Resolutions in a Board Meeting and General Meeting

Introduction

A company is an artificial person as we all know, having an identity separate from the members or the directors. However, since it is an artificial person it requires the Board of Directors (“BOD”) or the members to take decisions on its behalf. These decisions can be in the form of day to day decisions or bigger decisions such as taking a loan or entering into a merger etc.

The decisions are either taken in a Board Meeting (“Board Meeting”) held among the BOD or in a General Meeting (“General Meeting”) held among the members of the company.

Types of Resolutions

Ordinary Resolutions

As per the provisions of Section 114 (1) of the Companies Act, 2013 (“Act”)-

A resolution shall be an ordinary resolution if the notice required under this Act has been duly given and it is required to be passed by the votes cast, whether on a show of hands, or electronically or on a poll, as the case may be, in favour of the resolution, including the casting vote, if any, of the Chairman, by members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast against the resolution by members, so entitled and voting.

This resolution is passed by a simple majority and simply means that the votes cast in favour of the resolution are higher than the ones against it.

Some of the matters requiring ordinary resolutions are –

1. Where Registrar directs to change the name of the company within 3 months
2. Alteration of Memorandum of Association (increase /consolidate/ sub-divide/ convert/ cancellation of share capital)
3. Where Central Government direct to change the name of the company within 3/6 months
4. Capitalization of company profit or reserves to issue fully paid bonus shares
5. Accepting deposits from public
6. Ordinary Business transacted at Annual General Meeting (“AGM”) only. “Ordinary Business” means business to be transacted at an AGM relating to (i) the consideration of financial statements, consolidated financial statements, if any, and the reports of the BOD and auditors; (ii) the declaration of any dividend; (iii) the appointment of directors in the place of those retiring; and (iv) the appointment or ratification thereof and fixing of remuneration of the Auditors.
7. Contribution to charitable trust in excess of 5 % of its Average Net Profit for 3 immediately preceding financial years
8. Appointment of Managing Director, Whole Time Director, Manager, subjected to provision of Section 197. Along with remuneration to be paid to directors.

Special Resolutions

As per the provisions of Section 114 (2) of the Act –

A resolution shall be a special resolution when-

• the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution;
• the notice required under this Act has been duly given; and
• the votes cast in favour of the resolution, whether on a show of hands or electronically or on a poll, as the case may be, by members who, being entitled so to do, vote in person or by proxy or by postal ballot, are required to be not less than three times the number of the votes, if any, cast against the resolution by members so entitled and voting.

The key considerations for passing a special resolution are –

1. The notice duly specified the intention to propose a resolution as a special resolution.
2. Notice was given as required by the Act.
3. The votes cast in favor of the resolution shall not exceed three times the total vote cast by members against the resolution. In other words, the resolution is adopted with 75% of the valid votes.

Some of the matters that require special resolution are –

1. Alteration of Article of Association while converting from Private Limited to Public Limited and Vice Versa
2. To change the Registered office of the company outside the Local limits of the city, town or village
3. For Alteration of Memorandum of Association and Article of Association of the Company
4. For issuing further shares to Employees of the Company under the scheme of Employee Stock Option Plan & to determine the terms of issuing Debentures convertible into shares
5. Reduction of share capital and buyback of shares
6. To issue debenture convertible into shares, wholly or partly
7. Restriction on power of board
8. To make an application to Registrar for striking off the name of company
9. Approval of scheme of Merger and Amalgamation

Process of passing resolutions

The resolution is proposed as a ’motion’. A motion becomes a resolution only after the requisite majority of members have adopted it. A motion should be in writing and signed by the mover and put to the vote at the meeting by the chairman. In case of company meetings, only such motions are proposed as are covered by the agenda. However, certain motions may arise out of the discussion and may be allowed where no special resolution is mandated in the Act. Para 7.1 of Secretarial Standard 2 provides that every resolution shall be proposed by a member and seconded by another member.

The motion under consideration can be amended during the debate. An alteration is any change of a member’s essential motion until it is voted on and adopted. A member who has not previously spoken on the main motion or has not previously moved an amendment may suggest an amendment, but a formal motion cannot be amended.

