The Statutory Procedure
Section 175 permits the board to pass a resolution by circulation if the draft resolution, together with the necessary papers, is circulated to all directors or members of the committee at their addresses. The resolution must be approved by a majority of the directors entitled to vote. The approval may be given in writing or by electronic means. The resolution must be noted at the next board meeting.
The Circulation Set
The circulation must include the draft resolution and the “necessary papers”—the documents that a director would need to make an informed decision. A resolution circulated without the underlying financials, the legal opinion, or the comparability analysis is not a valid circulation. The company should maintain a record of the date of circulation, the mode of circulation, and the responses received.
What Cannot Be Done by Circulation
The Act and the rules restrict certain matters from being passed by circulation. These include: the approval of the financial statements; the board’s report; the prospectus; the annual return; the matters relating to amalgamation, merger, demerger, and restructuring; and the matters that require a board meeting under SS-1 or the Act. A circular resolution on a restricted matter is void even if all directors approve.
The “Majority of Entitled Directors” Test
The resolution must be approved by a majority of the directors entitled to vote. An interested director is not entitled to vote, and the majority is computed on the reduced pool. A resolution approved by a majority of the directors who responded, but not a majority of the directors entitled to vote, is invalid. The company secretary should compute the entitlement pool before circulating the resolution.
The Next Board Meeting Note
Every circular resolution must be noted at the next board meeting. The noting should record the resolution, the date of circulation, the approvals received, and the effective date. A resolution that is not noted at the next board meeting remains valid but the record is incomplete, and the gap may be treated as a secretarial deficiency in an audit or ROC review.
Documentation and Register
The company should maintain a resolution-by-circulation register recording the resolution number, the subject, the circulation date, the directors to whom circulated, the approvals and dissents, the effective date, and the date of noting at the board meeting. The register is the primary evidence of compliance if the validity of a circular resolution is challenged.
Call to Action: For circular resolution drafting or Section 175 procedure review, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.