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Approval of Board Resolutions passed by Circulation

Know the provisions of Section 175 of the Companies Act, 2013 which explains about the passing of resolution by circulation under the Companies Act, 2013.

Chapter XII (Section 173195) of the Companies Act, 2013 (CA 2013) deals with the provisions related to Meetings of Board and its Powers. Section 175 of the CA 2013 provides for passing of resolution by circulation. The provisions of section 175 came into force on April 1, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.

Recently, we have discussed about the quorum for meetings of Board of Directors (BOD) of a Company under section 174 of CA 2013. Today, we shall learn about passing of resolution by circulation provided under section 175 of the CA 2013.

Section 175 should be read with the Companies (Meetings of Board and its Powers) Rules, 2014 and Secretarial Standard-1 (SS-1) on “Meetings of the Board of Directors”. You should also read the provisions of section 179 (Powers of Board) and 186 (Loan and Investment by Company) of the Companies Act, 2013.

Passing of Board Resolution by Circulation

Under section 175 of the Companies Act, 2013, the Board of directors of a company have been allowed to pass resolution by Circulation also.

Resolution by Circulation [Section 175(1)]:

According to Sub-section (1) of Section 175 of the Companies Act, 2013, 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, as the case may be,
  • at their addresses registered with the company in India
  • by hand delivery or by post or by courier, or through such electronic means as may be prescribed and
  • has been approved by a majority of the directors or members, who are entitled to vote on the resolution.

Electronic Means Prescribed [Rule 5]:

The Central Government has now prescribed the electronic means for the purpose of passing resolution by circulation. Rule 5 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides that a resolution in draft form may be circulated to the directors together with the necessary papers for seeking their approval, by electronic means which may include E-mail or fax.

Chairperson put Resolution in BM [Proviso to Section 175(1)]:

Where not less than one-third of the total number of directors of the company for the time being require 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.

Note that according to Secretarial Standard-1 (SS-1) on “Meetings of the Board of Directors”, Interested Directors shall not be excluded for the purpose of determining the above one-third of the total number of Directors.

In case not less than one-third of the 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.

That means if at least 1/3 of total number of directors (including interested directors) wants that a resolution under circulation should be decided at BM then the chairperson shall put the resolution at the Board Meeting. However, an Interested Director shall not be entitled to vote.

Interested Director:

A Director shall be treated as interested in a contract or arrangement entered or proposed to be entered into by the company:

(a) with the Director, himself or his relative; or
(b) with any body corporate, if such Director, along with other Directors holds more than 2% 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
(c) with a firm or other entity, if such Director or his relative is a partner, owner or Member, as the case may be, of that firm or other entity.

Part of Minutes of Subsequent BM [Section 175(2)]:

A resolution passed by circulation shall be noted at a subsequent board meeting or meeting of the committee thereof and made part of the minutes of such meeting. Minutes means a formal written record, in physical or electronic form, of the proceedings of a Meeting. Minutes shall also record the fact that the Interested Director did not vote on the Resolution.

Board Resolutions Not Passed by Circulation

The companies Act, 2013 is silent about the business to be decided by resolutions passed by circulation. Under section 179(3) of CA 2013 it has been provided that BOD shall exercise certain powers by means of resolutions passed at meetings of the Board. Additionally, the Secretarial Standard-1 has also depicted specified business which shall only be decided at the duly conveyed board meeting.

Accordingly, other business that requires urgent decisions can be approved by resolutions passed by circulation instead of duly conveyed physical board meeting. Resolutions passed by circulation are deemed to be passed at a duly convened Meeting of the Board of the company and have equal authority. However, a company can’t use Circular Resolution to escape the holding of Minimum Number of Board Meetings.

Board Resolution at Board Meeting Only [Section 179(3)]:

The provisions of section 179 of the Companies Act, 2013 requires certain Board Resolutions compulsorily to be passed at a Board Meeting only. Following 10 items of business shall not be decided by means of resolutions passed by circulation:

(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans;
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in another company;

Exemption to Specified Companies:

In case of a Specified IFSC (International Financial Services Centre) public company, the Board can exercise all the above powers by means of resolutions passed at the meetings of the Board or through resolutions passed by circulation vide Notification No. G.S.R. 08(E) dated 4th January, 2017.

Further, the Board of a Specified IFSC private company can exercise all the above powers by means of resolutions passed at the meetings of the Board or through resolutions passed by circulation vide Notification No. G.S.R. 09(E) dated 4th January, 2017.

However, in case of Section 8 (Non-profit) Companies, matters referred to in clauses (d), (e) and (f) of sub-section (3) of section 179 may be decided by the Board by circulation instead of at a meeting vide Notification No. G.S.R. 466(E) dated 5th June, 2015. In other words, the following matters shall be decided by the board of Section 8 (Non-profit) Companies by passing resolutions by circulation:

  1. to borrow monies;
  2. to invest the funds of the company; and
  3. to grant loans or give guarantee or provide security in respect of loans.

Loan and investment by company [Section 186]:

Section 186 of the Companies Act 2013 provides for loan and investment by company. The Central Government has relaxed some specified IFSC public companies vide G.S.R. 08(E) dated 4th January, 2017 as well as private companies vide G.S.R. 08(E) dated 4th January, 2017 to pass resolutions by circulation for certain matters.

Accordingly, in case of a Specified IFSC public and private company, sub-sections (2) and (3) of section 186 shall not apply if a company passes a resolution either at meeting of the Board of Directors or by circulation.

Further, the Board of a specified IFSC public and private company can exercise powers under section 186(5) by means of resolutions passed at meetings of the Board of Directors or through resolutions passed by circulation.

Secretarial Standard-1:

As per 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.

Specific Business Items:

  • 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.
  • According sanction for related party transactions which are not in the ordinary course of business or which are not on arm’s length basis.
  • Purchase and Sale of subsidiaries/assets which are not in the normal 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.

Corporate Actions:

  • Authorise 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 KMP.
  • 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.

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