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.
Therefore the following conditions have to be complied with for passing of the Board Resolutions by circulation:
(i) Draft of the resolution should be circulated together with the necessary papers, if any, to all the directors or to all the members of the committee, then in India. "Necessary papers" would refer to those papers or documents, which would explain the purpose of the resolution and the urgency for passing it by circulation. A brief note explaining the resolution has to be sent along with the draft resolution.
(ii) The number of directors in India to whom the draft circular resolution is sent should not be less than the quorum fixed for meetings of the Board or Committee as the case may be. [Section 287(2) of the Act provides that the quorum for a meeting of the Board of directors shall be one third of its total strength (any fraction contained in that one-third being rounded off as one) or two directors whichever is higher].
(iii) The draft of the resolutions should be circulated to all other directors or members of the committee who are away from India at their usual address in India. If these directors have furnished their foreign address to the company, the text of the circular resolution should be sent to their foreign address also.
(iv) The text of the resolution should be approved by all the directors as are then in India who are entitled to vote on the resolution and their number should not be less than the quorum fixed for the Board/Committee meeting.
(v) If the text of the resolution is not approved by all the directors in India who are entitled to vote on the resolution, if should be approved by a majority of the directors in India and abroad, who are entitled to vote on the resolution.
Examples for explaining the provisions of Section 289:
a. The Board of a public company consists of seven directors. Three of the directors are in India, and the remaining four are living abroad. The company has sent a draft of the resolution to all the three directors in India and the remaining four directors abroad at their usual address in India. All the three directors in India have approved the circular resolution. The circular resolution is duly passed.
b. The Board of a public company consists of eight directors, four of the directors are in India, and the remaining four are living abroad. The company has sent the draft of the circular resolution to all the four directors in India and to the remaining four directors abroad at their usual address in India. Three of the directors in India and two of the directors abroad have approved the resolution. One director in India has not approved the resolution. The circular resolution is duly passed because a majority of directors (in India and abroad), that is, five directors, have approved the same.
c. There are six directors on the Board of a public company. One of the directors is living abroad and the remaining five directors are in India. One of the directors in India is interested in resolution. The company has sent the draft resolution to all the five directors in India and to the director living abroad at his usual address in India. The interested director did not return the draft circulation resolution. The remaining four directors in India have approved the draft resolution. The resolution is duly passed because it is approved by a majority of director entitled to vote on the resolution.
d. There are eight directors on the Board of a private company, which is neither a subsidiary nor a holding company of a public company. All the directors reside in India. Four of the directors are interested in the arrangement proposed in the circular resolution. The company has sent the draft of the circular resolution to all the directors. Six of the directors, of whom four directors are interested directors, approve the circulation resolution. The circular resolution is passed because it is approved by a majority of directors who are entitled to vote. In the case of an independent private company interested directors are not debarred from voting or the resolution — section 300(1)(a).
When does a circular resolution become effective?
The circular resolution may be sent by post to the directors for their approval or an officer of the company may personally take the papers to each director in India, entitled to vote on the resolution and get his approval. Directors may approve the text to the draft resolution on different dates. In such cases, a question arises as to when the resolution becomes effective. The circular resolution is effective on the latest date on which all the directors then in India entitled to vote on the resolution approved the resolution. In case the resolution is not approved by all the directors in India and it is approved by some directors in India and by some directors living abroad, the latest date at which all the directors then in India entitled to vote on the resolution approved the resolution. In case the resolution approved by all the directors in India and it is approves by some directors in India and by some directors living abroad, the latest date on which majority of directors approved the resolution is to be taken as the date of passing.
Illustrative list of matters which can be approved by passing circular resolution is given below:
1. Opening a current account for the company with a bank;
2. Authorising the company secretary to file suits in civil courts on certain urgent matters;
3. Authorising on officer of the company to sign declaration forms;
4. Authorising for affixing common seal to a document the content of which have already been discussed and approved at a Board meeting;
5. Authorising the managing director to fix the dates of closure of register of member/register of debenture holders;
6. Fixing 'record date' for rights or bonus issue or authorizing managing director for fixing the 'record date';
7. Changing the rate of interest payable on fixed deposits whenever the Government amends rule 3(c) of the Companies (Acceptance of Deposits) Rules, 1975;
8. Convening an extra ordinary general meeting on requisition of certain members;
9. Authorising an officer to make application for telex, fax and telephone connection for the company;
10. Changing the registered office within the same town or city;
11. Appointing on Auditor in the casual vacancy caused by death of Auditors;
12. Appointing Additional Director in case of urgency;
13. Appointing Alternate Director in case of urgency;
14. Engaging a practising Company Secretary to issue compliance certificate;
15. Authorising an officer of the company to file criminal complaints in a Judicial Magistrate's Court for dishonour of cheque under section 138 of the Negotiable Instruments Act, 1881;
16. Authorising the printing of share certificates;
17. Appointment of Cost Auditors;
18. Authorising Managing Director to sign the Listing Agreement with Stock exchange;
19. Nominating a director as occupier of a factory;
20. Forming subcommittees of the Board, in case of urgency;
21. Approving Transmission of shares before a Right Issue;
22. Approving a mutual fund scheme by the Board of an Assets management company;
23. Authorising contribution to National Defence Fund;
24. Making investment in the shares of Company's Employees Cooperative Credit society;
25. Appointing the first Auditors within one month of incorporation of the company, in case the Board is unable to meet within a month from the date of incorporation of the company;
26. Fixing the date and time of an adjourned general meeting in case the adjourned general meeting is not desired to be held on the same day in the next week;
