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Resolution in Company Law

May 1, 2024

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This article is written by Tejashree Anant Salvi. In this article, you get detailed information on resolutions in company law. This article helps you understand why resolution is an important decision-making process for a company and how the different types of resolution help the company handle the decision-making processes that can play a crucial role in the economic progress of the company. This article helps to understand how the shareholders and directors of a company play an important role in the progress of the company and in maintaining its economic health. In this article, we learn about the different types of resolutions that are mentioned in the Companies Act, 2013.

Table of Contents

Introduction

In the complex framework of Companies Law, resolution plays a crucial role in the decision-making process under the Companies Act 2013. Any decision made by a company through a resolution ensures that this decision complies with the law and the company must adhere to all rules established through resolutions. A resolution represents a decision made by the company members or directors by voting, by formal expression of their opinion, or by will. According to the Companies Act 2013, there are two types of resolutions: member resolutions and director resolutions. Member resolutions have been further categorised into ordinary resolutions and special resolutions.

A resolution is a written document that is created by the board of directors of a company. A board of directors is a group of persons who act as the governing body of a company on behalf of the shareholders of the company. The Board of Directors created a proposal for resolution and presented this proposal in front of shareholders in a meeting and shareholders gave approval for this proposal, and that resolution was passed by the company. A resolution is a legally binding decision for a company.

This article delves into the resolutions outlined in the Companies Act of 2013. From ordinary to special resolutions, and from director to member resolutions, each type holds an important role in the company’s decision-making process. In this article, we understand provisions that help in the appointment of directors, changes in the Memorandum of Association (MOA) and Articles of Association (AOA), voluntary winding of companies, producers of passing any resolution, and types of resolution. Some more provisions, like transparency in decision-making, enforcing accountability, and shareholder participation, highlight the importance of resolution under company law.

Meaning of resolution in Company Law

A company needs to make many decisions to grow its business and fulfill its legal requirements. For decision-making, the company needs to pass a resolution. A company is an artificial person created by laws; therefore, the company itself cannot make decisions. Therefore, company members, directors, and shareholders are making decisions for the company. Important decisions that impact the constitution or rules of a company require a resolution. However, at the time of making decisions for the company’s regular day-to-day operations, resolutions are not necessary, and decisions can be made without the formal process of a resolution. Resolutions play a crucial role for a company, as without passing resolutions, the company cannot make important decisions. Every company must adhere to all rules and regulations regarding resolutions; otherwise, the company may face legal action.

Under the Companies Act 2013, a resolution is a decision or agreement made by the directors, shareholders, and members of a company. When a resolution is proposed, it is referred to as a motion. Once a company completes the proper formalities regarding a motion, it becomes a resolution. After a resolution is passed, the company must act in accordance with it. When a company needs to make a major decision, it convenes a meeting of all its members. During this meeting, company members pass resolutions using various methods such as voting, expressing their will, or formally expressing their concerns.

Resolution by board

Directors of companies have the crucial power to run any company. All board members are appointed by shareholders of the company and they give power to the board of directors to take any important decisions regarding the company. But if any decision of the board of directors is wrong and reckless for any reason, this can directly affect the shareholders of the company. This is because any wrong decision can affect the business of the company, it can directly affect the share value of the company. To protect any company from all these disadvantages and to protect the interests of shareholders, the duties of directors are created in a legally binding way, and board resolution is one of the legally binding duties of the board of directors.

Passing board resolution

As per the Companies Act 2013, a board resolution is an official document of the company that formalises the decisions of the board members they take in a board meeting of the company. Under this act, Section 179 provides provisions and powers for the board of directors to pass board resolutions.

In Section 179(3)(c), the Board of Directors can issue securities, which means they can issue new shares and debentures in the company by passing a board resolution.
The board of directors can decide to borrow money on behalf of the company, but the amount they are borrowing must not exceed the amount mentioned in the AOA of the company as per Section 179(3)(d).
The board of directors can approve any financial transaction and grant a loan on behalf of the company, as per Section 179(3)(f).
The board of directors can approve investing company funds, but limits should not exceed those mentioned in the AOA of the company as per Section 179(3)(e).
The board of directors can provide approval for the merger and amalgamation of the company as per Section 179(3)(i).
The board of directors has the power to call on shareholders to pay the unpaid share amount of the company as per Section 179(3)(a).

A board resolution is a legal and written document for the company. The company board of directors makes a decision on the board resolution at the board meeting of the company. The board resolution is certified by the chairperson of the company and it must be signed by all board members who are present in the meeting. The company maintains records of every detail of the meeting as minutes of the meeting. The minutes of the meeting and the board resolution passed in the meeting are noted and preserved for future use by the company. And after finalising the board resolution by the board of directors, that resolution is a legally binding decision of the company.

As per Section 174 of the Companies Act 2013, to pass the board resolution, the company must maintain the quorum of the meeting. To maintain a quorum, the company must decide how many directors are present in the meeting and what the minimum number is for the quorum of the meeting. For example, if a company decides that the quorum for a meeting is 2, then if the company has a total of six directors, at least two directors must be present in this meeting to maintain the quorum of the meeting. The company decides the quorum for each meeting, which depends on the size of the company and the business of the company.

