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All About Company Resolutions under Indian Law

Article by Vanshika Godara, Edited by Drishti Saigal


All About Board Resolutions for Indian Companies under Companies Act, 2013

Since a company is an artificial person and given a legal persona, any decision which is to be taken by the company are in legal talk, known as a ‘Resolution’.

During the lifetime of your company, you need to hold some general or board meetings whenever an important decision is to be made by the members and directors.

In these instances, some procedures and rules are to be followed by the company to ensure that the execution of these formal meetings is complying with the Companies Act.

An example of a resolution could be a company’s board decision of reducing the wages for its executives as a result of an extended period of decreased profits, with the aim of minimizing the company's overall expenses.

A smaller scale business resolution would be a manager's decision to fire an employee because of his/her bad performance.

These are just examples and there are a lot of legal intricacies that are involved in passing resolutions by a company. And, in this article, you'll get to know everything about them!

What is an Annual General Meeting?

Any formal meeting of the shareholders of a company every year is termed as an Annual General Meeting.

General Meetings are called upon by the Directors for the shareholders to discuss amongst each other the following:
  • Appointment of a Director.
  • Removal of a Director.
  • Company’s finances.
  • Changing the name and structure of the Company.
  • Issuing more of Company’s shares.
  • Legal claims.
  • Legal proceedings.
  • Dissolving the Company,etc.
To call a General Meeting, a notice is to be issued for a period of 14 days. The notice should include the following:
  • Date,time and location of the meeting.
  • Type of general meeting.
  • Nature of the meeting.
  • Statement that declares ‘every shareholder has a right to appoint a proxy.’
  • Date of notice issued.
  • Name of the person calling the meeting.
Any kind of a formal decision which is made by a shareholder during the meeting requires ‘passing of a resolution’.The copies of these resolutions shall be filed in the registered office of the company within  a time period of 15 days.


What is a Board Meeting?

Board Meeting among Directors of an Indian Company

A Board meeting is an official meeting of all the Board of Directors (BoD) of the company.

Members of  the BoD are appointed to keep a check on the company on the behalf of the shareholders and guarantors.

These meetings are held when the directors collectively have to make decisions, raise concerns, review financial queries or present proposals of the business and make new strategies for the future.

The purpose of such meetings are as follows:
  • Allotment of shares.
  • Issuing a share certificate.
  • Appointment of a Company Secretary (C.S.).
  • Delegation of the duties and responsibilities to the C.S.
  • Confirming the vision, mission, objectives and values of the company.
  • Setting up a business bank account.
  • Discussing about the hiring of staff, etc.
Directors are legally bound to document the details of the meetings by recording the minutes.
Recording of the  minutes helps as an evidence of the proceedings and should include the following:
  • Company’s name.
  • Address of the Registered office.
  • Apologies for absentees.
  • Proposals for the resolutions.
  • Proposed resolutions.
  • Name of all the persons in the attendance.
  • Queries or objections raised.
  • Signature of the directors,etc.
A copy of the minutes shall be kept by the company in the SAIL address for a minimum period of 10 years.

What are Resolutions?

Since a company is a legal entity and an artificial person, it needs to make decisions. And, since it can't make decisions by itself, its directors are the ones who make the decisions.

And, how to they make these decisions?

Well, they make them by passing resolutions. However, the thing is shareholders can also pass resolutions. Although these are much broader and less often exercised, it's still there.

A legally binding decision which is made by a company’s shareholders / directors is termed as a Resolution. If the majority of the votes are passed in the favour of a decision then it is said that a ‘resolution is passed’.

In other words, collective decisions of the directors or shareholders are called resolutions.

What Decisions require a Resolution?

Many decisions require resolutions to be passed.
Some examples are:
  • Appointment of directors.
  • Changing the director’s power and responsibilities.
  • Changing the name of the company.
  • Changing the share structure of the company, etc.

Types of Resolutions

The resolutions can be divided into 2:
  1. Members' Resolutions
  2. Directors' Resolutions

Members' Resolutions

There are several categories of resolutions which can be passed by members:
  1. Ordinary Resolutions: They can be passed by the simple majority votes of the shareholders. It is mentioned in the section 114 of the Companies Act, 2013. Moreover, anything which can be done with an ordinary resolution, could also be done with a special resolution.
 Sec 114 reads as follows:
  1. Special Resolutions: They can be passed by 75% of the majority votes of the shareholders. It is mentioned in the section 114 of the Companies Act 2013.
Sec 114 can be read as follows:
“A resolution shall be a special resolution when-
  1. The intention to propose the resolution as a special resolution has been duly specified in the notice calling general meeting or other intimation given to the members of the resolution;
  2. The notice required under this Act has been duly given; and
  3. The votes that are cast in the favour of the resolution,whether on show of hands, or electronically or on a poll, as the case may be, by the members who, being entitled to do so, vote in person or by a proxy or by postal ballot, are required to be not less than three times the number of votes, if any, cast against the resolution by the members so entitled and voting.”

Directors' Resolution

When the resolutions are passed by a simple majority between the directors of the company, these are directors' resolutions. These types of resolutions can be passed by directors by both an ordinary and special resolution.

