Circular Resolution under Companies Act, 2013



The approval of Board of Directors and modes of obtaining such approval is one of the most critical aspects of corporate compliance management. The 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.

Agenda items not allowed to be passed by resolution by circulation-

Rules and Provision of the Act

Agenda Items

Rule 8 of the companies (meeting of board and its powers) rules, 2014

➢  To Make Political Contributions;

➢  To Appoint or Remove Key Managerial Personnel (KMP)

➢  To Appoint Internal Auditors and Secretarial Auditor

Section 179(3) of Companies Act, 2013

 

➢  to make calls on shareholders in respect of money unpaid on their shares;

➢  to authorise 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’s 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 which may be prescribed:

Secretarial Standard -1, Annexure A

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 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.

 

Checklist for Passing of Resolution by Circulation-

    ➢  According to the Secretarial Standard 1, the Chairman of the Board or in his absence, Managing Director or in their absence, any director other than an interested director, shall decide whether the approval of the Board for a particular business shall be obtained by means of a resolution by circulation.

    ➢  Each agenda item 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, 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. 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 draft resolution together with necessary papers, if any, shall be sent to all the directors, or members of the committee, as the case may be, at their addresses registered with the company. The said documents can be sent by hand delivery or by post or by courier, or through such electronic means prescribed under Section 175(1) of the Act.

    ➢  Secretarial Standard 1 mandates serial numbering of every circular resolution.

    ➢  The Secretarial Standard prescribe that not more than 7 days from the date of circulation of the draft of the resolution shall be given to the directors to respond.

    ➢  The circular resolution shall be approved by a majority of the directors or committee members, who are entitled to vote on the resolution.

    ➢  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 as passed, ascent or / and dissent, if any.

    ➢  Minutes should also record the fact that an interested director did not vote on the resolution along with the directors who has voted dissent with their comments for the same, if any.

    ➢  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 every calendar quarter subject to maximum time gap of 120 days between two consecutive meetings.

    ➢  In certain cases, 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.

    ➢  The Company Secretary or the Chairman may maintain records of communication received from directors of company (i.e. with respect to assent/dissent or abstain from voting).

The passing of circular resolution and maintenance of corporate secretarial documents in relation to the resolution is important from the perspective of secretarial audit process, statutory audit process, internal audit process and issuance of certificate by practising Company Secretary under Section 92(2) of the Act.

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