In a board meeting for any proposal, if members give equal numbers of votes, chairperson voting plays an important role in passing any board resolution. All board members of the company who are presented in a meeting appoint one person in between them as chairperson for the meeting. The chairperson helps the meeting go smoothly and casts their vote when the numbers of votes for both sides are equal in the meeting.

As per Section 173 of this Act, every director must get prior notice of the meeting and in that notice, they must know that they can participate in the decision-making process of the company. As per Section 118 of the Companies Act, recording minutes of every proceeding of every meeting must be maintained. Records of every proceeding of the company must be preserved. All these minutes serve as legal records of the company’s decision-making process, including passing board resolutions.

Passing of resolution by circulation

As per Section 173 of the Companies Act 2013, every company must conduct four board meetings in the year. In the board meeting, the director conducts discussions and reviews of the company’s performances, solves company policy issues, or discusses any topic related to company growth. Directors are participating in the meeting either in person or through video or audio conferencing.

In the board meeting, directors give their opinions on resolutions to decide particular matters; normally, resolutions are passed at a meeting. However, for specific matters, the company passes a special or ordinary resolution. Otherwise, the board resolution is passed by circulation for all matters of the company.

As per the Companies Act 2013, Section 175 provides provisions for the board to pass resolutions by circulation. This section must read and follow secretarial standards to pass a resolution for circulation. To pass a board resolution, a draft of the resolution, along with the required documents, is required to be circulated to all directors. This directors list includes all directors and members of the company, as well as all interested directors of the company and directors who are entitled to vote on the resolution. The company must send a draft resolution along with the necessary documents to the registered address of the directors, either by hand delivery, by post or courier, or by any electronic means like email that is approved by the majority of the directors and members.

To pass a resolution by circulation, there must be at least one-third of the total number of directors of the company required for deciding the resolution by circulation.

In addition, Section 118(10) of the Companies Act 2013 provides that every company must observe and follow the Secretarial standards regarding general and board meetings that are mentioned by the Institute of Company Secretaries of India under the Company Secretaries Act, 1980, Section 3 and this is also approved by the central government of India.

Procedures for passing Resolution by circulation

Board resolution passing by circulation need to follow Section 175 of this Act with The Companies (Meeting Of Boards And Its Power) Rules 2014 with Secretarial Standards-1

The chairperson of the board decides that the company can take any decision by passing a resolution by circulation. But if he is absent, then any managing director or any other directors, except for the interested directors, can approve that the company can take any decision by circulation.

Once a company director decides to pass a proposal by circulation, they first start making a draft of the proposal for resolution. In this draft, they must include some mandatory details like serial numbers and details of the proposal with relevant facts and the importance of the resolution, so that when the resolution reaches the directors, they can know the meaning, scope, importance, and necessity of the implications of that proposal. In this draft, they also include the concerns or interests of any director in the proposal, provided any director disclosed them earlier.

The resolution must include the last date of response, so before that, the director of the company needs to respond to the resolution and this last date must not be more than seven days from the date of circulation of the proposals. However, it must include two more days if the company sends the resolution by post or by courier to the directors.

Once the resolution is ready, the company must circulate the necessary documents with all the directors, including all the interested directors, to their registered addresses by post or email.

The company must maintain proof of documents that they are sending a draft proposal on a particular date to all the directors.

A resolution is passed when the majority of the directors provide approval for it. At least one-third of the total number of directors in the company must pass this approval. In this resolution, directors must provide their concerns in either a positive or negative manner before the date mentioned in the resolution. If the majority of directors provide positive responses to the resolution, it will be approved. If the director fails to express their concern for resolution before the mentioned date, the resolution is not passed.

After that, the company arranges a board meeting. In this meeting, the company makes note of this resolution and makes minutes of the meeting. Once they finalise the resolution in the meeting, this resolution is valid and passed by circulation.

Circulation of member’s resolution

As per Section 111 of this Act, the circulation of a member resolution is a resolution that is authorised by circulation among the members of the company. This resolution was passed when there was an urgent situation or when there were no requirements for conducting the board meeting. Company members who are eligible to call the annual general meeting can take part in a company activity. All the members who are eligible to vote must send the notice to them before the meeting. The period depends on what type of resolution they want to pass.

Which authority engaged in the circulation of a member’s resolution?

The company chairman is important for this but if the chairperson is absent, the top authority of the company is eligible to make decisions regarding resolutions by circulation and will get the approval of the board for a specific company. The company must maintain records of the meeting and all drafts and related documents must be preserved for at least three years from the date of the meeting.

In the process of member’s circulation resolution, notices and agendas are not playing an important role. Still, it is necessary to provide draft resolutions along with notices and give brief explanations in notices regarding proposals. It would be advisable to provide brief explanations for passing this resolution by circulation. There is a time limit for all the directors to respond to this notice; normally, it is seven days after delivering the draft to the directors but it depends on the urgency and necessity of the decision so the company permits time as per that requirement.

