 2014 read with Secretarial Standard-1 (SS-1 issued by ICSI)]
- Determine the mode of approval of Board [Clause 6.1.1 of SS-1]
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.
- Draft the Resolution and Note [Clause 6.2.3 and 6.3.1 of SS-1]
- Prepare the draft of the resolution proposed to be passed by circulation and all other necessary papers.
- Each business proposed to be passed by way of Resolution by circulation shall carry a serial number and shall be explained by a note setting out the details of the proposal, relevant material facts that enable the Directors to understand the meaning, scope and implications of the proposal, the nature of concern or interest of any Director in the proposal, which the Director had earlier disclosed and the draft of the Resolution proposed.
- The note shall also indicate how a Director shall signify assent or dissent to the Resolution proposed and the date by which the Director shall respond.
- The last date given for responding shall not be more than seven days from the date of circulation of the draft resolution. However, additional two days shall be added for the service of the draft Resolution, in case the company has sent the same by speed post or by registered post or by courier.
- Circulation of draft Resolution [Section 175(1) and Rule 5 of the Companies (Meetings of Board and its Powers) Rules, 2014 and Clause 6.2.1 and 6.2.2 of SS-1]
- Circulate the draft of the resolution along with the necessary papers, individually, to all the directors including interested directors on the same day for seeking their approval, at their addresses registered with the company in India.
- The draft of the Resolution and the necessary papers shall be sent to the postal address or e-mail address registered by the Director with the company or in the absence of such details or any change thereto, any of the addresses appearing in the Director Identification Number (DIN) registration of the Director.
- Proof of sending and delivery of the draft of the Resolution and the necessary papers shall be maintained by the Company.
- Obtain Assent or Dissent from Directors [Clause 6.3.2 of SS-1]
- 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.
- Directors shall append the date on which they have signed the Resolution. In case a Director does not append a date, the date of receipt by the Company of the signed Resolution shall be taken as the date of signing.
- In case the Director does not respond on or before the last date specified for signifying assent or dissent, it shall be presumed that the Director has abstained from voting.
- Disclosure of Interest by the Director [Clause 6.3.2 of SS-1]
In cases where the interest of a Director is yet to be communicated to the company, the concerned Director shall disclose his interest before the last date specified for the response and abstain from voting.
- Passing of Resolution [Clause 6.1.2, 6.3.1 and 6.3.2 of SS-1]
- The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution.
- If any special majority or the affirmative vote of any particular Director or Directors is specified in the Articles, the Resolution shall be passed only with the assent of such special majority or such affirmative vote. An Interested Director shall not be entitled to vote
- Director shall be treated as interested in a contract or arrangement entered or proposed to be entered into by the company
- with any body corporate, if such Director, along with other Directors holds more than two percent of the paid-up share capital of that body corporate, or he is a promoter, or manager or chief executive officer of that body corporate or
- with a firm or other entity, if such Director is a partner, owner or Member, as the case may be, of that firm or other entity.
- 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.
- The Resolution, if passed, shall be deemed to have been passed on the last date specified for signifying assent or dissent by the Directors or the date on which assent from more than two-third of the Directors has been received, whichever is earlier, and shall be effective from that date, if no other effective date is specified in such Resolution.
- In case not less than one-third of the Directors (including Interested Directors) wish the matter to be discussed and decided at a Meeting, each of the concerned Directors shall communicate the same before the last date specified for the response.
- Noting of the Resolution passed by Circulation [Section 175(2) and Clause 6.4 & 7.2.2 of SS-1]
Resolutions passed by circulation shall be noted at the next Meeting of the Board and the text thereof with dissent or abstention, if any, shall be recorded in the minutes of such meeting. Minutes shall also record the fact that the Interested Director did not vote on the Resolution.
- Validity of Resolution passed by Circulation [Clause 6.5 of SS-1]
Passing of Resolution by circulation shall be considered valid as if it had been passed at a duly convened Meeting of the Board.
Illustrative list of items of business which shall not be passed by circulation and shall be placed before the Board at its Meeting
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.
- 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.
- Authorize 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
- 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. Any significant development in Human Resources/ Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc.
- 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.