Saturday, February 13, 2016

PASSING OF CIRCULAR RESOLUTIONS – STEP BY STEP PROCEDURES


PASSING OF CIRCULAR RESOLUTIONS – STEP BY STEP PROCEDURES

Article written by CS-Divesh Goyal

As per the provisions of The Companies Act 2013 & Secretarial Standards-I issued by ICSI a company should conduct at least 1 (One) meeting in a quarter i.e. 4 (four) meetings a year (Except One Person Company). Where the company holds only 1 meeting (just complying with the mandatory requirement) in a quarter, the items/proposal which may require urgent approval & implementation would have to wait till next board meeting & this may adversely affect profitability.
In some urgent matters, it may not be possible to wait till the next meeting of Board or its Committee. In such case, it is permissible to pass a resolution by circulation- Section 175.

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.

LIST OF RESOLUTION CAN’T BE PASSED BY CIRCULATION:

S. No.
Particular
Section
Description
1.       
If power restricted to general meeting
179(4)
Restrictions and conditions that may be specified in general meeting by resolution.
2.       
Matters related to public deposits 
73 Rule 8(7) and 8(8)
To invite, accept and renew public deposit and related matters and to change terms. And conditions of public deposits
3.       
Making Calls
179(3)(a)
Make calls on shareholders in respect of money unpaid on their shares.(No restriction in passing resolution by video conferencing )
4.       
Authorizing buy back
68(2)(b)(ii)
Authorizing buyback upto 10% of paid up equity capital and free reserves.
5.       
Issue securities or debentures
179(3)(c)
Issue securities or debentures whether outside or in India.
6.       
Borrow Money
179(3)(d)
Borrowing of Money from any person.
7.       
Invest funds
179(3)(e)
Investment of fund anywhere.
8.       
Granting loans, security or guarantees
179(3)
To grant, Loan, security or guarantee.
9.       
Approve financial statement and board report.
179(3)
Approval of Financial Statement and Director Report is mandatory in meeting of Board of Directors.(This resolution can’t be passed by meeting though video conference)
10.   
Diversify business
179(3)(h)
No restriction on passing resolution by video conferencing.
11.   
Approve merger, reconstruction.
179(3)
This resolution can’t be passed by video conferencing.
12.   
Takeovers
179(3)
Takeover a company or acquire controlling or substantial stake in another company.(Resolution can be passed through video conferencing.)
13.   
Political Contribution
182(1)
Approve contribution to political party or for political purpose.
14.   
Noting disclosure of interest of directors
184(1)
Acceptance of Disclosure of Interest of Directors.
15.   
Approval of related party transaction
188(1)
7 categories TRANSACTION as given under Section 188.
16.   
Appointing person as MD in two companies
203(3)
Special notice is to be given to all directors.
17.   
Appointment or removal of KMP and one level below KMP
203
(Resolution can be passed through video conferencing.)
18.   
Appointment of internal auditor
Rule 8(4)
(Resolution can be passed through video conferencing.)
19.   
Making investment, loans or giving guarantee
186(5)
Consent of all directors and approval of PFI is required.(Resolution can be passed through video conferencing.)
20.   
Buy or sell investment more than 5% even within overall limit
Rule 8(6)
5% or more investee company.
21.   
Declaration of solvency in voluntary winding up
305(1)
Declaration of solvency in case of members voluntary winding up.
22.   
Approving quarterly financial result
Clause 41
Such resolution can be passed by meeting of committee of BOD.
23.   
Approving variation between unaudited and audited results
In case variation is more than 20% reasons shall file to stock exchange.
24.   
Declaration of dividend
SS-3
Dividend /declaration of interim dividend should be done at board meeting.
25.   
Provisions in secretarial standards
SS-7
It provides illustrative list on resolutions should not be passed by circular resolution.
26.   
Filling of board resolutions with ROC required to be passed at meeting only
179(3)
All resolutions of Board which are required to be passed at meeting under Section
No Company can use Circular Resolution to escape the holding of Minimum Number of Board Meetings.
 
Resolutions and items of business should not be passed through circular resolution, where the Act and applicable rules expressly provide that such items of business should be transacted only at duly convened Board Meeting.
 
Circular Resolution can be passed by the Board or Committee
 
Resolution shall be considered as approval only after acceptance of Resolution by Majority of Director and resolution passed by circulation are deemed to be passed at a duly convened Meeting of the Board and have equal authority.
 
The draft resolution, together with necessary papers should be sent to all the directors of Board/ members of committee, even if some of them are not entitled to vote
 
It is good practice to give Serial No. to Circular Resolution
 
If at least 1/3rd of Directors required that such resolution must be decided at a Meeting not by circulation, the Chairperson shall put the resolution to be decided in the Meeting.
 

