Kinds of Resolutions under Company Act.24/12/2020
A Company being an artificial person, any decision taken by it shall be in the form of a Resolution. Accordingly, a resolution may be defined as an agreement or decision made by the directors or members (or a class of members) of a company. A proposed resolution is a motion. When a resolution is passed a company is bound by it. The resolutions could be on just about any subject in case of Board meetings since they are ultimately responsible for running the Company. The Act generally specifies the matters in respect of which resolutions are required to be passed by the members in general meetings.
Basically, there are three types of resolutions: Ordinary Resolution, Special Resolution and Unanimous Resolution.
In case of Board Meetings, there is no concept of Special Resolutions and also unanimous resolutions are required in very few cases. However, in case of general meetings, all three are covered.
Section 114 of the Companies Act, 2013 defines an Ordinary and Special Resolutions. It states:
“(1) 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.
(2) A resolution shall be a special resolution when:
(a) 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;
(b) the notice required under this Act has been duly given; and
(c) 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.”
Other than these two, there is also a concept of a unanimous resolution implying approval of all the members present and voting, without a single vote cast against it. Initially, as per Companies Act 1956 only one resolution required unanimous approval in the general meeting and the same has also been covered under section 162 (1) of the Companies Act 2013 which states that:
“At a general meeting of a company, a motion for the appointment of two or more persons as directors of the company by a single resolution shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it.”
However, in addition to above, for private companies, the Companies Act 2013 also inserts one more resolution which requires unanimous approval of all the members. As per sub-section 4 of section 5 for inclusion of “entrenchment provision” in the Articles of Association of an already existing Company, it should be “agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company.” Other than these all-other specified matters require either an ordinary or a special resolution. Let us further take a look into the maters which require ordinary and/or special resolutions as per the Companies Act, 2013.
3Types of Resolutions recognized by Companies Act
Type 1. Ordinary Resolution:
An ordinary resolution is that which is passed by a simple majority at any general meeting of the shareholders. The resolution may be passed by a show of hands or by a poll. A 21 days notice must have been given for the meeting in which such a resolution is passed. Any matters can be decided through an ordinary resolution unless the Companies Act or the Articles of the company provide otherwise.
Following are some of the matters which can be decided by an ordinary resolution:
- Approval of statutory report.
- Approval of directors report.
- Approval of final accounts.
- Declaration of dividend.
- Appointment of directors.
- Election of directors.
- Issue of shares at discount.
- Appointment of auditors and their remuneration.
- Alteration of share capital.
- Change in the rights of shareholders of any class.
- Creation of reserve fund.
- Conversion of fully paid-up shares into stock.
- Sale of the whole or part of the company’s undertaking or business.
Specimen of Ordinary Resolutions:
- Issue of shares at discount (Sec. 79). “RESOLVED that the Directors of the Company be and are hereby authorised, subject to the sanction of the court, to issue 10,000 shares of Rs. 10 each in the capital of the Company at a discount of not exceeding Rupee one per share.”
- Increase in the number of directors (Sec. 258). “RESOLVED that (subject to the approval of Central Government) the number of existing directors be increased from……………………….. to…………………… and Mr………….. and Mr…………. be and they are hereby appointed as additional directors.”
- Removal of director (Sec. 284) “RESOLVED that Mr…………………… Director of the Company regarding whose removal special notice has been received and has been duly heard as required by Section 284(3) of the Companies Act, 1956, be and is hereby removed from his office of director of the company.”
Type 2. Special Resolution:
A special resolution is one which is passed by at least 3/4th majority of the members voting on it at the General Meeting. A 21 days notice must have been given for the meeting in which such a resolution is passed. Notice calling the meeting should indicate that the resolution is intended to be proposed as a special resolution.
The main feature of special resolution is that the number of votes cast in favour of the resolution should be three times the number of votes against it.
The following are some of the matters which can be decided by a special resolution:
(1) Alteration of the name of company.
(2) Alteration of the objects of the company.
(3) Alteration of articles of association.
(4) Change of registered office from one state to another state.
(5) Reduction of share capital.
(6) Creation of reserve capital.
(7) Payment of interest out of capital.
(8) Fixing directors’ remuneration.
(9) Voluntary winding up of a company.
(10) Making the liability of directors unlimited.
(11) Application to the court to wind up the company.
(12) Appointment of inspectors to investigate the affairs of the company.
(13) To bind the company by an arrangement or compromise made.
Specimen of Special Resolution:
- Alteration of name of the company. RESOLVED that the name of the company be and is hereby altered from…………………. Limited to………………………… Limited and the Central Government be officially informed for the purpose of securing their consent of such alteration.
- Voluntary winding up of the company. “RESOLVED that the company be wound up voluntarily and that Mr……………………….. of………. be and is hereby appointed liquidator for the purpose and that this be and is hereby passed as a special resolution pursuant to Sec. 484 of the Companies Act, 1956.
- Alteration of articles of association. “RESOLVED that clause……………………………. of the Articles of Association of the Company be altered by omitting the following words therefore
and substituting instead of the following words:
Type 3. Resolution Requiring Special Notice:
The Indian Companies Act, 1956 has introduced a new type of resolution for the passing of which special notice has to be given. Some matters specified in the Act cannot be moved for discussion at 3 General Meeting unless a special notice is given to the company.
A notice containing the intention to move the resolution had to be given in such cases at least 14 days before convening the meeting in which it is proposed to be moved. The company in turn should give members the notice of that resolution at least seven days before the holding of the meeting. Such resolution may be ordinary or special resolution.
Following are some of the resolutions requiring special notice:
(1) Resolution to remove a director.
(2) Resolution to fill up a casual vacancy of the director.
(3) Resolution to appoint as Auditor a person other than the retiring person.
(4) Resolution to appoint as Director a person in place of removed director.