Important guidelines for circular of a members resolution

Any company cannot take advantage of this resolution by conducting a secret minimum number of board meetings.
Business-related decisions and resolutions cannot be passed by a member’s circular resolution; according to this act, they can only be passed after a properly conducted board meeting.
The committee or board of the company can only pass this member’s circular resolution. This resolution is only considered valid after the majority of directors of the company have accepted and passed it. This draft resolution is mandatory to be sent along with the necessary papers to all the members of the board, even if they do not have the power to vote.
Serial numbers must be mentioned for every circular resolution in the future to provide convenience for searching for related things.
More than 1/3 of the directors can finalise this member’s circular resolution. If there are not more than this number of directors, the company chairperson will send this resolution to the annual general meeting of the company.

Instances when a member’s resolution is passed under Companies Act, 2013

Appointment of director

In the Companies Act 2013, Section 152 provides provisions for the appointment of directors. Company members pass an ordinary resolution for the appointment of directors, primarily occurring in general meetings of the company, such as the annual general meeting or extraordinary general meetings. Sections 149, 161, and 164 of the Companies Act 2013 provide provisions for the tenure of directors, qualifications, and disqualifications for the appointment of directors. It also provides requirements for passing resolutions for the appointment of directors to ensure transparency in this appointment process.

In the case of Rajahmundry Electric Supply Corporation Ltd. v. Nageswara Rao (1955), the Madras High Court stated that the appointments of directors need to be in accordance with the provisions mentioned in the Companies Act. Shareholders must approve the decision to appoint directors through a resolution.

Alteration of MoA and AoA

In the Companies Act 2013, Section 13 provides provisions for the alteration of the MOA, which includes changing the company’s name, the object clause, and the registered address. For an alteration of the company’s MOA, shareholders of the company must pass a special resolution. Section 14 of the same Act deals with the alteration of the AOA of the company. This alteration includes the conversion of the company type, changing the rights and duties of members, amending the rules and regulations of the company, and amending the rules and regulations of the share capital of the company. This alteration is only approved after completing legal requirements and passing a special resolution by shareholders.

In 2021, Maruti Suzuki India made alterations to its MOA. In the object clause of the MOA, they made changes. These changes include modifications in sub-clause 9 in clause III(a) of the MOA. Changes include operating and maintaining Web platforms for selling, charging fees for providing these platforms for selling and offering space to third parties for advertising on web portals.

Voluntary winding up

Under the Companies Act 2013, Sections 304–323 provide provisions for the voluntary winding up of the company. But these provisions are now omitted; this process comes under the Insolvency and Bankruptcy Code 2016. For this process, the company leadership decided to conduct an annual general meeting. In that meeting, company members and shareholders passed a special resolution. As per the terms of the special resolution, it requires the consent of a minimum of 75% of shareholders or members of the company to pass this resolution for the voluntary winding up of the company. The Companies Act 2013 and the Insolvency and Bankruptcy Code 2016 govern the process of winding up the company.

Voluntary winding up is a legal process through which a company decides to cease its operation and close its business activities voluntarily. When company members and shareholders determine that the company is no longer viable or profitable, they start the process of voluntary winding up. Once the decision to wind up is made, the company sells all its assets and converts them into cash. There are two types of winding up: company winding up (voluntary winding up) and court winding up (compulsory winding up). In the first type of winding up, which means company winding up, there are two sub-types: members voluntary liquidation and creditors voluntary liquidation. In members’ voluntary liquidation, the company is solvent, and members decide to wind up. In contrast, in creditors’ voluntary liquidation, the company faces financial distress. In that situation, company members and shareholders decide to wind up for the company.

The second type is Court winding up (compulsory winding up) occurs when the company is insolvent, unable to pay debts, or violates statutory compliance. In that case, a third party decides to wind up the company, either the court or creditors of the company, who decide to close the operation of the company by winding it up. In the case of IL & FS Engineering and Construction Company Ltd. v. Government of Karnataka (2019), the petitioner, IL & FS Engineering and Construction Company Ltd., entered into a contract with the Bangalore Development Authority. However, they had disputes over the project and ended up in an arbitration process, where the arbitrator gave his decision in favor of the construction company. However, the Bangalore Development Authority did not follow this decision and failed to pay according to an arbitrary decision.

The company filed a petition in the High Court of Karnataka for the winding up of the BDA because it failed to follow the arbitration award. In court, the petitioner argued that BDA must go for compulsory winding up as they failed to implement arbitration agreements and also failed to pay the money to the construction company. But BDA says in court that the petitioner’s argument was not maintainable and that the petitioner has other remedies available. After that, the court examined whether the BDA came under the Companies Act 1956 or was registered under the Companies Act, and the court came to the conclusion that the BDA was not a registered company; it is a local authority. Therefore, the court dismissed the writ petition for winding up BDA that was filed by the petitioner.

In the case of M/S Kaledonia Jute and Fibres Pvt. Ltd. v. M/S Axis Nirman and Industries Ltd. & Ors. (2020), the second respondent filed a petition against the first respondent for winding up the company because they failed to pay the debts. The court granted results in favour of the second respondent and also appointed a liquidator. But after that, the first respondent filed an application for a recall order of the winding-up process and was ready to pay the amount to creditors but the official liquidator opposed this, saying that many creditors owed it. Meanwhile, creditors filed an application for transfer of this case in NCLT under the Insolvency and Bankruptcy Code 2016 under Section 7. The application was rejected by Allahabad High Court on the grounds that the results of winding up had already passed. Creditors filed an appeal in the Supreme Court, which held that in the process of winding up, all creditors are involved as a collective party, even if this process of winding up was started by one or more creditors. Under the Companies Act 2013, Section 434(1)(c) provides the term ‘party’. All the creditors come under this term and the official liquidator acts on behalf of the entire body of the creditors.

