In this post, I will discuss Secretarial Standards related to Passing of resolution by circulation under SS – 1.
The Indian Companies Act 2013 requires certain business to be approved only at Meetings of the Board. However, other business that requires urgent decisions can be approved by means of Resolutions passed by circulation. Resolutions passed by circulation are deemed to be passed at a duly convened Meeting of the Board and have equal authority. [Paragraph 6 of SS – 1]
Authority:
The Chairman of the Board or in his absence, the Managing Director or in his absence, the Whole – time Director and where there is none, any Director other than an Interested Director, shall decide, before the draft Resolution is circulated to all the Directors, whether the approval of the Board for a particular business shall be obtained by means of a Resolution by circulation. [Paragraph 6.1.1 of SS – 1]
Where not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a Meeting, the Chairman shall put the Resolution for consideration at a Meeting of the Board. [Paragraph 6.1.2 of SS – 1]
When one – third or more directors of the Board want the matter to be decided at the meeting, chairman shall call a meeting by virtue of this standard.
Interested Directors shall not be excluded for the purpose of determining the above one-third of the total number of Directors. [Background Paragraph 1 after Paragraph 6.1.2 of SS – 1]
This Explanation try to answer a possible query, that when interested directors has no write to discuss that matter in meeting, should they be counted for this purpose.
Procedure:
A Resolution proposed to be passed by circulation shall be sent in draft, together with the necessary papers, individually to all the Directors including Interested Directors on the same day. [Paragraph 6.2.1 of SS – 1]
Again please note, even for a board meeting, interested directors has right to get notice and information.
The draft of the Resolution to be passed and the necessary papers shall be circulated amongst the Directors by hand, or by speed post or by registered post or by courier, or by e-mail or by any other recognised electronic means. [Paragraph 6.2.2 of SS – 1]
This may be read similar to the notice of a board meeting.
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. [Background Paragraph 1 after Paragraph 6.1.2 of SS – 1]
Each business proposed to be passed by way of Resolution by circulation 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, if any, 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 assent or dissent to the Resolution proposed and the date by which the Director shall respond. [Paragraph 6.2.3 of SS – 1]
Each Resolution shall be separately explained. [Background Paragraph 1 after Paragraph 6.2.3 of SS – 1]
The decision of the Directors shall be sought for each Resolution separately. [Background Paragraph 2 after Paragraph 6.2.3 of SS – 1]
Not more than seven days from the date of circulation of the draft of the Resolution shall be given to the Directors to respond and the last date shall be computed accordingly. [Background Paragraph 3 after Paragraph 6.2.3 of SS – 1]
This is significant that in case of Board Meeting, directors has to decide a matter only after 7 days and by virtue of this standard, in case of resolution by circular, directors shall decide a matter within 7 days. This is essence of the resolution by circular because it by nature shows urgency. Company may give any period of time less than these seven days to directors to decide a matter.
Approval:
The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution, unless not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a Meeting. [Paragraph 6.3.1 of SS – 1]
The term “majority of directors entitled to vote” rightly convey that interested directors shall not be counted for deciding majority.
Every such Resolution shall carry a serial number. [Background Paragraph 1 after Paragraph 6.3.1 of SS – 1]
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. [Background Paragraph 2 after Paragraph 6.3.1 of SS – 1]
An Interested Director shall not be entitled to vote. For this purpose, a Director shall be treated as interested in a contract or arrangement entered or proposed to be entered into by the company:
(a) with the Director himself or his relative; or
(b) 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 promoter, or manager or chief executive officer of that body corporate; or
(c) with a firm or other entity, if such Director or his relative is a partner, owner or Member, as the case may be, of that firm or other entity. [Background Paragraph 3 after Paragraph 6.3.1 of SS – 1]
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 from 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.
First case: Date of passing of resolution shall be a date on which assent from more than two – third directors has been receive. This is legally correct but practically what will be position if few other directors give assent after. Will it be recorded or not? How it will be reported in minutes when a resolution is declared passed earlier than their assent/vote received?
Few Question may be raised that why more than two – third and why not majority, reason is standard mentioned in paragraph 6.1.2 which empower one – third directors to require a meeting on the matter and such communication may come anytime even on last day of signifying assent or dissent.
For calculating two third directors, interested directors shall be counted but vote of directors entitled to votes only be counted.
Second case: last date specified for signifying assent or dissent come, a simple majority of directors entitled to vote shall suffice.
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. [Background Paragraph 1 after Paragraph 6.3.2 of SS – 1]
When a resolution is being circulated by sending it to a postal address, directors may simply sign on it and send it back to the company by to convey assent with or without appending any words signifying assents. When a resolution is being circulated by sending it to a postal address, directors may append one or two words signifying dissent before his sign and send it back to the company to convey dissent.
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. [Background Paragraph 1 after Paragraph 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. [Background Paragraph 2 after Paragraph 6.3.2 of SS – 1]
In case not less than one-third of the 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. [Background Paragraph 3 after Paragraph 6.3.2 of SS – 1]
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. [Background Paragraph 4 after Paragraph 6.3.2 of SS – 1]
If the approval of the majority of Directors entitled to vote is not received by the last date specified for receipt of such approval, the Resolution shall be considered as not passed. [Background Paragraph 5 after Paragraph 6.3.2 of SS – 1]
Recording:
Resolutions 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. [Paragraph 6.4 of SS – 1]
This effectively missed point and practice relating to recording of resolution passed by circulation. As a resolution by circular has been passed on a date, there is no point in keeping its recording pending. This should be recorded in chronological order after the minutes of the last board meeting and after all earlier resolution by circulars. This help proper recording and avoid omissions in recording in minutes.
This is significant that all resolution passed by circular shall be noted at next meeting of the Board. This note may taken along with note of minutes of last board meeting.
Minutes shall also record the fact that the Interested Director did not vote on the Resolution. [Background Paragraph 1 after Paragraph 6.4 of SS – 1]
Validity:
Passing of Resolution by circulation shall be considered valid as if it had been passed at a duly convened Meeting of the Board. [Paragraph 6.5 of SS – 1]
Resolution passed by circulation should be promoted with all authorities and financial institutions because SME sector usually force to give a copy of a resolution passed in meeting not by circulation and even a date was also suggested to them.
This shall not dispense with the requirement for the Board to meet at the specified frequency. [Background Paragraph 1 after Paragraph 6.5 of SS – 1]
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