Resolution by Circulation

2 April 2016 • Kamini Goyal

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Resolution by Circulation

2 April 2016 • Kamini Goyal

Updated as on 26 June 2021

Section 175 of Companies Act, 2013 and Rule 5 of Companies (Meeting of Board and its Powers) Rules, 2014 provides for passing of Resolution by Circulation.

In case of urgency, it may not be possible to wait for the approval or implementation of an item or proposal till the next meeting of Board or its Committee. In such case, it is permissible to pass a Resolution by Circulation under Section 175 of Companies Act, 2013.

S. No Particulars Provisions

1.

Circulation Resolution to be circulated in draft with all the necessary papers, if any.

2.

Whom to send? To all the Directors or members of the committee, as the case may be.

3.

Where to send? At their addresses registered with the Company in India.

4.

Mode By hand delivery or by post or by courier or through other E-means [E-mail or fax].

5.

Approval Has to be approved by a majority of the directors or members, who are entitled to vote on the resolution.

6.

When Resolution is required to be passed at Meeting? Where not less than 1/3rd of the total number of Directors require that RBC must be decided at a Meeting.*

7.

Noting at Board Meeting To be noted at the subsequent Meeting of the Board or the committee thereof, and made part of the minutes of such meeting.

*At a Meeting includes meeting through Video Conferencing. For more info on Board Meeting through VC, please visit… Board Meeting through Video Conferencing or other Audio Visual Means

Matters not to be passed through Circular Resolution: –

Since the Act requires certain matters to be approved only at the Meeting of the Board.

 [Section 179(3) and Rule 8 of Companies (Meeting of Board and its Powers) Rules, 2014] Section 179(3) of Companies Act, 2013

  • To make calls on shareholders in respect of money unpaid on their shares;
  • To authorize buy-back of securities under section 68;
  • To issue securities, including debentures, whether in or outside India;
  • To borrow monies;
  • To invest the funds of the company;
  • To grant loans or give guarantee or provide security in respect of loans;
  • To approve financial statement and the Board Report;
  • To diversify the business of the company;
  • To approve amalgamation, merger or reconstruction;
  • To take over a company or acquire a controlling or substantial stake in another company;
  • Any other matter as may be prescribed.

Rule 8 of Companies (Meeting of Board and its Powers) Rules, 2014

  • To make political contribution;
  • To appoint or remove KMP;
  • To appoint internal auditors and secretarial auditor.

Omission of Rule 4 of the Companies (Meeting of Board and its Powers) Rules

Ministry of Corporate Affairs vide Notification dated 15th June, 2021 has come up with a relaxation, in response to the interest of the stakeholders, through the Companies (Meeting of Board and its power) Amendment Rules, 2021 by omitting the provision of Rule 4 of the Companies (Meeting of Board and its Powers) Rules, 2014. As per this amendment, companies shall be allowed to discuss the following business at a Board Meeting through Video Conferencing (VC) or other audio-visual means (OAVM)-

  • Approval of the annual financial statements;
  • Approval of the Board’s report;
  • Approval of the prospectus;
  • Approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
  • Audit Committee meetings for consideration of financial statement including consolidated financial statement, if any, to be approved by the Board under sub- section (1) of section 134 of the companies Act, 2013

For more info on Board Meeting through VC, please visit… Board Meeting through Video Conferencing or other Audio Visual Means


38 comments

  1. Can Board pass resolution by circulation for resignation of statutory auditor, appointment of New Statutory auditor and calling for an EGM for appointment of statutory auditor?

    1. Dear Reader,

      Please note that there are certain items that are allowed to be passed by the board of directors in a duly convened board meeting only (Refer Section 179(3) read with Rule 8 of Companies (Meeting of Board and its Powers) Rules, 2014 and Annexure “A” of the Secretarial Standard-1 issued by the Institute of the Company Secretaries of India).

      Since, the referred matters are not specifically required to taken up at a board meeting, the same can be passed by the board through circulation as per Section 175 of the Companies Act, 2013.

  2. Can a Private Limited Co. allot securities (compulsorily convertible preference shares) thru resolution by Circulation?
    The offer of the securities was earlier approved by the Board in a meeting.

    1. Dear Reader,

      Section 179 read with Secretarial Standard 1 (SS-1) provides an illustrative list of items which cannot be passed by circular resolution in Annexure A. The list does not cover the allotment of securities.

      The issuance of securities, on the other hand, has been restricted, and resolutions for the issuance of shares should be passed only at a Board meeting.

      In your case, the company can allot the securities through resolution by circulation because the resolution for the offer of securities was passed in the board meeting.

      1. Can CCD can be allotted by passing a resolution by circulation.

        As per section 179(3)(d), A company can only borrow money by means of resolutions passed at meetings of the Board.

        1. Dear Reader,

          As per our understanding, prior to proposing the issue of debentures, the approval to borrow money under section 179(3)(d) is required. So, if we outline the CCD issue process, the first step will be to obtain Board approval for borrowing the money, next Board approval for issue of debentures, and finally *Board approval for allotment of debentures. Hence, allotment of Compulsorily Convertible Debentures (CCD), being subsequent to borrowings/issue, the same can be done through Resolution by circulation (RBC) as there are no provisions under the Companies Act, 2013 prohibiting the same.

          *Relevant shareholders’ approval is also required.

    1. A nominated director represents the interest of the company who nominated him and his continuation is subject to the pleasure of the nominating company, therefore a Nominee Director is primarily responsible for the company which nominated him.