In this case, the Supreme Court says that the petitioner had the right to request the transfer of the winding-up process against the first respondent to NCLT. The preceding orders of the High Court of Allahabad, which rejected the transfer petition based on Rule 26 of the Companies (Court) Rule 1956, were deemed incorrect. The previous order was set aside and the process of winding-up that was being conducted in the company court (Allahabad High Court) had been ordered to be moved to the NCLT against the first respondent. This came together with the applicant’s application under Section 7 of the IBC.

Rectification of the name of the company

As per the Companies Act 2013, Section 16, the rectification process ensures that the company name conforms to the legal and statutory requirements of this law. There are several grounds for rectifying the company name, such as if the company name is similar to that of any registered company, if the company name is misleading or offensive, or if the company name does not comply with the naming rules specified.

When, for any reason, a company needs to rectify its name, the first step is to pass a board resolution. In that resolution, the company must mention a new name and the reason for changing the name of the company. After that, the company must check the availability of the new name and also ensure that the new name of the company is as per the rules and regulations mentioned in the Companies Act 2013. The company must also check that the new name is not similar to any existing registered company or registered trademark. When the company finalises its new name, it must file an application with the registrar of the company. They must fill out an application along with this information – including the old name of the company, the new name of the company, the reason for changing the name of the company, the board resolution, and the consent of the members of the company. Along with this, the company must pay appropriate fees as per the Companies Rule 2014.

Once the application is filed by the company, the registrar of companies checks the application and the information provided with the application. The Registrar of Companies also checks that the company’s new name is not similar to any company name that is already registered. If the Registrar of Companies is satisfied with the application and documents provided by companies, then the Registrar of Companies issues a certificate of incorporation with a new name, and if the Registrar of Companies is not satisfied with the application, they decline the application of companies.

Once the registrar of the company gives an incorporation certificate, the company must publish notice of the name change in newspapers that are published in the district where the registered office is situated, as well as in the official gazette. After that, the company must change its name on all official documents, including the MOA, AOA, business cards, and websites.

Types of resolution in Company Law

A resolution is a decision taken by the members of a company that includes shareholders, directors of the company, or any other members who are eligible to vote for any resolution. When members make decisions on various aspects of the company, like operations or finances, they make decisions that are important for the economic progress of the company. The process of passing a resolution starts with creating proposals for resolution that show why a specific resolution is needed for any specific company decision.

Resolutions are of several types:

Ordinary resolutions, which are used for regular matters of the company, and passing this resolution with a simple majority vote.
Special resolutions are used for taking any crucial decision of the company, and for this resolution, a high number of votes for passing it are required. Board resolution is when the board of directors decides in the board meeting of the company, This resolution covers various types of topics, like decisions on financial statements of the company or appointments of any directors, etc.

Ordinary resolution in Company Law

As per the provisions of Section 114(1) of the Companies Act, 2013, an Ordinary Resolution is one way for any decision-making process. In which a proposal is passed when the number of voters in favour of passing any resolution exceeds those against it. Voters include directors, shareholders, and eligible members of the company who are present at a meeting either in person, by proxy, or in any electronic mode that is acceptable to the company. Voters can cast their votes in different ways, such as by showing hands, using an electronic poll, or using ballot paper. However, positive votes must be more than 50% of the total number of votes.

As per the Companies Law 2013, Section 114(1) provides provisions for passing any ordinary resolution passed in the general meeting of the company. For passing this resolution, more than 50% of the members who are present in the meeting must vote for the resolution, or in the case of the passing resolution, the ordinary resolution is passed and it is binding on the company to follow the decision that is passed by any ordinary resolution. An ordinary resolution is passed for making general decisions in the company, like decisions that need to be taken in the day-to-day activities of the company.

How to pass an ordinary resolution

The first step to passing any ordinary resolution is creating proposals for resolution. Directors of a company create proposals for resolution. In those proposals, they mentioned the purpose and details of that resolution.

When a company wants to pass any ordinary resolution, it must conduct a general meeting or an annual general meeting. The company must create a notice of the meeting as per Section 101 of this Act. The company must mention the purpose of the general meeting and mention that in the meeting, the ordinary resolution process is being conducted. This notice goes to every shareholder who is eligible to present at the meeting.

The company conducts a general meeting to pass an ordinary resolution and the meeting must maintain the quorum that is decided by the company for the meeting as per Section 103 of the Companies Act 2013. In this meeting, company shareholders cast their votes, they can cast one vote for each share they hold, or as per the guidelines mentioned in the company AOA. More than 50% of votes are required to pass any ordinary resolution. Members can vote in a meeting by person, by proxy, by ballot paper, or by any electronic means that is permissible by the company or as per the articles of association of the company. However, they must ensure the voting process in the meeting maintains transparency and fairness.

