Importance of passing Board Resolutions by Circulation

CS S. K. Goyal

– Sec. 175 of the Companies Act, 2013

CS-S-K-GoyalAfter the enforcement of Secretarial Standard on meeting of the Board of Directors of a Company [SS-1] w.e.f. 1st July, 2015, importance of passing of Board Resolutions by Circulation, pursuant to provisions of Section 175 of the Companies Act, 2013, has increased manifold, unless it is required by Statute or Articles of Association of the Company or any Contractual obligation to pass the resolution at Board Meeting only or a Board Meeting is mandatorily required to be held as per Section 173.

The Companies Act, 2013 requires certain Board Resolutions compulsorily to be passed at a Board Meeting only. Further, Section 173 of the said Act also requires that –

(a) At-least one Board Meeting must be held in a Calendar quarter, unless the Company is a Small Company or One Person Company or Dormant Company;

(b) There should not be gap of more than 120 days between two Board Meetings, unless the Company is a Small Company or One Person Company or Dormant Company;

(c) A Small Company or One Person Company or Dormant Company may hold only one Board Meeting in each half of a Calendar Year, provided the gap between two consecutive Board Meetings should not less than 90 days.

Most of Private/Unlisted Companies generally follow the procedure of passing Board Resolutions at Board Meetings only. However, after enforcement of Secretarial Standard on Meetings of Board of Directors (SS-1), the complexities involved in holding a Board Meeting have increased, inter alia, as follows:

1. At-least 7 days’ notice with agenda of Board Meeting is required to be given in case it is sent by Hand or E-mail, unless there is an urgency;

2. At-least 9 days’ notice with Agenda of Board Meeting is required to be given in case it is sent by Post or Courier, unless there is an urgency;

3. Notes on Agenda is also required to be sent to members of the Board at-least 7 days before the Board Meeting, if sent by Hand or E-mail and at-least 9 days before the Board Meeting, if sent by Post or Courier;

4. Attendance Register of Board Meeting has to be maintained in a prescribed manner;

5. Circulation of Draft Minutes is required to be made to all Board members within 15 days from the date of Board Meeting;

6. Directors are required to communicate their comments, if any, on the draft minutes within 7 days;

7. Minutes are required to be finalized and entered in the Minutes Book, within 30 days of the date of Board Meeting;

8. A copy of signed Minutes, certified to be true, is required to be circulated to all the members of the Board within 15 days after these are signed.

However, by passing Board Resolutions by Circulation, pursuant to Section 175 of the Companies Act, 2013 read with SS-1, aforesaid complexities may be avoided. The following procedure will have to be followed for passing resolutions by circulation:

1. The draft resolution along with explanatory note thereon and related papers is required to be sent, by E-mail/Hand/Post/Courier, to the members of the Board giving them a maximum time of 7 days to communicate their asset or dissent to the resolution;

2. One circular may contain as many Board Resolutions as may be required to be passed;

3. The Circulated Resolution shall be deemed to have been passed by circulation when it is approved by majority of directors, entitled to vote thereon;

4. If approval of majority of directors, entitled to vote there on, is not received within 7 days after the date of circulation, the same shall be considered as not passed.

‘The format for circulating Draft Board Resolutions’, pursuant to Section 175 of the Companies Act, 2013 read with SS-1 is marked as ‘Annexure – 1’.

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Disclaimer: This article is intended to initiate academic debate on a pertinent topic. It is not intended to be a professional advice and should not be relied upon for real life facts.