What Records Must be Kept?

Safekeep records for your indian company

Resolutions which are passed in such a meeting should be accurately recorded within the minutes of the meetings. 

Minutes function as a legal evidence of the  proceedings of the meetings and must be kept at the company's registered office, and preserved permanently in physical or electronic form.

The minutes need to be distributed to the directors within 15 days of the conclusion of the meeting.

When a member or director requests for a minute, he must be given so, within 7 days of his request. Furthermore, all the shareholders must receive a written notification of any resolutions passed.

If the records are not kept, then an offence will be committed.

The corporate must keep all the records or decisions available for inspection and keep them at the company's registered office or other specified location.

Passing of Resolutions by a circulation under Companies Act, 2013

When it is not feasible to call a committee meeting and the approval of all the directors is required on an urgent note then a resolution can be passed with the help of a circulation.

As per section 175 of the Companies Act, 2013 read along with rule 5 of the Companies Rules, 2016 the company passes a resolution by a circulation without conveying a committee meeting, as the case may be.

Drafting the Resolution to be Circulated

In order to pass a resolution by a circulation, the draft proposed is to be passed together with the required documents, if any, shall be circulated to all the administrators of the corporate.

Modes of sending the Resolution by a Circulation:

The various modes of sending the resolution by a circulation can be mentioned below:
  • By hand delivery.
  • By speed post.
  • By emailing it at their email address which is registered with the company.
  • By sending a courier on the registered address.
  • By a registered post on the registered address.

Passing the Resolution

The resolution shall be passed if it is approved by the majority of the votes among the directors voting for the resolution.

Time Limit & Method for Responding

Maximum time period of 7 days is given to a director after the circulation of the draft, regarding the resolution. In case a director does not respond until the last date then it is presumed that he / she has been abstained from voting.

Validity of a Resolution

Passing the resolution by a circulation is as valid as it is passed by the directors in a duly organised meeting of the board.

Resolutions which cannot be passed by a Circulation

The following matters can only be passed in a board meeting and not by a circulation:
  • Auditor.
  • Declaration of dividends.
  • Sale/Purchase of assets.
  • Investing capital.
  • Making some contribution to politics.
  • Appointment of a Managing Director.
  • Issuing of shares/debentures.
  • Providing loans.
  • To fill vacancies.
  • To buy shares of other companies,etc.

How to draft a Resolution by a Circulation?

Draft resolutions in an Indian Company

The format for drafting a resolution by a circulation is as under:


To,

Name of the Director



Date of Circulation

Subject

Total No. of Items proposed

Circular Resolution No.


The above table is with the reference to the provisions of section 175 of the Companies Act,2013 read along with the rules prescribed.

Format for the Acceptance/Rejection of a Circular Resolution

The format is as follows:


Name of the Director:

DIN:

Item No.
Assent*
Dissent*
Signature**
Date of Signing
Remarks, if any
1.








*Assent/Dissent may be given by mentioning ‘Yes’ in the respected field.
*Signature is not required if the circulation is done through an email.

Important Provisions related to Circular Resolutions are-

  • No company shall escape from keeping a minimum number of board meetings by using a circular resolution.
  • It can be passed by a committee or a board meeting.

Matters requiring sanctions by Ordinary Resolutions


S.NO.
Section
Description of sections
1.
4
In case a company provides wrong details or information for the approval of its name to the Registrar, the Registrar may direct the company to change its name within a period of 3 months by passing an ordinary resolution. 

(Related Reads: All You Need to Know about Memorandum of Association and Articles of Association for Indian Companies)
2.
16
If the name of the company resembles or is close to a name of any existing company or it tries to copy the trademark of a company, in such a case,the company is directed to change it’s name within a time period of 3-6 months by passing an ordinary resolution.
3.
61
A company can call for an ordinary resolution to:
      Increase it’s authorized share capital.
     Divide the amount of share capital.
  Convert the fully paid-up shares into stock and  reconvert stock into fully paid-up shares.
·        Sub-divide it’s shares.
·        Cancel the uncalled shares.
4.
63
Capitalize the company’s profit to issue fully paid-up shares.
5.
65
If an unlimited company is converting itself into a limited company,they need to provide for a reserve share capital through an ordinary resolution.
6.
73 & 76
A company can pass an ordinary resolution which can be subjected to certain rules which are prescribed with the consultation of RBI,accepting deposits from the members on certain terms and conditions,which can include the provisions related to the security or repayment of certain deposits along with the interests which are also subjected to certain terms and conditions.
7.
102 read along with 123, 139, 140, 142, 152