As per the Companies Act 2013, Section 118, the company records minutes of the meeting. In these minutes, the company records all details of the meeting, like the quorum of the meeting, the voting process of the meeting, as well as the outcome of the voting process in meeting any appointments or reappointments that were conducted by passing an ordinary resolution. Minutes must be recorded and signed by an official authority of the company. The company must preserve these minutes for the records of the company. If a resolution is passed, it is applicable in accordance with the decisions made by the shareholders of the company. Companies must disclose the results of the ordinary resolution in their annual reports to maintain transparency in this process.

The last step in passing any ordinary resolution is documentation and filling out under Section 117 of the Companies Act 2013 for specific changes in the company, like alterations in the AoA of the company. As per this section, this copy of the resolution and the necessary documents must be submitted to the Registrar of Companies within 30 days after passing an ordinary resolution. Otherwise, the company will receive a penalty for not submitting it. The company must maintain records like proposals of resolutions, copies of resolutions, notices of meetings, and minutes of meetings to complete legal compliance as well as maintain records for future reference.

Matters requiring sanctions by ordinary resolutions

As per Section 123 of the Companies Act 2013, when a company receives profit, it provides dividends to shareholders of the company. So in that case, the company passes any ordinary resolution for taking approval from shareholders for the recommended rate of dividends that was decided by the board. This resolution finalises the rate of dividend and rate of per share dividend as per the paid-up share capital and the total amount of dividends. Section 123 provides rules and regulations for the payment of dividends and a company can only pay dividends when it makes a profit in the financial year.

Section 152 of the Companies Act 2013 provides procedures for the appointment of directors. This includes the tenure of directors, the eligibility of directors, and the cases or reasons where the company can disqualify any director before completing the time period that was decided by the company. No person can appoint a director if they do not have a Director Identification Number (DIN) as per Section 154 or any other number that is indicated in Section 153 of this act. Directors must provide their concerns to the registrar’s office within 30 days of their appointment as directors.

Directors of companies play a very important role in the decision-making process of the company as well as handling the day-to-day operations of the company. The company appoints new directors or reappoints existing directors by passing an ordinary resolution. This resolution includes the names of the newly appointed directors, the time period for directors, the remuneration of directors, and the duties that directors perform after their appointment.

Section 139 provides provisions for the appointment of an auditor for the company’s financial year. This is an important decision to ensure transparency and accuracy in the financial statements and activities of the company. Company financial statements include the profit and loss account, cash flow statements, and balance sheet of the company. The company passes an ordinary resolution for appointing any auditor. They can appoint any auditor for a particular time period. This ordinary resolution includes the area of work and provides compensation for auditors. Section 141 provides rules and regulations for the qualification of auditors and the duties of auditors, along with the process of appointing auditors.

Provisions requiring sanctions via ordinary resolution under Companies Act, 2013

Sr. No.	Section	Particulars
1.	Section 4 of Companies Act, 2013	When any company inadvertently provides the wrong information to the registrar of companies regarding its approval for the name of the company. In that case, the registrar of companies gives direction to the company to change these mistakes and the name of the company within a period of three months by passing any ordinary resolution.
2.	Section 16 of Companies Act, 2013	Any company name that is similar to any previously existing company or close to the name of the company, or if the trademark of the company is similar to that of any previously existing company. In that case, the company is directed to change its name within a 3 to 6-month time period by passing an ordinary resolution.
3.	Section 61 & Section 63 of Companies Act, 2013	The company can pass any ordinary resolution to convert company profits into fully paid-up share capital.
4.	Section 65 of Companies Act, 2013	If an unlimited company is converted into a limited company, the company needs to provide reverse share capital through any ordinary resolution.
5.	Section 73 & Section 76 of Companies Act, 2013	Under Sections 73 and 76 of the Companies Act 2013, a company can pass an ordinary resolution to decide, subject to prescribed rules in consultation with RBI regulations, on accepting deposits from its members along with specific terms and conditions. These rules and regulations encompass conditions for repayment of the deposited amount, interest rates, and the provision of security deposits, all of which are determined through ordinary resolution.
6.	Section 148 of Companies Act, 2013	A company can decide on reimbursement for cost accounting by passing an ordinary resolution.
7.	Section 161 of Companies Act, 2013	By passing an ordinary resolution, the company can appoint an alternate director.
8.	Section 169 of Companies Act, 2013	By passing an ordinary resolution, the company can remove the director.
9.	Section 192 of Companies Act, 2013	The company can stop non-cash transactions by passing an ordinary resolution.
10.	Section 196 of Companies Act, 2013	Appointment of managing directors by passing any ordinary resolution
11.	Section 197 of Companies Act, 2013	The Company can decide the maximum payment for key managerial personnel.
12.	Section 310 of Companies Act, 2013	The company can pass an ordinary resolution, and, at the time of winding up, decide on an official liquidator for the company and finalise payment to that liquidator.
13.	Section 311 of Companies Act, 2013	The company fills any vacancies by passing an ordinary resolution.
14.	Section 318 of Companies Act, 2013	Once all company members are satisfied with voluntary winding up, the company can pass a resolution for the dissolution of the company.
15.	Section 366 of Companies Act, 2013	If any company wants to be registered as a limited company, this company needs to pass any ordinary resolution with the approval of members of the company.