PROVISIONS UNDER SECRETARIAL STANDARD
PROCEDURE:

COMMUNICATION:
  • A draft resolution circulate to All Directors including Interested Directors in duplicate, along with necessary papers, at their address registered with company in India
  • Address of Director:
  • The draft of the Resolution and the necessary papers shall be sent by 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
Necessary Papers:

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
  • 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
Ways of Sending of Circular Resolution:
  • (Only to address in India)By Hand Delivery, By Post, By courier, By Electronic
  • (Can be at address outside India): Through Electronic Mode: Email, Fax
Time Period for Respond:
Not more than seven days from the date of circulation of the draft of the Resolution shall be given to the Directors to respond and the last date shall be computed accordingly
APPROVAL/ SANCTION:
The resolution should be considered as ‘Sanctioned/ Passed’. When it has been approved by majority of Board of Directors or Committee members, who are entitled to vote on the Resolution.
POWER OF DIRECTORS TO DEMAND FOR MEETING:
The directors have power to demand to the chairman for calling of meeting instead of approval of circular resolution. Such a demand shall be made by 1/3rd of total number of director of the Company.
Interested Directors shall not be excluded for the purpose of determining the above 1/3rd of the total number of Directors

DATE OF PASSING OF RESOLUTION:
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.
PROCESS FOR SIGNING BY DIRECTORS:
  • 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.
  • 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
NOTING OF RESOLUTION & VALIDITY
  • Resolutions passed by circulation should be noted at the next meeting of the Board or Committee as the case may be and the minutes should record the text of the resolution passed, and dissent, if any.
  • Minutes should also record the fact that an interested director did not vote on the resolution.
  • Passing of resolution by circulation will be treated as if it had been passed at a duly convened meeting of the Board or Committee but that does not dispense with the requirement for the Board to meet for the Board Meeting which is to be held at least once in a quarter.
It can be noticed that not much has changed in this regard.

CONDITIONS TO BE FULFILLED FOR PASSING BY CIRCULAR RESOLUTION:

A resolution by circulation is valid and passed, if the following conditions are fulfilled:

v   
Every such director shall carry a serial number.
v   
The resolution has been circulated in draft, together with the necessary papers, if any, to all the directors including interested director.
v   
It has been duly *sent to their addresses registered with the company in India.
v   
It has been approved by a majority of the directors or members, who are entitled to vote on the resolution.
v   
Proof of sending and delivery of the draft of the Resolution and the necessary papers shall be maintained by the company
v   
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.
v   
Each Resolution shall be separately explained.
v   
The decision of the Directors shall be sought for each Resolution separately.
v   
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.
v   
An Interested Director shall not be entitled to vote.
v   
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.

 FAQ’s

A.
If a Director is not entitled to vote on a resolution, (for exp. Because of Interested in such resolution). Whether such director is entitled to receive copy of Draft circular Resolution?
YES
The draft resolution should be sent to all the directors of Board/ members of committee, even if some of them are not entitled to vote
B.
Whether Interested Director will include in counting of 1/3rd or not?
Yes,
Interested Director will include in counting of /3rd Director for Calling Board Meeting for passing of resolution.
C.
When Resolution by circulation will be considered as Approved?
Acceptance of Resolution by Majority of Director.
D.
Whether resolution passed by Circulation required to be Note in Minutes Book or Not?
The resolution passed by circulation should be take note in the next Board/ Committee meeting and recorded in the minutes of such meeting.
E.
If any director give dissent on circular resolution. Whether noting of same is mandatory in Minutes.
YES
The minutes should also record dissent of any director (if any).
F.
If a Company passes a resolution by Circular, whether it will fulfill the condition of one Meeting in a Quarter?
NO
Company can’t use Circular Resolution to escape the holding of Minimum Number of Board Meetings.
G.
Whether there are any resolutions which can’t be passed by Circular Resolution.
Yes,
There are many resolutions which can’t be passed by Circular Resolution. List of Such resolution given above.
H.
Whether a prospectus can be approved in Board meeting through video conference.
No,
A prospectus can’t be approved in Board Meeting through video conference.
I.
Whether delegation of power to Borrow money and invest fund is permissible.
Delegation of powers to borrow money, invest funds is permissible but on unanimous resolution by board.
J.
What will be the effective date of passing of Resolution?
Resolution shall be deemed to have been passed on the last date specified for signifyingassent 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 shall be effective from that date, if no other effective date is specified in such Resolution
K.
Details required to be mentioned in the Note 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
–          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

 

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