The chairman can consider or reject an amendment for different reasons such as inconsistency, duplication, irrelevance, etc. When an amendment is passed, the key motion is adopted and seconded and the discussion on the amendment begins. Anyone who has already spoken on the main motion may speak on amendment, but nobody is permitted to talk on the same amendment twice. After detailed consideration of the proposal, it will be put to the ballot. When the amendment is approved, it shall be included in the central motion form.

General Meeting

The Secretarial Standard 2 issued by the Institute of Company Secretaries of India and approved by the Central Government governs the compliance requirement for General Meetings. Adherence by a company to Secretarial Standard is mandatory, as per the provisions of the Act.

The Act read with the Companies (Management and Administration) Rules, 2014 deals with the convening of AGM. It makes it compulsory to hold an AGM to discuss the yearly results, Auditor’s appointment and other such matters.

Convening a General Meeting

The BOD shall, every year, convene or authorise convening of a meeting of its members called the AGM to transact items of Ordinary Business specifically required to be transacted at an AGM as well as Special Business (“Special Business” means business other than the Ordinary Business to be transacted at an AGM and all business to be transacted at any other General Meeting.), if any.

The BOD may also, whenever it deems fit, call an Extra-Ordinary General Meeting (“EGM”) of the company.

Notice in writing of every meeting shall be given to every member of the company. Such notice shall also be given to the Directors and Auditors of the company, to the Secretarial Auditor, to Debenture Trustees, if any, and, wherever applicable or so required, to other specified persons.

Notice shall clearly specify the nature of the meeting and the business to be transacted thereat. In respect of items of Special Business, each such item shall be in the form of a resolution and shall be accompanied by an explanatory statement which shall set out all such facts as would enable a member to understand the meaning, scope and implications of the item of business and to take a decision thereon. In respect of items of Ordinary Business, resolutions are not required to be stated in the notice.

Notice and accompanying documents shall be given at least twenty-one clear days in advance of the meeting. The day of sending the notice and the day of meeting shall not be counted. Further in case the company sends the notice by post or courier, an additional two days shall be provided for the service of notice. In case of a private company, the period of sending notice including accompanying documents shall be as stated above, unless otherwise provided in the articles of the company.

A resolution shall be valid only if it is passed in respect of an item of business contained in the notice convening the meeting or it is specifically permitted under the Act.

Every company shall hold its first AGM within nine months from the date of closing of the first financial year of the company and thereafter in each calendar year within six months of the close of the financial year, with an interval of not more than fifteen months between two successive AGMs.

Passing of resolution by Postal Ballot 

Every company, except a company having less than or equal to two hundred members, shall transact items of business as prescribed, only by means of postal ballot instead of transacting such business at a General Meeting.

As per section 110 of the Act –

(1) A company 

(a) shall, in respect of such items of business as the Central Government may, by notification, declare to be transacted only by means of postal ballot; and 

(b) may, in respect of any item of business, other than ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting, transact by means of postal ballot, in such manner as may be prescribed, instead of transacting such business at a general meeting. 

(2) If a resolution is assented to by the requisite majority of the shareholders by means of postal ballot, it shall be deemed to have been duly passed at a general meeting convened in that behalf.

The following shall be passed only by a postal ballot –

1. Alteration of the objects clause of the Memorandum and in the case of the company in existence immediately before the commencement of the Act, alteration of the main objects of the Memorandum
2. Alteration of Articles of Association in relation to insertion or removal of provisions which are required to be included in the Articles of a company in order to constitute it a private company
3. Change in place of Registered Office outside the local limits of any city, town or village
4. Change in objects for which a company has raised money from public through prospectus and still has any unutilised amount out of the money so raised
5. Issue of shares with differential rights as to voting or dividend or otherwise
6. Variation in the rights attached to a class of shares or debentures or other securities
7. Buy-back of shares by a company
8. Appointment of a director elected by small shareholders
9. Sale of the whole or substantially the whole of an undertaking of a company or where the company owns more than one undertaking, of whole or substantially the whole of any of such undertakings.
10. Giving loans or extending guarantee or providing security in excess of the limit specified.
11. Any other resolution prescribed under any applicable law, rules or regulations.