Special resolution in Company Law

As per Section 114(2) of the Companies Act 2013, for passing any special resolution, notice must be provided for calling the general meeting along with other important information regarding the special resolution to eligible voting members. Notice is mandatory and must be duly given to members. Voters cast their votes in the meeting by showing their hands, using postal ballots, or by any electronic means that is acceptable to the company. Only those members who are eligible and present in the meeting, either by person or by proxy, can cast their votes. However, the vote in favour of the resolution must not be less than three times the total number of votes.

Special resolution plays a very important role when making any crucial decision for the well-being of the company. When the company decides to take any decision by passing a special resolution, it means that the decision is important and can have direct consequences for the company, so the approval of shareholders for these decisions with a majority is mandatory. To pass a special resolution, three-fourths, i.e., 75% of the total members of the company, must be present and vote in a meeting. Members can give their vote either in person, by proxy, or by any electronic means as per the AOA of the company. Major numbers of votes are required to pass any special resolution because the decision taken will have a huge impact on company affairs.

A special resolution is distinct from an ordinary resolution because the decision taken by a special resolution has a major impact on the company’s structure and legal status. This decision includes a change in the MOA of the company, a reduction or increase in the share capital of the company, a decision for mergers and acquisitions with other companies, and a decision for any voluntary winding up of the company. This is a very crucial decision for the company to maintain transparency and loyalty. Section 114(2) provides the process of passing special resolutions and requirements for this process, which helps to maintain a systematic way of making any corporate decision.

Requirements for passing any special resolution under the Companies Act 2013

Notice for General Meeting

The company first creates a notice for the general meeting of shareholders. In that notice, the company mentions the purpose of the resolution proposed and why this proposal requires approval by a special resolution.

This notice is sent to all eligible members of the company at least 21 to 28 days before the conducting meeting, in accordance with Section 101 of the Companies Act 2013. This Notice contains a detailed explanation of resolution proposals and clarifies why the company wants to pass a special resolution for taking any particular decision in the company. Because they mentioned all this information to understand the member’s importance of this notice and proposals when they received the notice.

Quorum and voting

A special resolution requires major numbers of votes, so there must be at least three-fourth, i.e., more than 75% of the total number of members of the company, present in the general meeting and vote for this resolution.

Shareholders can vote either in person or by proxy, by postal ballot, or in any electronic mode that is acceptable to the company as per the AOA of the company as mentioned in Section 108 of this Act.

They can use methods for voting, such as raising their hands, using ballot paper, or by other means that apply to the company. A special resolution is necessary if more than 75% of the members are voting. Only a special resolution is passed as per Section 114 of the Companies Act 2013.

Rules and regulations

The company must follow strict rules and regulations for special resolutions that are mentioned in the Companies Act 2013 as well as in the Articles of Association of the company to ensure the legitimacy and applicability of the special resolution. Rules and regulations ensure that the decision-making process is maintained within a legal framework, taking care not to hamper the interests or rights of shareholders and to maintain fairness in the decision-making process of corporate governments.

Minutes of the meeting

The company must maintain minutes of the meeting and record the proceedings of the general meeting in which a special resolution is proposed and passed. Minutes must be noted for the discussion, decision, and voting results of this meeting for the legal records of the company as per Section 118 of the Companies Act 2013.

Filing with ROC

As per Section 117 of the Companies Act 2013, a company is required to file special resolutions and related documents with registered companies within the appropriate timelines, This ensures the transparency of important company decisions and makes those decisions accessible to stakeholders and regulatory authorities, which increases the validity and legality of the decision.

Provisions requiring sanctions via special resolution in the Companies Act 2013

Sr. no	Section	Particulars
1.	Section 12	When a company wants to change its registered office outside the limits of a city or town, it needs to pass a special resolution.
2.	Section 13	If a company wants to make changes to the MOA, it needs to pass a special resolution.
3.	Section 41	The company needs to pass a special resolution for issuing global depositary receipts.
4.	Section 54	To issue sweat equity shares, they need to get approval by passing a special resolution.
5.	Section 62	A resolution passed for defining terms and conditions for issuing debentures that can be converted in the future to shares.
6.	Section 66	The company wants to do the reduction in share capital but must get approval by passing a special resolution.
7.	Section 71	As per Section 71, if a company wants to issue debentures that can be converted into shares, it needs to pass a special resolution and obtain approval from shareholders.
8	Section 140	The company can pass a special resolution for the removal of its auditor.
9.	Section 149(1)	As per this section, a special resolution helps in the appointment of more than 15 directors for the company.
10.	Section 149(10)	The company reappoints any previous independent director for 5 years by passing a special resolution.
11.	Section 165	Company members can act as directors by passing special resolutions.
12.	Section 180(2)	Special resolutions impose limits on the power of the board in a company, like borrowing powers.
13.	Section 186	A special resolution was beneficial for keeping records of loans and investments in the company.
14.	Section 188	When a company wants to enter into any contract that includes paid-up share capital, it will need to pass a special resolution.
15.	Section 196(3)	A special resolution helps to appoint a manager and managing director of the company, and if the company wants to appoint someone over 70 years old, it needs to get approval by passing a special resolution.
16.	Section 210	When a company wants to invest in any company, it must provide information regarding that company to the central government. For this, the company needs to pass a special resolution.
17.	Section 271(1)(b)	If a company needs to wind up and dissolve through a tribunal, it must pass a special resolution for the dissolution.
18.	Section 304	The company needs to pass a special resolution for the voluntary winding up of the company.
19.	Section 219	Company liquidators get the power to accept shares of the company with the help of a special resolution of the company.
20.	Section 347	When any company is winding up its operations and they need to destroy the books of accounts and documents of the company, they need to get approval from shareholders by passing a special resolution.