27. Appointing a representative of the company to represent the company in the general meeting of any other company;
28. Authorisation of the Board to keep company's books of account at a place other than the registered office.
Illustrative matters to be passed at a duly convened Board Meeting and which cannot be passed by circulation (As given in SS-7):
1. To make calls on shares in respect of unpaid share capital of the company
2. To issue debentures.
3. To borrow money otherwise than on debentures.
4. To invest the funds of the company
5. To give loans.
6. To buy-back its own securities
7. To make political contributions
8. To fill casual vacancy in the Board.
9. To sanction contracts in which a director is interested
10. To make investment in shares of other companies.
11. To make declaration of solvency with respect to voluntary winding up.
12. To enter into joint venture and collaboration agreement.
13. To commence a new business activity
14. To approve mergers and acquisitions
15. To shift the location of plant or factory or a registered office.
16. To appoint or remove senior management personnel one level below the Board
17. To appoint internal auditors and cost auditors.
18. Adoption of Common Seal
19. Forfeiture of shares.
20. Granting loans to directors.
21. Noting of directors’ interest.
22. Noting of directors’ shareholdings.
23. Appointment or resignation of Managing Director or whole-time director or Manager.
24. Appointment of a Managing Director /Manager as a Managing Director/Manager in more than one company
25. Appointment and removal of the Chief Financial Officer and the Company Secretary.
26. Appointment of sole-selling agents.
27. To approve quarterly, half-yearly and annual accounts and cost accounts.
28. Annual operating plans and budgets.
29. Any material default in financial obligations.
30. Noting of statutory compliance reports, show cause notices, prosecutions and penalty notices of material nature.
31. Sale of investments, subsidiaries or assets which is not in the normal course of business.
32. Any issue which involves possible public or product liability claims.
33. Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property.
34. Foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movements.
35. To accept fixed deposits and related matters.
SECRETARIAL STANDARD 7 ON PASSING OF RESOLUTIONS BY CIRCULATION-SOME IMPORTANT POINTS:
1.1 Chairman of the Board or the managing director should decide whether the approval of the Board for a particular business should be obtained by means of a resolution by circulation.
If the resolution is proposed by any other director, the approval of any of the aforesaid officers, if there is one, should be obtained before the draft resolution is circulated to all the directors.
1.2 Where there is no Chairman or managing director, any other director should decide whether the approval of the Board for a particular business should be obtained by means of a resolution by circulation.
2.1 A resolution proposed to be passed by circulation should be sent in draft form, together with the necessary papers, individually to all the directors or, in the case of a Committee to all the members of the Committee, at the same time.
The resolution together with all papers should be sent to all directors including interested directors and directors who are usually residing abroad.
2.2 Each business proposed to be passed by way of resolution by circulation should be explained by a note setting out the details of the proposal and the draft of the resolution proposed.
The note should also indicate how to signify assent or dissent to the resolution proposed and the date by which the director of the Board or of the Committee should signify his assent or dissent to the resolution.
2.3 The draft of the resolution to be passed and the necessary papers should be circulated by hand, or by post, or by facsimile, or by email or by any other electronic mode.
It is preferable that one resolution is sent under one covering letter. If more than one resolution is sent under a covering letter, the approval of the directors should be individually obtained for each resolution.
Where the draft of the resolution and necessary papers are sent by email or any other electronic mode, a hard copy of the same should be sent by post.
3.1 The resolution is passed, when it is approved by a majority of directors entitled to vote on the resolution other than interested directors.
If any special majority or the affirmative vote of any particular director or directors is specified in the Articles, the resolution should be passed only with the assent of such special majority or such affirmative vote.
3.2 The resolution is deemed to have been passed on the date on which it is approved by the majority of the Directors.
Directors signify their assent or dissent by signing the resolution to be passed by circulation.
Directors should 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 should be taken as the date of signing.
In cases where the interest of a director is yet to be communicated to the company, the concerned director should disclose his interest and abstain from voting.
If the approval of the majority of directors is not received by the last date specified for receipt of such approval, the resolution shall be considered not passed.
4.1 Resolutions passed by circulation should be noted at the next meeting of the Board or Committee, as the case may be, and the decision recorded in the minutes of such meeting.
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.
5.1 Passing of resolution by circulation should be considered valid as if it had been passed at a duly convened meeting of the Board or of the Committee.
This does not dispense with the requirement for the Board to meet at the specified frequency.