Experts CornerGaurav Pingle and Associates

The approval of Board of Directors and modes of obtaining such approval is one of the most critical aspects of corporate compliance management. The Companies Act, 2013 (“the Act”) provides for certain decisions to be taken by the Board of Directors in its meeting. The Act also provides for passing of resolution by circulation by the Board of Directors of the company.

According to Section 179 of the Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do. However, in exercising such power or doing such act or thing, the Board of Directors shall be subject to the provisions contained in that behalf in the Act, or in the memorandum of association or articles of association, including regulations made by the company in general meeting. Sub-section (3) of Section 179 of the Act provides for certain transactions or resolutions, wherein the Board of Directors of a company shall exercise by means of resolutions passed at Board meetings.

Section 175 of the Act relates to “passing of resolution by circulation”. This article analyses the provisions of Section 175 of the Act and provides for compliance checklist for passing of resolution by circulation. Necessary references are made to the secretarial standards issued by the Institute of Company Secretaries of India (ICSI).

  1. Meaning of “Circular Resolution”.—It is an alternative method of obtaining the approval of the Board of Directors. Section 175 of the Act creates an exception to the general rule that the Board of Directors of the company shall exercise their powers collectively by means of resolution passed at its meeting.
  2. Certain Resolutions that Cannot be Passed by Circulation.—Sub-section (3) of Section 179 of the Act and Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides for certain transactions or resolutions, wherein the Board of Directors shall exercise by means of resolutions passed in its meetings. Such transactions/resolutions are: (a) to make calls on shareholders in respect of money unpaid on their shares; (b) to authorise buy-back of securities; (c) to issue securities, including debentures, whether in or outside India; (d) to borrow monies; (e) to invest the funds of the company; (f) to grant loans or give guarantee or provide security in respect of loans; (g) to approve financial statement and the Board’s report; (h) to diversify the business of the company; (i) to approve amalgamation, merger or reconstruction; (j) to take over a company or acquire a controlling or substantial stake in another company; (k) to make political contributions; (l) to appoint or remove key managerial personnel; and (m) to appoint internal auditors and secretarial auditor. For companies incorporated under Section 8 of the Act, the board of directors may decide the following matters by circular resolution (instead of meeting): (a) to borrow monies; (b) to invest the funds of the company; (c) to grant loans or give guarantee or provide security in respect of loans. [MCA Notiifcation No. GSR 466 (E)] dated June 5, 2015].
  3. Resolutions that can be Passed by Circulation.—Any resolution other than the abovementioned resolutions can be passed by circulation by Board of Directors. The Act has not prescribed for list of transactions that can be approved by passing a circular resolution. However, the Company Secretary or Chairman of the company shall ensure the nature of resolution before proposing before the Board of Directors or Committee.
  4. Applicability.—The Board of Directors or any committee (e.g. Audit Committee, Nomination and Remuneration Committee, Corporate Social Responsibility Committee, etc.) can pass a resolution by circulation.
  5. Decision to Pass a Resolution by Circular or Not.—According to the Secretarial Standard 1, the Chairman of the Board or in his absence, Managing Director or in their absence, any director other than an interested director, shall decide whether the approval of the Board for a particular business shall be obtained by means of a resolution by circulation.
  6. Explanation of Business by Note.—According to the Secretarial Standard 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, 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.
  7. Serial Numbering of Circular Resolution.—Secretarial Standard 1 mandates serial numbering of every circular resolution.
  8. Modes of Sending Necessary Documents.—The draft resolution together with necessary papers, if any, to all the directors, or members of the committee, as the case may be, shall be sent at their addresses registered with the company. The said documents can be sent by hand delivery or by post or by courier, or through such electronic means as may be prescribed [Section 175(1) of the Act]. A resolution in draft form may be circulated to the directors together with the necessary papers for seeking their approval, by electronic means which may include e-mail or fax [Rule 5 of the Companies (Meetings of Board and its Powers) Rules, 2014].
  9. Time-Limit for Approval.—The Act has not prescribed the time-limit for providing the approval of directors or committee members. However, according to the secretarial standards, not more than 7 days from the date of circulation of the draft of the resolution shall be given to the directors to respond. Additional 2 days may be provided, where the resolution and documents have been sent by the company by speed post or by registered post or by courier. However, in certain cases, the articles of association of the company may provide for such time-limits.
  10. Approval.—The?circular resolution shall be approved by a majority of the directors or committee members, who are entitled to vote on the resolution. After the time-limit is over, it is desirable that the outcome of resolution is communicated to the directors (i.e. whether the resolution is passed or not).
  11. Voting by Interested Director.— Section 175 of the Act does not provide for any reference to a situation wherein a director is interested in a circular resolution. However, according to the Secretarial Standard 1, an interested director shall not be entitled to vote on such resolutions.
  12. Recording the Resolution in Minutes of Meeting.—Where a resolution is passed by circulation, the same shall be noted in the minutes of the subsequent meeting of the Board of Directors. As a good corporate secretarial practice, it is desirable that following points are included in the minutes of the meeting: (i) date of circulation of draft resolution and papers; (ii) cut-off date for receiving the decision of directors; (iii) names of directors giving assent/dissent or abstain from voting; (iv) names of directors, if interested in the resolution; and (v) decision –whether the resolution is passed or not.
  13. Validity of Resolution by Circulation.—According to the secretarial standards, the passing of resolution by circulation shall be considered valid as if it had been passed at duly convened meeting of the Board of Directors. However, the said compliance shall not dispense with the requirement for the Board to meet at the specified frequency as prescribed under Section 173 of the Act.
  14. Discussion at Meeting, in Exceptional Cases.—In certain cases, where not less than one-third of the total number of directors of the company for the time-being require that any resolution under circulation must be decided at a meeting, the Chairperson shall put the resolution to be decided at a meeting of the Board. As a good corporate secretarial practice, such decision taken by the directors is noted in the minutes of the subsequent board meeting.
  15. Maintenance of Certain Documents.—The Company Secretary or the Chairman may maintain records of communication received from directors of company (i.e. with respect to assent/dissent or abstain from voting).

