Research Note on Circular Resolutions

S. 175 of the Companies Act, 2013 deals with Passing of resolution by circulation.
It states that,
“(1) 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 addressed 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:
Provided that, 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.
(2) A resolution under sub-section (1) shall be noted at a subsequent meeting of the Board or
the committee thereof, as the case may be and made part of the minutes of such meeting.”

Restrictions – S. 175(1) of the Companies Act, 2013:

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.

Procedure:
a) Determine the mode of approval of Board – Clause 6.1.1 of SS-1
The Chairman of the Board or in his absence managing director or any director other than
interested director shall decide whether approval of particular business shall be obtained by
means of circular resolution.

b) Draft the Resolution and Note – Clause 6.2.3 of SS-1

- Prepare the draft of the resolution proposed to be passed by circulation and all other
necessary papers.
- Each business proposed to be passed by way of Resolution by circulation shall carry a
serial number and 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, 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 the assent or dissent to the
Resolution proposed and the date by which the director shall respond.
- The last date given for responding shall not be more than 7 days from the date of
circulation of the draft resolution. However, additional two days shall be added for the
service of the draft Resolution, in case the company has sent the same by speed post
or by registered post or by courier.

c) Circulation of draft Resolution – S. 175(1) and Rule 5 of the Companies (Meetings of

Board and its Powers) Rules, 2014 and Clause 6.2.1 and 6.2.2 of SS-1
- A Resolution proposed to be passed by circulation shall be sent in the draft, along
with the necessary papers, to all the directors including interested directors on the
same day, for seeking their approval, at their addresses registered with the company in
India.
- The draft of the Resolution and the necessary papers shall be sent to 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.
- Proof of sending and delivery of the draft of the Resolution and the necessary papers
shall be maintained by the Company.

d) Obtain Assent or Dissent from Directors - Clause 6.3.2 of SS-1

- 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.

e) Disclosure of Interest by the Director - Clause 6.3.2 of SS-1

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.
f) Passing of Resolution - Clause 6.1.2, 6.3.1 and 6.3.2 of SS-1
- The Resolution is passed when it is approved by majority of the Directors entitled to
vote on the resolution.
- 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. An Interested Director shall not be entitled
to vote.
- Director shall be treated as interested in a contract or arrangement entered or proposed
to be entered into by the company
o With any body corporate, if such Director, along with other Directors holds
more than two percent of the paid-up share capital of that body corporate, or
he is a promoted, or manager or chief executive officer of that body corporate
or
o With a firm or other entity, if such Director is a partner, owner or Member, as
the case may be, of that firm or other entity.
- If the approval of the majority of directors entitled to vote is not received by the last
date specified for the receipt of such approval, the resolution shall be considered as
not passed.
- 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
for 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.
- In case not less that one-third of the Directors (including Interested 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.

g) Noting of the Resolution passed by Circulation - Sec. 175(2) and Clause 6.4 & &
7.2.2 of SS-1
Resolution passed by circulation shall be noted at the next Meeting of the Board and the text
thereof with dissent or abstention, if any, shall be recorded in the minutes of such meeting.
Minutes shall also record the fact that the Interested Director did not vote on the Resolution.

h) Validity of Resolution passed by Circulation - Clause 6.5 of SS-1

Passing of Resolution by circulation shall be considered valid as if it has been passed at a
duly convened meeting of the Board.

Items not allowed to be passed by resolution by circulation:

1. Chapter 12, 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 take note of appointment(s) or removal(s) of one level below the Key
Management Personnel;
 To Appoint Internal Auditors and Secretarial Auditor;
 To take note of the disclosure of director’s interest and shareholding;
 To buy, sell investments held by the company (other than trade investments),
constituting five percent or more of the paid up share capital and free reserves of the
investee company;
 To invite or accept or renew public deposits and related matters;
 To review or change the terms and conditions of public deposit;
 To approve quarterly, half yearly and annual financial statements or financial results
as the case may be.
2. 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.
3. Secretarial Standard-1, Annexure A
i. General Business Items
 Noting Minutes of Meetings of Audit Committee and other
 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.
ii. 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.
 In case of a public company, the appointment of Director(s) in casual vacancy
subject to the provisions in the Articles of the 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.
 Sale of subsidiaries.
 Purchase and Sale of material tangible/intangible assets not in the ordinary 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.
iii. 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.
iv. Additional list of items in case of listed companies
 Approving Annual operating plans and budgets.
 Capital budgets and any updates.
 Information on remuneration of Key Managerial Personnel.
 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 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.