Passing of Resolution by Circulation Under Companies Act, 2013


Passing-Resolution-Circulation-Companies-Act-2013
Passing of Resolution by Circulation Under Companies Act, 2013
The Act requires certain business to be approved only at Meetings of the Board. However, other business that requires urgent decisions can be approved by means of Resolutions passed by circulation. Resolutions passed by circulation are deemed to be passed at a duly convened Meeting of the Board and have equal authority.
(i)  Authority for resolution by circulation: 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. For the purpose of this paragraph of SS-1, in case of a private company, an Interested Director may also decide, before the draft Resolution is circulated to all the Directors, whether the approval of the Board for a particular business should be obtained by means of a Resolution by circulation. In addition to the items prescribed in the Act , an illustrative list of items given under SS-1 that should not be passed by circulation. 
(ii)   When does Resolution by circulation fails: Where not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a Meeting, the Chairman shall put the Resolution for consideration at a Meeting of the Board.
(iii) Despatch of circular resolution: A Resolution proposed to be passed by circulation shall be sent in draft, together with the necessary papers, to all the Directors including Interested Directors on the same day.
(iv) Mode of delivery of circular resolution: The draft of the Resolution to be passed and the necessary papers shall be circulated amongst the Directors by hand, or by speed post or by registered post or by courier, or by e-mail or by any other recognised electronic means. An additional two days should be added for the service of the draft Resolution, as in case the same has been sent by the company by speed post or by registered post or by courier, while computing the date of circulation of the draft of the Resolution given to the Directors to respond in case of Resolution by circulation.
A time period of minimum three years from the date of meeting has been prescribed for preserving proof of sending and delivery of the draft of the Resolution and the necessary papers.
(v)   Essentials of circular resolution: Each business proposed to be passed by way of Resolution by circulation 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, if any, of any Director in the proposal, which the Director had earlier disclosed and the draft of the Resolution proposed.
  1. 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. l Notice and Agenda are not necessary for passing of a Resolution by circulation. However, necessary papers which explain the purpose of the Resolution should be sent along with the draft Resolution to all the Directors, or in the case of a Committee, to all the members of the Committee.
  2. It would be advisable to also explain the reasons as to why approval is sought by circulation.
  3. As explained earlier that circular resolution will fail and shall be considered at a meeting , if not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a Meeting. As such, it is necessary to put in the note being circulated with the proposed Resolution, the last date for receiving responses from the Director to the Resolutions proposed.
  4. Each Resolution shall be separately explained. The decision of the Directors shall be sought for each Resolution separately. A single note containing more than one Resolution may be circulated but the note should enable the signifying of the decision by a Director on each Resolution separately.
  5. A suggested format for circulation is given in Annexure VI .

(vi)  Approval of circular resolution: The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution, unless not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a Meeting. For a Resolution under circulation to be passed, it should be approved by a majority of dis-interested Directors, who are entitled to vote. The Resolution, if passed, shall be deemed to have been passed on the earlier of:
Ø     the last date specified for signifying assent or dissent by the Directors; or
Ø    the date on which assent has been received from the required majority, provided that on that date the number of Directors, who have not yet responded on the resolution under circulation, along with the Directors who have expressed their desire that the resolution under circulation be decided at a Meeting of the Board, shall not be one third or more of the total number of Directors; and shall be effective from that date, if no other effective date is specified in such Resolution.
(vii) Requisite Majority: 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.
(viii) Numbering of Resolutions: Every such Resolution shall carry a serial number. During e-filing, companies are required to quote Resolution numbers in certain cases. Numbering would facilitate the above and also enable ease of reference. The company may choose to follow its existing system of numbering, if any or any new system of numbering, which should be distinct and enable ease of reference or cross-reference.
(ix)   Recording: Resolutions passed by circulation shall be noted at a subsequent Meeting of the Board and the text thereof with dissent or abstention, if any, shall be recorded in the Minutes of such Meeting. This is in line with sub-section (2) of Section 175 of the Act, which requires a Resolution passed by circulation to be noted at a subsequent Meeting of the Board or the Committee thereof, as the case may be, and recorded in the Minutes of such Meeting. The text of the Resolution along with details of dissent and abstention should be recorded and taken note of in the next Meeting and should be recorded in the Minutes of such Meeting. As a matter of good governance, if a Resolution by circulation is not passed due to lack of majority, or if it has to be taken up at a Meeting of the Board due to one-third of the directors requiring the same, this fact should be appropriately recorded in the Minutes of the next Meeting. Now there is no need for recording in Minutes the fact that the Interested Director did not vote on the Resolution.

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