Generally, important matters are discussed at the meetings of Board of Directors and accordingly resolutions are passed. A resolution by circulation is passed when such approval is urgent in nature and cannot be kept on hold for passing such resolution in the ensuing Board meeting. Sometimes such matters are discussed in the earlier Board meetings but a resolution to that effect is not passed. Such decisions may include extension of lease agreement, opening bank account, changing signatories of the bank account, appointing consultants, etc. The passing of circular resolution and maintenance of corporate secretarial documents in relation to the resolution is important from the perspective of secretarial audit process, statutory audit process, internal audit process and issuance of certificate by practising Company Secretary under Section 92(2) of the Act.


*Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at gp@csgauravpingle.com.

Legislation UpdatesRules & Regulations

G.S.R. 377(E)—In exercise of the powers conferred by sub-section (10) of Section 132 read with Section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules, namely:-

1. Short title and commencement – (1) These rules may be called the National Financial Reporting Authority (Meeting for Transaction of Business) Rules, 2019.

     (2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions –

(1) In these rules, unless the context otherwise requires, –

(a) “Act” means the Companies Act, 2013 (18 of 2013);

(b) “Authority” means National Financial Reporting Authority constituted under sub-section (1) of Section 132 of the Act;

(c) “chairperson” means the chairperson of the National Financial Reporting Authority appointed under sub-section (3) of Section 132 of the Act;

(d) “full-time member” means a member who has been appointed as such under sub-section (3) of Section 132 of the Act and includes the chairperson;

(e) “member” means any member, including the chairperson, so appointed under sub-section (3) of Section 132 of the Act;

(f) “part-time member” means a member other than a full-time member, appointed as such under sub-section (3) of Section 132 of the Act;

(g) “Secretary” means the Secretary of the Authority appointed under sub-section (11) of Section 132 of the Act and includes an officer of the Authority authorised by the chairperson to function as Secretary.