The Board may however opt to transact any other item of Special Business, not being any business in respect of which directors or auditors have a right to be heard at the meeting, by means of postal ballot. Ordinary Business shall not be transacted by means of a postal ballot.

The results of the voting done through postal ballot shall be declared with details of the number of votes cast for and against the resolution, invalid votes and whether the resolution has been carried or not, along with the scrutiniser’s report shall be displayed for at least three days on the Notice Board of the company at its Registered Office and also be placed on the website of the company, in case of companies having a website. The resolution, if passed by requisite majority, shall be deemed to have been passed on the last date specified by the company for receipt of duly completed postal ballot forms or e-voting.

Board Meeting 

The Secretarial Standard 1 issued by the Institute of Company Secretaries of India and approved by the Central Government governs the compliance requirement for Meetings of the Board of Directors. Adherence by a company to this Secretarial Standard is mandatory, as per the provisions of the Act.

As per Section 173 of the Act states that –

Every company shall hold the first meeting of the BOD within thirty days of the date of its incorporation and thereafter hold a minimum number of four meetings of its BOD every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board.

The BOD of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the board by simple majority, namely:—

1. to make calls on shareholders in respect of money unpaid on their shares;
2. to authorise buy-back of securities under section 68;
3. to issue securities, including debentures, whether in or outside India;
4. to borrow monies;
5. to invest the funds of the company;
6. to grant loans or give guarantee or provide security in respect of loans;
7. to approve financial statement and the board‘s report;
8. to diversify the business of the company;
9. to approve amalgamation, merger or reconstruction;
10. to take over a company or acquire a controlling or substantial stake in another company;
11. any other matter which may be prescribed

The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—

1. to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
2. to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation;
3. to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company‘s bankers in the ordinary course of business:
4. to remit, or give time for the repayment of, any debt due from a director.

Passing of Resolution by Circulation

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.

Illustrative list of items of business which shall not be passed by circulation and shall be placed before the Board at its Meeting

General Business Items

1. Noting minutes of meetings of audit committee and other committees.
2. Approving financial statements and the board’s report.
3. Considering the compliance certificate to ensure compliance with the provisions of all the laws applicable to the company.
4. Specifying list of laws applicable specifically to the company.
5. Appointment of secretarial auditors and internal auditors.

Specific Items

1. Borrowing money otherwise than by issue of debentures.
2. Investing the funds of the company.
3. Granting loans or giving guarantee or providing security in respect of loans.
4. Making political contributions.
5. Making calls on shareholders in respect of money unpaid on their shares.
6. Approving remuneration of Managing Director, Whole-time Director and Manager.
7. Appointment or removal of Key Managerial Personnel.
8. Appointment of a person as a Managing Director / Manager in more than one company.
9. In case of a public company, the appointment of Director(s) in casual vacancy subject to the provisions in the Articles of the company.
10. According sanction for related party transactions which are not in the ordinary course of business or which are not on arm’s length basis.
11. Sale of subsidiaries.

Voting in a General Meeting 

An equity shareholder has the right to vote for every motion. However, as per the Section 47 of the Act preference shareholder is entitled to vote only for a resolution pertaining to his rights.

Methods –

1. Show of hands –

As per Section 107, a resolution put to the vote of the meeting shall, unless a poll is demanded under section 109 or the voting is carried out electronically, be decided on a show of hands.

2. Polls –

As per Section 109 a poll may be demanded by such number of members holding, shares worth minimum value of Rs. Five Lakh or 10% voting power in the company.

Every member entitled to vote on a resolution and present in person shall, on a show of hands, have only one vote irrespective of the number of shares held by him. A member present in person or by proxy shall, on a poll or ballot, have votes in proportion to his share in the paid up equity share capital of the company, subject to differential rights as to voting, if any, attached to certain shares as stipulated in the Articles or by the terms of issue of such shares. Preference shareholders have a right to vote only in certain cases as prescribed under the Act. In case of a private company, the voting rights shall be reckoned in accordance with this para, unless otherwise provided in the Memorandum or Articles of the company.