Background

The Act 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. 

Applicability

This provision shall be applicable to all the Private Limited Company, Public Limited Company & Listed Company

Compliances for Passing of Resolution by Circulation

Passing of Resolution by Circulation (Section 175, Sub-section (1))

Validity Conditions

A resolution passed by circulation is valid only when every prescribed condition is satisfied simultaneously. No resolution shall be deemed duly passed by the Board or by a committee thereof by circulation unless the following requirements are met in full.

Mandatory Conditions — Section 175(1):

• Draft Circulation: The resolution must be circulated in draft form along with all necessary papers, if any. An incomplete draft or the omission of relevant supporting papers renders the resolution invalid.

• Distribution to All Directors / Committee Members: The draft and accompanying papers must be sent to every Director of the Board, or to every member of the committee, as the case may be. Selective distribution to only a subset is not permitted.

• Registered Address in India: Delivery must be made to the addresses of the Directors or committee members registered with the company in India.

• Approval by Majority: The resolution is deemed passed only when it is approved by a majority of the Directors or members who are entitled to vote on the resolution. A bare majority (i.e., more than half of those entitled to vote) is the threshold; unanimity is not required.

Mode of Circulation (Rule 5 — Companies (General Meetings) Rules, 2014)

Rule 5 operationalises the phrase “through such electronic means as may be prescribed” appearing in Section 175(1) by specifying the permissible modes of circulation.

Permitted Modes of Delivery — Consolidated:

Approval Threshold & Deemed Passing

The resolution is deemed to have been duly passed when it receives the affirmative votes of a majority of the Directors (or members of the committee) who are entitled to vote on the resolution. The following points are critical for correct application:

• • Entitlement to Vote: Only those Directors or committee members who are entitled to vote on the particular resolution are counted in the denominator. Directors who are disqualified or disinterested in a specific resolution may fall outside this group depending on applicable provisions.

  • Majority = More Than Half: A simple majority — i.e., votes in favour exceeding one-half of those entitled — is sufficient.

  • Abstentions & Non-Responses: Directors who do not respond or who abstain are not counted as votes in favour. Their non-response does not defeat the resolution provided the remaining affirmative votes still form a majority of those entitled.

One-Third Dissent Right (Proviso to Section 175(1) — Mandatory Meeting on Dissent)

The proviso to Section 175(1) introduces an important minority safeguard. If not less than one-third of the total number of Directors of the company for the time being require that a resolution under circulation must be decided at a meeting, the Chairperson shall put the resolution to be decided at a meeting of the Board instead.

Recording in Minutes (Section 175, Sub-section (2) — Noting & Minuting)

Sub-section (2) imposes a mandatory post-passage obligation on the company. A resolution passed by circulation is not self-documenting; its existence and validity must be formally recorded.

Compliance Steps — Section 175(2):

1. Noting at Subsequent Meeting: The resolution passed by circulation must be noted at the very next meeting of the Board or the relevant committee. “Noting” means the resolution is placed on the agenda and its passage is acknowledged in the discussion/minutes.

2. Inclusion in Minutes: The resolution, together with the result (number of votes in favour and against, if any), must be made a part of the minutes of that subsequent meeting. The minutes must record: (a) the text of the resolution circulated; (b) the date of circulation; (c) the names and votes of Directors or committee members; and (d) the date the resolution was deemed passed.

3. Timing: The Act does not specify an outer time-limit between passing by circulation and noting, but best practice and secretarial standards require noting at the very next scheduled meeting of the Board or committee.

Penalty & Punishment

Where no penalty is provided elsewhere, as per Section 450, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person

For Detailed Procedure for Passing a Board Resolution by Circulation: https://1-comply.com/procedure-for-passing-a-board-resolution-by-circulation/