Circular resolution under Companies Act 2013

CIRCULAR RESOLUTION UNDER COMPANIES ACT 2013

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Directors' Right to insist for Board meeting instead of Circular resolution 

Matters which can be passed by Circular resolution

Matters which cannot be passed by Circular resolution 

Please read.......

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

CIRCULAR RESOLUTION UNDER COMPANIES ACT 2013

CS. Ashwin, Company Secretary, Chennai

One of the area where Companies Act 2013 has made significant change is relating to Circular resolution. Let us discuss about it in detail.

RELEVANT SECTION  :

·        

    SECTION 289 OF COMPANIES ACT,1956

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 to all the members of the committee, then in India (not being less in number than the quorum fixed for a meeting of the Board or committee, as the case may be), and to all other directors or members at their usual address in India, and has been approved by such of the directors as are then in India, or by a majority of such of them, as are entitled to vote on the resolution.

·         SECTION 175 OF COMPANIES ACT, 2013

(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 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 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.

WHAT TYPE OF RESOLUTION CANNOT BE PASSED BY CIRCULATION AS PER  SECRETARIAL STANDARDS 7 AND COMPANIES ACT, 2013:

·         No item should be passed through a circular resolution, where the Act has expressly provided that such item/ business should be passed / considered only at board meetings. 

·         When we discuss about Circular Resolution as a thumb rule we must remember that resolutions pertaining to borrowings can never be passed through Circulation.

·         The following are the list of matters which are to be passed only at a duly convened Board meeting and not by circulation.

 ü  To make calls on shares in respect of unpaid share capital of the company

ü  To issue debentures.

ü  To borrow money otherwise than on debentures.

ü  To invest the funds of the company 

ü  To give loans.

ü  To buy-back its own securities

ü  To make political contributions

ü  To fill casual vacancy in the Board.

ü  To sanction contracts in which a director is interested

ü  To make investment in shares of other companies.

ü  To make declaration of solvency with respect to voluntary winding up.

ü  To enter into joint venture and collaboration agreement.

ü  To commence a new business activity

ü  To approve mergers and acquisitions

ü  To shift the location of plant or factory or a registered office.

ü  To appoint or remove senior management personnel one level below the Board

ü  To appoint internal auditors and cost auditors.

ü  Adoption of Common Seal

ü  Forfeiture of shares.

ü  Granting loans to directors.

ü  Noting of directors’ interest.

ü  Noting of directors’ shareholdings.

ü  Appointment or resignation of Managing Director or whole-time director or Manager.

ü  Appointment of a Managing Director /Manager as a Managing Director/Manager in more than one company

ü  Appointment and removal of the Chief Financial Officer and the Company Secretary.

ü  Appointment of sole-selling agents.

ü  To approve quarterly, half-yearly and annual accounts and cost accounts.

ü  Annual operating plans and budgets.

ü  Any material default in financial obligations.

ü  Noting of statutory compliance reports, show cause notices, prosecutions and penalty notices of material nature.

ü  Sale of investments, subsidiaries or assets which is not in the normal course of business.

ü  Any issue which involves possible public or product liability claims.

ü  Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property.

ü  Foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movements.

ü  To accept fixed deposits and related matters.

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

ü  to authorise buy-back of securities under section 68;

ü  to issue securities, including debentures, whether in or outside India;

ü   to borrow monies;

ü   to invest the funds of the company;

ü   to grant loans or give guarantee or provide security in respect of loans;

ü  to approve financial statement and the Board’s report;

ü  to diversify the business of the company;

ü   to approve amalgamation, merger or reconstruction;

ü   to take over a company or acquire a controlling or substantial stake in another company;

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:

ü  The resolution has been circulated in draft, together with the necessary papers, if any, to all the directors.

ü  It has been duly *sent to their addresses registered with the company in India.

ü  It has been approved by a majority of the directors or members, who are entitled to vote on the resolution.

*It can be sent by hand delivery or by post or by courier, or through such electronic means which may include E-mail or fax. Companies Act 2013 recognizes courier mode and electronic mode for the first time.

OTHER CONDITIONS :

Ø  The Director can insist on holding a board meeting rather than passing a resolution by circulation. This is possible if the said decision of holding a board meeting is agreed to by 1/3^rd of the total number of directors. It is an important and new change suggested by the new Act.

The provisio to Sec. 175 (1), which provides for this, gives Directors the right to insist the Company to call for a Board meeting if they think that the matter is important and it shall be discussed only at a Board meeting. The thought process behind this initiative must be welcomed.

Ø  Registered Address - New Term

The Act refers to the word ‘registered addresses for sending notice and circulation. Is that the address the director has given while filing his DIN or is it the address currently stated in the Register of directors? Some clarity in this regard is required by way of department clarification.