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Section 289 of the Companies Act, 1956 relating Section 175 of the Companies Act, 2013 states about the passing of resolution by circulation. The relating provisions are as below:

(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.

TYPE OF RESOLUTIONS CANNOT BE PASSED BY CIRCULATION AS PER SECRETARIAL STANDARD - 1 (w.e.f.  1st July, 2015)AND COMPANIES ACT, 2013:

The Companies Act requires certain business to be approved only at the physical Board Meeting duly conveyed. However, other business that requires urgent decisions can be approved by means of Resolutions passed by circulation.

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

• 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, Cost Auditor, Statutory Auditor and Internal Auditors

• Declaration of any Dividend

• 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 contribution

• Making calls on shareholders in respect of money unpaid on their shares

• Approving remuneration of Managing Director, Whole-time Director and Manger

• 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

• Authorize Buy Back of Securities

• Issue of Securities, including debentures, whether in or outside India

• Approving amalgamation, merger, demerger, acquisitions or reconstruction or takeover

• Diversify the business

• Takeover another company or acquiring controlling or substantial stake in another company

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

• To issue debentures

• To give loans

• To fill casual vacancy in the Board

• To sanction contracts in which a director is interested

•To make investment in shares of other companies

• To make declaration of solvency with respect to voluntary winding up

• To commence a new business activity

• To shift the location of plant or factory or a registered office

• Adoption of Common Seal

• Forfeiture of shares

• Granting loans to directors

• Appointment or resignation of Managing Director or whole-time director or Manager

• Appointment and removal of the Chief Financial Officer and the Company Secretary

• Appointment of sole-selling agents

• Any issue which involves possible public or product liability claims

• To accept fixed deposits and related matters

• To borrow monies

• To diversify the business of the company

• The approval of the prospectus

• The Audit Committee Meetings for consideration of accounts

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 of 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.

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 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.

The Resolutions passed by circulation are deemed to be passed at a duly convened Board Meeting and has equal validity and authority.

CONDITIONS TO BE FULFILLED FOR PASSING BY CIRCULAR RESOLUTION:

A resolution by circulation is valid and passed, if the following conditions are fulfilled:

a. The resolution has been circulated in draft, together with the necessary papers, if any, to all the directors who are entitled to vote on the resolution.

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

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

d. The Directors should provide their ascent or dissent within 7 days (maximum limit)

*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 with relevant supporting documents.

OTHER CONDITIONS:

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 1/3rd of the total number of directors.

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.

Source:

a. The Companies Act, 2013 and the Rules made there under
b. Notified Secretarial Standard-1 by MCA

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