Matters requiring sanctions by special resolutions

Section 12(5) of the Companies Act 2013 provides provisions for procedures for changing the registered address of the company. This process requires approvals from regulatory bodies and also requires the filing of some documents, as mentioned in Section 12(5).

The company passed a special resolution for these because this decision can directly affect company compliance, so in that case, a special resolution is required to be more than 75% of the total number of members who vote for this proposal and pass this resolution. A company can change its registered address from one district to another district or from one state to another state with the same jurisdiction as the registrar of companies.

Section 180 of the Companies Act 2013 states that borrowing powers exceeding paid-up capital and free reserves include which company sets aside for any specific purpose those reserves of the company. It is mandatory to pass a special resolution. Passing a resolution by a huge vote, like more than 75% of the members voting, ensures the safety and importance of financial decisions taken by the board and shareholders. This decision can directly affect the financial stability of the company so there is a need for a higher number of voters to approve it. The reason behind this is that laws and regulations aim to prevent unlimited borrowings and enhance the quality of corporate governance so that it does not create any harm to shareholder protection and also maintains the integrity of the company.

Section 188 of the Companies Act 2013 deals with related party transactions. Related party transactions, which include transactions between the company and its related party, are mentioned as related party transactions. Doing any sale, purchase, or supply of any materials or goods or taking any services like selling or buying any kind of property or appointing any person as an agent in the company all of these transactions come under related party transactions. Related parties may include business affiliates, shareholder groups, subsidiaries, and minority-owned companies.

As per the rules, the company board approved this transaction and ensured there were no biased decisions. The company also gets approval from shareholders through a special resolution passed at a general meeting. This special resolution ensures fairness, clarity, and approval from shareholders. The company must maintain records of this transaction in its financial statements to keep this process fair. If any company fails to follow these rules, it can receive penalties.

As per Section 13 of the Companies Act 2013, changing the MOA of the company means making changes in fundamental aspects of the company, such as changing the company name, changing the registered office of the company, changing the object clause of the company or changing the share capital clause of the company. If a company wants to alter its MOA, it must get approval from shareholders. By passing a special resolution, they ensure that they are getting consent and approval from shareholders. To change the MOA of the company, they must obtain permission and approval from the registrar of companies. Once the registrar of companies approves the alteration of the MOA, it is legally binding and will govern company activity in the future.

In the case of Reckitt Benckiser (India) Private … v. State of H.P. & Another, on February 29, 2020, Petitioner Reckit Benckiser, a company situated in Himachal Pradesh, applied to change its name in revenue records. The company applied to change its name from a public company to a private limited company under Section 13(2) of the Companies Act 2013. However, the government of Himachal Pradesh charged stamp duty and registration fees on the value of assets transferred due to the name change of the company.

But in this process, there was only a name change, not a transfer of property, so the petitioner challenged this decision in the high court of Himachal Pradesh. The petitioner argued in court that no stamp duty or registration fees were payable on a conversion of the name of the company, as there was no transfer of property in this process. The state government of Himachal Pradesh asserted that the conversion from a public company to a private limited company was applicable for stamp duty under Section 3 of the Indian Stamp Act of 1899.

The High Court of Himachal Pradesh rejected the argument of the State Government of Himachal Pradesh that the name change process was not applicable for any stamp duty or registration fees. This argument was not legally and factually sustainable and was quashed by the High Court and set aside. The respondents were instructed to update the petitioner’s changed name in the revenue records within six weeks. So this allowed the petitioner to get the right authority that he needed under Section 118 of the Himachal Pradesh Tenancy and Land Reforms Act 1972, and the petitioner obtained relief in this case.

Section 62 of the Companies Act 2013 provides provisions for the issue of new shares in companies. A company can issue new shares to increase its capital and gift these shares to employees by using Employee Stock Option Plans (ESOPs). The company passed a special resolution for deciding and getting approval from shareholders for issuing new shares, determining the price of each share, and giving authority for issuing new shares. That resolution ensures that issuing new shares is only used for increasing the share capital of the company or gifting to employees and does not hamper any rights or privileges of existing shareholders of the company.

Differences between ordinary resolution and special resolution

Ordinary resolution in Company Law	Special resolution in Company Law
Ordinary resolutions are passed by a simple majority; there are not more than 50% of the members of the company who are required to vote for passing this resolution.	A special resolution is passed by a higher majority, like 70% to 90% of the members of the company, who must vote for it to be passed.
Ordinary resolutions are passed for the daily activities of the company, like finalising the annual budget of the company or appointing any new board members in the company.	A special resolution is passed for some crucial matters like amalgamation or merger of companies or changes in memoranda of association or articles of association of companies.
Any ordinary resolution does not require advance notice; in the annual general meeting, an ordinary resolution can be passed by the company.	A special resolution needs to give advanced notice to every person who is eligible to vote on this resolution. A specific time is decided, and the person must send notice according to that.
Members can give their vote for an ordinary resolution by hand or by proxy; there is no need for any secret ballot method for voting.	For special resolution, there is the exact opposite method for voting; they use the ballot paper or by proxy but they mostly do not use an open voting process.
Ordinary resolutions do not need to maintain a specific quorum.	For a special resolution, there is a need to maintain a specific number of quorums.
Any ordinary resolution is passed by the board of directors or shareholders of the company.	A special resolution is normally passed by the shareholders of the company.
Passing any ordinary resolution does not require any legal or regulatory approval.	Passing a special resolution required legal and regulatory approvals.
If a company wants to make changes to its AOA or MOA, it cannot do so by passing an ordinary resolution.	The company can make changes to the AOA or MOA by passing a special resolution.

