Companies Act Section 175

Companies Act Section 175: Passing of Resolution by Circulation

In corporate governance, decision-making by the Board of Directors is typically conducted through meetings where members deliberate on various matters before reaching a conclusion. However, in certain circumstances where convening a formal board meeting is impractical or unnecessary, resolutions can be passed through circulation. Section 175 of the Companies Act provides the legal framework for passing resolutions by circulation, ensuring that decisions are made efficiently while maintaining accountability and compliance with the law.

Requirements for Passing a Resolution by Circulation

For a resolution to be deemed validly passed by circulation, the following conditions must be met:

1. Draft Circulation: The resolution must be circulated in draft form along with all necessary supporting documents to all directors or members of the relevant board committee. This ensures that all relevant parties have complete information before making a decision.
2. Modes of Circulation: The draft resolution and necessary papers must be sent to the directors at their registered addresses in India using one of the following prescribed methods:
Hand delivery
Postal mail
Courier services
Electronic means (such as email or any other electronic communication approved by the company’s policies and regulatory authorities)
3. Majority Approval: The resolution must be approved by a majority of the directors or committee members who are entitled to vote on it. The decision is considered valid once the majority has given their consent.
Safeguard Against Circumvention of Meetings

To prevent misuse of the circulation method and ensure that significant matters receive due deliberation, the law provides a safeguard:

If at least one-third of the total number of directors (as existing at the time) request that the resolution be discussed in a formal meeting instead of being passed through circulation, the chairperson must place the resolution for deliberation at a properly convened board meeting.
This provision ensures that crucial decisions requiring in-depth discussion are not decided hastily through circulation.

Recording and Validation of Circulated Resolutions

To maintain transparency and compliance, resolutions passed by circulation must be noted in the minutes of the subsequent board meeting or committee meeting. The following procedure is followed:

1. Formal Acknowledgment: The circulated resolution, along with the approval received from directors, must be presented at the next meeting.
2. Recording in Meeting Minutes: The resolution and the mode of approval must be recorded in the official minutes of the meeting, ensuring that it becomes part of the company’s legal records.
3. Review for Compliance: The board or committee members may review the decision, discuss any concerns, and ensure that all regulatory obligations have been met.
Advantages of Passing Resolutions by Circulation

Resolutions passed by circulation offer several benefits to corporate decision-making processes:

Efficiency: Enables quicker decision-making without requiring a formal board meeting, which is particularly useful for routine matters.
Flexibility: Allows directors to approve important decisions even when they are not physically present for a board meeting.
Cost-Effective: Reduces administrative and logistical costs associated with organizing in-person board meetings.
Continuity of Operations: Ensures that necessary decisions are taken in a timely manner without delaying business operations due to scheduling conflicts.
Limitations and Considerations

While passing resolutions by circulation is a convenient option, it comes with certain limitations:

Not Suitable for Complex Matters: Issues that require extensive discussion, negotiation, or dissenting opinions should ideally be discussed in a formal meeting rather than passed through circulation.
Limited Participation: Directors do not get the opportunity to engage in real-time discussions or debate the matter as they would in a face-to-face meeting.
Legal Challenges: If not executed properly, resolutions passed through circulation may be challenged for non-compliance with procedural requirements.