(2) Words and expressions used and not defined in these rules but defined in the Act shall have the same meanings as respectively assigned to them in the Act.

*Please follow the link for detailed notification: Notification


[Notification dt. 22-05-2019]

Ministry of Corporate Affairs

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal: A Bench of Justice S.J. Mukhopadhaya, Chairperson and Justice A.I.S Cheema, Member (Judicial) and Kanthi Narahari, Member (Technical) admitted the appeal filed by the All India Online Vendors Association (“AIOVA”) against the order of the Competition Commission of India, dated 6-11-2018, whereby it held that no case of contravention of the provisions of Section 4 (abuse of dominant position) of the Competition Act, 2002 was made out against Flipkart and Amazon.

AIOVA’s case

AIOVA — company registered under the Companies Act, 2013 — is a group of more than 2000 sellers, selling on e-commerce marketplaces such as Flipkart, Amazon, Snapdeal, etc. It informed the CCI regarding abuse of dominant position by Flipkart alleging that small vendors have become allies of the big vendors and suppliers to leading sellers such as Cloudtail., WS Retail, etc. on the Flipkart and Amazon platforms, rather than selling directly to consumers through the online e-commerce marketplace sites. Further, it was apprehended that unfair trade practices were being carried and corporate veil on it was required to be lifted to assess the economic nexus and the wrongdoings being committed.

CCI’s Order

The Commission vide its order dated 6-11-2018, found no contravention of the provisions of Section 4 by Flipkart. Holding that the relevant market in the instant case may be defined as “services provided by online marketplace platforms for selling goods in India”, the Commission further held that “looking at the present market construct and structure of online marketplace platforms market in India, it does not appear that any one player in the market is commanding any dominant position at this stage of evolution of market.”

Finding that Flipkart was not a dominant player in the “relevant market”, it was held that the question of abuse of dominant position did not arise. Furthermore, it was held that the information provided by AIOVA was not sufficient to substantiate the allegations against Flipkart. Though the information was filed against Flipkart, the Commission held a conference with Amazon as well as it is also a key player in the relevant market. On the same reasoning, the Commission held that no contravention of the provisions of Section 4 could be said to be made out against either Flipkart or Amazon.

Appeal before NCLAT

Aggrieved by the decision passed by the CCI, filed a company appeal before the NCLAT challenging the same. Chanakya Basa along with Nidhi Khanna, Advocates, appearing for AIOVA argued on the errors in the impugned order. Per contra, Senior Advocate Amit Sibal is representing the opposite party along with Rajshekhar Rao, Yaman Verma, Sonali Charak and Neetu Ahlawat, Advocates.

The Appellate Tribunal has admitted the appeal for hearing. The respondents have been given 10-days time to file an affidavit in reply. The appeal is further posted for hearing on 30-07-2019.[All India Online Vendors Assn. v. CCI, Company Appeal (AT) No. 16 of 2019, decided on 15-05-2019]

Legislation UpdatesRules & Regulations

G.S.R. 273(E).—In exercise of the powers conferred by Section 133 read with Section 469 of the Companies Act, 2013 (18 of 2013), the Central Government, in consultation with the National Financial Reporting Authority, hereby makes the following rules further to amend the Companies (Indian Accounting Standards) Rules, 2015, namely:—

1. Short title and commencement: (1) These Rules may be called the Companies (Indian Accounting Standards) Amendment Rules, 2019.

(2) They shall come into force on 1st day of April, 2019.