4 main businesses are transacted at the Annual General Meeting-
(i)                           To consider the financial statements and the reports of the Board of Directors and auditors.
(ii)                          To declare the dividend.
(iii)                       To appoint directors in the place of the retiring directors;
(iv)                        The appointment and fixing of the remuneration of the auditors.
8.
148
With the help of an ordinary resolution, the remuneration of the cost accountant can also be fixed.
9.
161
With the help of an ordinary resolution,the board can appoint an alternate director.
10.
169
A company,by passing an ordinary resolution can remove a director.
11.
181
The company needs to contribute 5% of it’s net profits for 3 immediately preceding financial years.
12.
192
With the help of an ordinary resolution,the company can restrict the non-cash transactions.
13.
196
Subject to the provisions of section 197 and Schedule V, a managing director,whole-time director or a manager shall be appointed and the terms and conditions of such a appointment and the remuneration payable shall be approved by the Board of Directors at a meeting which shall be subjected to the approval by a resolution at the next general meeting of the company and by the Central Government incase such  a appointment is at the variance to the conditions [Specified in Part I of that Schedule].
Provided that a notice conveying to the Board or a general meeting for considering such an appointment shall include the terms and conditions of such an appointment,remuneration payable and such other matters including interest of a director or directors in such appointments, if any:
Provided further that a return in the prescribed form shall be filed within sixty days of such an appointment with the Registrar.
14.
197
With subject to the provisions of section 197,the director should be paid the remuneration.
15.
304
Ordinary Resolution is to be passed in a General Meeting which requires the company to wind up voluntarily as a result of the expiry of the period for it’s duration, if any, fixed by the articles or on the occurrence of any such event with respect to which the articles provide that the company should be dissolved.
16.
310
Incase of winding up, appointing an official liquidator and fixing up the required remuneration of the liquidator.
17.
311
Ordinary resolution also helps to fill the vacancies in the company,if any.  
18.
314
The board can also call a meeting by passing a resolution for obtaining the sanction of the company.
19.
318
After the satisfaction of all the members of the company for its winding up, a resolution can be passed for the dissolution of the company.
20.
366
For the companies to be registered as “companies limited” an undertaking shall be passed by all the members of the company by passing an ordinary resolution.

Matters requiring sanctions under a Special Resolution

S.no.
Section
Description of sections
1.
12
Special resolution is passed to change the registered office of the company which is outside the limits of the city,town, etc.
2.
13
It can also be used for altering the Memorandum of the company.
3.
41
It is used to issue Global Depository Receipt.
4.
54
To issue the sweat equity shares.
5.
62
To determine the terms and conditions for issuing the debentures which can be converted into shares.
6.
66
Special resolution can be used for the reduction of the share capital of the company.
7.
71
Special resolution can be used for issuing the debentures which can be converted into shares,partially or wholly.
8.
140
Helps in the removal of the Auditor of the company.
9.
149(1)
Helps in the appointment of more than 15 directors.
10.
149(10)
The company can re-appoint the independent director for a period of 5 years more after passing a special resolution.
11.
165
By passing a special resolution the members of the company can also behave like the directors of the company.
12.
180
It helps in restricting the powers of the board.
13.
186
Helps in keeping a check on the loans and the investments of the company.
14.
188
Special resolution is used by the company for entering into contracts which have paid-up share capitals.
15.
196
Helps in the appointment of people who are aged 70 years or more for the position of Managing directors, Managers,etc.
16.
210
Special resolution is passed to intimate the Central Government regarding the affairs of the company which are to be invested.
17.
271
Special resolution is passed to wind up the dissolution of the company by the tribunal.
18.
304
Special resolution is passed to voluntarily dissolve the company.
19.
219
Special resolution helps in granting the powers to the Company’s Liquidator regarding the acceptance of the shares of the company.
20.
347
Special resolution is passed incase of disposing the books of accounts and papers of the company for complete winding up and dissolution of the company.

Example of a Board Resolution in an Indian Company under Indian Company Law

Real Example of a Company’s Resolution

In December, 2017 the National Company Law Tribunal (NCLT) extended the time, during which another firm named Electrosteel Steels Limited was ready to invest in its corporate insolvency resolution process.

This extension was an addition to the 90 days,which begun on January 17, 2018.

The Kolkata based steel company was under a debt of Rs. 10,274 crores which it owed to the SBI banks.

Facing some insolvency proceedings, the steel company admitted to undergo the insolvency process.

The admission was recommended at the Committee of Creditors (CoC) meeting on December 6, 2007. The executive members of the NCLT noted that the minutes of the meeting underscored the CoC by approving the resolution by a vote of 99.82%.


Related Reads:

Wrapping it Up

A Company being a man-made person, any decision taken by it shall be within the kind of a Resolution. Accordingly, a resolution could also be defined as an agreement or a decision made by the administrators or members (or a category of members) of an organisation.

A proposed resolution may be a motion.

When a resolution is passed, an organisation is bound by it. The resolutions may be on almost any subject as in case of Board meetings since they are ultimately to be required for the running of the corporate.

The Act generally specifies the matters in respect of which the resolutions are required to be elapsed by the members in the normal meetings.

If you have any questions, let me know by leaving your comments down below. And, if you liked this article, do give it a share!


Author Bio: Vanshika Godara is a law student at Fairfield Institute of Management and Technology. Connect with her on LinkedIn.

Editor Bio: Drishti Saigal is a Bachelor of Laws - LLB student at Svkm's Jitendra Chauhan College, Mumbai. Connect with her on LinkedIn.

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