Resolution for alloting shares, when a director is intereste

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Pankaj (Querist)
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19 April 2011 Dear All,

We are a unlisted public limited company. We proposed to allot shares on preferential basis to our directors.

We have taken the approval of members under 81(1A) and complied with the prescribed rules.

Now how the resolution for allotment should be passed in the Board Meeting. As we are allotting shares to 3 Directors out of 4?

As all three directors are interested in the resolution

Please guide us on the same.

Thanking You,

Pankaj

Jayashree S Iyer

Jayashree S Iyer (Expert)
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20 April 2011 Please refer to the priviso to Section 287(2) where it is clarified that where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength, the number of the remaning diectors shall be the quorum during such time. (Subject to Minimum two).

In your case you won't have even that minimum required quorum. Hence I suggest you to allot shares to three directors by way of 3 different resolutions so only one director is interested in a particular resolution.

Pankaj

Pankaj (Querist)
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26 April 2011 Dear Madam,

Thanks a lot for kind guidence on above subject.

Howeveron the Board of the Company 3 Directors are relatives of each other and one is independent Director.

How can we allot the shares to these Direcotrs who are relatives as all three are directly or indirectly interested in the resolution....

Whether compliance with S 81 (1A) is enough or we need to follow any other procedure for the same?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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21 July 2025 Great question! When allotting shares to directors who are interested in the resolution, especially when a large number of directors are related or interested, you need to carefully ensure compliance with quorum and conflict of interest rules under the Companies Act, 1956/2013.

Here’s a detailed explanation based on your scenario:

Key Points & Legal Provisions:
Section 81(1A) Approval

You’ve rightly obtained shareholder approval for preferential allotment under Section 81(1A) of the Companies Act, 1956 (now Section 62 of Companies Act, 2013). This covers allotment on preferential basis.

Board Meeting & Quorum (Section 287(2) of Companies Act, 1956 / Section 175 of Companies Act, 2013)

When the majority of directors are interested in the resolution, the quorum for the meeting will be the number of directors who are not interested, provided the quorum is not less than two directors.

If the number of disinterested directors is less than two, the quorum is not complete, and the Board cannot pass the resolution in one meeting.

How to Pass the Resolution
Since in your case 3 out of 4 directors are interested, only 1 director is disinterested. This does not meet the minimum quorum of 2 disinterested directors. Hence:

The Board cannot pass the resolution to allot shares to all three directors at once.

Suggestion: Pass separate resolutions for allotment to each interested director on different occasions. For each resolution, only one director will be interested, so the remaining directors will make the quorum.

Alternatively, call a General Meeting and pass the allotment resolution there (but since you already have shareholder approval, this would only be for board approval compliance).

Relatives as Interested Directors

Relatives or persons deemed related are considered interested directors in the same manner as the director themselves.

Hence, the quorum rule applies similarly.

You cannot treat relatives as independent or disinterested.

Other Compliance Requirements:

Ensure disclosure of interest by interested directors before the meeting (Section 184 of Companies Act, 2013).

File Form PAS-3 (Return of Allotment) with ROC within 30 days of allotment.

Update Register of Members and issue share certificates.

Summary:
Issue What to do
Majority directors are interested Pass allotment via separate resolutions
Quorum less than two disinterested Cannot hold meeting with quorum; pass separately
Relatives as interested directors Consider all relatives as interested directors
Member approval under Section 81(1A) Required and already obtained
File ROC compliance File PAS-3, update registers

Sample draft for one allotment resolution when one director is interested:
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**Board Resolution for Allotment of Shares to Director**

"RESOLVED THAT pursuant to the approval granted by the shareholders in the Extra-ordinary General Meeting held on [Date] under Section 81(1A) of the Companies Act, 1956, and other applicable provisions, consent of the Board of Directors be and is hereby accorded to allot [Number] equity shares of Rs. [Face Value] each to Mr./Ms. [Director Name], Director of the Company, at a price of Rs. [Issue Price] per share on preferential basis.

RESOLVED FURTHER THAT Mr./Ms. [Name of the Company Secretary/Director] be and is hereby authorized to do all such acts, deeds, and things as may be necessary to give effect to this resolution including filing of necessary forms with the Registrar of Companies."

(Directors other than Mr./Ms. [Director Name] form the quorum and participate in the meeting)

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