Please refer the link for the detailed notification of the said rules: Notification

[Notification dt. 30-03-2019]

Ministry of Corporate Affairs

Case BriefsSupreme Court

Supreme Court: A Bench comprising of R.F. Nariman and M.R. Shah, JJ. allowed an appeal filed against the order of Rajasthan High Court whereby it refused to transfer winding up proceedings pending before it to National Company Law Tribunal (NCLT).

The account of Jaipur Metals and Electrical Ltd. had become a non-performing asset. A reference was made to Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985 (SIC Act), which forwarded opinion to the High Court that company ought to be wound up. Ultimately, the High Court appointed official liquidator and the winding up process has begun. Meanwhile, Alchemist Asset Reconstruction Co. (financial Creditor) filed an application under Section 7 of Insolvency and Bankruptcy Code, 2016 before NCLT for initiation of Corporate Insolvency Resolution Process which was admitted. Thereafter, the High Court passed the order impugned where it refused to transfer winding up proceedings pending before it and set aside NCLT’s order. Aggrieved thereby, the appellants preferred instant appeal.

The Supreme Court perused in detail various Sections of the Companies Act, 2013 as well as I&B Code. Focus was laid on Section 434 of Companies Act, 2013 which deals with “transfer of certain pending proceedings”. Section 238 I&B Code, Rules 5 & 6 of Companies (Transfer of Pending Proceedings) Rules, 2016 were considered in detail. The Court explained, “all proceedings under Section 20 of the SIC Act pending before the High Court are to continue as such until a party files an application before the High Court for transfer of such proceedings post 17-08-2018 (when Section 434, Companies Act was amended).  Once this is done, the High Court must transfer such proceedings to the NCLT which will then deal with such proceedings as an application for initiation of the corporate insolvency resolution process under the Code.” Furthermore, the proceedings under Section 7, I&B Code application were independent which had nothing to do with the transfer of winding up proceedings. It was open to Alchemist at any time before winding up order was passed to apply under Section 7 of the Code. It was also clarified that if there is any inconsistency between Section 434, Companies Act and provisions of the Code, the latter must prevail. In such view of the matter, it was held that NCLT was correct in admitting the application. The order of the High Court was set aside and NCLT proceedings were directed to continue from the stage where they had been left off. The appeal was allowed.[ Jaipur Metal & Electricals Employee Organization v. Jaipur Metals & Electricals Ltd.,2018 SCC OnLine SC 2801, decided on 12-12-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial) dismissed an appeal filed seeking reduction in penalty imposed on the defaulting company and its Directors.

The penalty was imposed on the company and its Directors for defaulting in filing the annual return in time which attracted punishment under Section 92(5) of the Companies Act, 2013. Also, for violation of Section 137 as financial statements adopted in the annual general meeting was not filed with Registrar of Companies, punishment under Section 137(3) was attracted. The Registrar of Companies had proposed a penalty of Rs 10,64,000 on the company and Rs 10 lakhs on each of the Directors. On appellants’ (three Directors of the company) application under Section 441 for compounding of offences, the NCLT  reduced the amount of penalty to Rs 3 lakhs both for the company as well as each of the three Directors. The instant appeal was filed against this decision of NCLT for further reduction in penalty/compounding of the offences.

The Appellate Tribunal noted the submission made by the appellants the company and the Directors were not in a position to pay Rs 3 lakhs as their financial condition was not sound. In view of such submission, the Appellate Tribunal asked the Company Secretary concerned to file the statement of accounts of the Directors to support such a plea. However, the appellants did not want to disclose the respective amount available in their accounts. In such circumstances, it could not be believed that the appellants were not in a position to pay the amount or that they were bankrupt. This apart, as the NCLT had already reduced the amount of the penalty proposed by the Registrar of Companies which was just and fair, the Appellate Tribunal was not inclined to interfere in the order impugned. The appeal was dismissed holding it to be sans merit. [S.D. Bio-Tech Ltd. v. Registrar of Companies, Company Appeal (AT) No. 35 of 2018, dated 30-01-2018]