      Further, in the verdict of Mother Care (India) Limited vs. Prof. Ramaswamy P. Aiyar, the Karnataka High Court held that “since the resignation of a director is an act of unilateral character and it comes into effect at the time of communicating his willingness to the Board on the relinquishment of his office. Thus, it is not necessary that the Board should accept it in order to make the said resignation effective”.

      Thus, the nominee director can resign by sending a notice in writing i.e., Resignation Letter to the Company which nominates him and the same is not subject to the acceptance by the Board.

    1. The Section 179(3) of the Companies Act read with Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides restriction on appointment of internal auditors and secretarial auditor through circular resolution, the cost auditor is an internal auditor, hence, he cannot be appointed through circular resolution.

    1. No provision under the Companies Act, 2013 restricts to appoint a member of Committee through a resolution by circulation. Therefore, as per our understanding, you can appoint such member through a resolution by circulation.

  3. Relevance of the words ; at their addresses registered with the company IN INDIA.
    Does it mean company shall send notice only to Indian address?

    1. The above phrase is to be read as a complete sentence in the following manner, “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…” Therefore, if the draft resolution is being circulated by hand delivery or post or courier then it has to be sent at the Indian addresses (of all the directors) registered with the company. However, this does not mean that if there is a non-resident director on Board with no registered address in India, the draft resolution shall not be sent to him. In such cases, it would be advisable to resort to electronic means for passing of the resolution.

    1. There is no specific prohibition on approval of share transfer by passing a circular resolution. However, 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.

    1. SS – 1 (Secretarial Standard on meetings of the Board of Directors) issued by the Institute of Company Secretaries of India provides an illustrative list of items which cannot be passed by circular resolution in Annexure A. The agenda for approval of transmission of shares is not included in the list. Hence, it can be concluded that resolution for approval of transmission can be passed by circulation by the Board.

  4. A Company Secretary is covered under the definition of KMP and a KMP as per SS-1 cannot be appointed or removed by way of a resolution passed by circulation.

    1. Dear Sir, your understanding is correct. Resolution for appointment or removal of Key Managerial Personnel cannot be passed through circulation as the same is provided in Secretarial Standard 1.

  5. Can we use the Board Resolution by Circulation to get A Director included as authorized signatory in the Bank Account. The existing Director is siphoning off the company funds

    1. Yes, a resolution can be passed by circulation to appoint a Director as Authorized Signatory in the Bank Account. There is no such restriction in the SS-1(Illustrative list of items of business which shall not be passed by circulation and shall be placed before the Board at its Meeting) but there is no restriction on the Director for voting in Resolution by circulation. Also, in case if the existing director is siphoning of the Company’s funds, then he can be removed from the directorship of the company by the shareholders by complying with section 169 of the Act and can prosecuted by the company under relevant laws of the country.

  6. Can we appoint Independent Director through Circular Resolution and the Notice of AGM can be approved by Circular Resolution

    1. In the Act, some agenda/business can be approved by the Board and some agenda is approved by the members (the board proposes and members approve the agenda).

      Section 179 read with Secretarial Standard 1 (SS-1) provides the agenda items to be approved by the board which shall not be approved by circular resolution.

      The Notice of the AGM can be approved by the circular resolution as the Financials and annexures thereto to be sent to the members along with the notice has already been approved by the Board at a meeting would not required detailed documents for decision.

      With regard to appointment of Independent Director, this agenda requires shareholder approval and therefore it is not mentioned in the prohibition list as stated in SS-1.

      The board proposes the appointment of Independent Director to the Members.

      Independent Director appointment would need the requisite qualification and experience and discussion on length which would be properly done at a meeting.

      Though, provisions does not prohibited to do this by circular resolution, it is advisable to do a meeting.

  7. Sir, can a private company pass resolution by circulation for issuance of securities on right basis.

    Thanks

    1. In accordance to Section 179 (3) of Companies Act 2013, there are certain matter that require the approval only at the Board and hence cannot be dealt through RBC. This include issuing securities and hence you cannot issue securities on right basis by RBC.

  8. Whether in a Private Company, re-appointment of Managing Director whose tenure is getting completed can be re-appointed by passing Circular resolution and the remuneration be approved in next Board Meeting.

    1. After studying section 196 and 203 of companies act 2013 in detail, it can be construed that every appointment includes reappointment and as per Section 179 (3) read with rule 8, Appointment, Removal, Remuneration of Directors and Key Managerial Personnel cannot be done through a resolution by circulation.

      1. Sec 179 or Rule 8 does not say anything about the resignation of KMP or Director. It specifies “removal” which is not the same as resignation.

        1. Agreed to your point, the mentioned Rule specifies Removal and resignation and removal of KMP are governed by different sections.
          The answer to the above query has been amended as such.

  9. Issue of securities is prohibited under Section 175 of Companies Act. However could you please guide on whether following could be passed by circular resolution:
    1)Allotment of securrities
    2) Issue of share certificates

    Thanks

    1. Section 179(3) of Companies Act 2013, there are certain matters that are required to be dealt at the board meeting which includes “issuance of securities” i.e. Offer of securities. However, the allotment of securities and issuance of share certificate can be dealt through RBC.

  10. Sir, Can Private company appoint Whole time company secretary through circular resolution (paid up capital 20 cr.) and same company can appoint new Auditor in case of casual vacancy (due to resignation) through circular resolution.

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