Important provisions for resolution as per the Companies Act, 2013

Section 116 of Companies Act, 2013

Section 116 of Companies Act, 2013 contains provisions for a resolution passed at an adjourned meeting by the board of directors of the company. The passing date of the resolution is considered the date of the passing resolution; it is not any other date or any earlier date. Where any resolutions are passed at any adjourned meeting, the resolution passed on a specific day is considered the passing date of the resolution, not any earlier date. A resolution that is passed in an adjourned meeting is valid and legally binding from the date on which it is passed. If the company takes any decision or action on the basis of a resolution passed in an adjourned meeting, it is valid and applicable from that specific date when the resolution is passed. The company can adjourn any board meeting if a quorum cannot be maintained, as specified in the articles of association of the company. The meeting will be adjourned on the same day in the following week, at the same place and time and if adjourned meeting days have national holidays, the next day meeting will be conducted as per Section 174(4) of the Companies Act 2013.

Section 117 of Companies Act, 2013

The company must file a copy of every resolution or copy of any agreement as mentioned in Section 117(3), along with explanatory documents that are mentioned in Section 102 and a notice of meeting that includes proposals for resolution, before completing thirty days of passing any resolution as per Section 403, which is the time period for this, along with the necessary fees as provided. As per Section 117(2), if a company is not able to file all these requirements or the resolutions that are mentioned in Section 117(1) before thirty days of passing any resolution, they can receive a fine of up to 5 lakh rupees and it can go up to 25 lakh rupees. Every officer of the company, including the liquidator, can get a fine of up to 1 lakh rupees and it can go up to 5 lakh rupees. They can receive a penalty of 50 thousand rupees and if they continue to fail, they get a penalty of 5 hundred rupees daily, which can get up to 3 lakhs.

For example, ABC Pvt Ltd. called any annual general meeting and passed any special resolution in the meeting for relocating the registered office of the company, which means making changes in the AOA of the company. In that case, as per Section 117, the company must fill out this resolution along with some necessary documents, like an explanatory statement, that were annexed to the notice of the meeting and to the register of the company within 30 days of passing this resolution. The company received a fine of up to 5 lakh rupees and it can go up to 25 lakh rupees. Every officer of the company, including the liquidator, can get a fine of up to 1 lakh rupees and it can go up to 5 lakh rupees.

Section 118 of Companies Act, 2013

Every company, as per Section 118 of this Act, must create minutes of each proceeding of the company, like every general meeting, shareholder or creditors meeting, resolution passed by postal ballot, board meeting, or every committee of the board that takes any decisions. All these proceedings must be recorded in the form of minutes and signed by companies, and this must be done before 30 days of the conclusion of every such meeting. There is a need to preserve a postal ballot for this resolution by adding serial numbers to it for the records of the company.

Minutes of meetings shall be maintained in correct and transparent ways because they are legal evidence and records for the company. In these minutes from all these meetings, if the company passed a resolution and appointed directors, and auditors or removed any directors, then that must be recorded in the minutes. In the case of board meetings, they must record the name of the board of directors who are presented in the meeting and each detail of the meeting, like which resolution was passed in the meeting and whether any appointment of any person was conducted in the meeting. Some things need not be added to the minutes, like any defamatory statements regarding any person or any irrelevant or irrelevant things, and proceeding with regulatory seeking.

As per Section 118(6), company directors have the right to decide what can be added to the minutes and what can be avoided in the minutes. Only when minutes of the meeting are properly recorded as per the rules and regulations mentioned in this Act are they considered valid. The minutes must record all the discussions in the meeting as well as every decision and appointment that happens in the meeting, like the appointment of directors, auditors, or the removal of any key managerial person. All these records must be maintained in the minutes of the meeting. For the general meeting and board meeting, the company needs to follow rules and regulations that are set by the Institute of Company Secretaries of India and the central government of India. If any person tampers with the minutes of the meeting, he shall be punishable with imprisonment for two years and get a fine between twenty-five thousand and one lakh rupees.

Conclusion

In this article, we see the importance of company resolution in corporate governance. The company is making progress on the basic decisions taken by the company members. Which means shareholders and directors of the company. Making decisions for a company is a very crucial process because one wrong decision can harm the economic progress of the company. To avoid this, the company must follow the rules and regulations for making decisions. This resolution is a process that helps to make decisions in the right way.

Resolution is a vital concept that requires many factors for deciding whether any specific types are required for a particular decision. By passing a resolution, the company can change its legal statutes, make any alteration in its MOA, or AOA, or make any appointments, or removal or reappointments for any position in the company. The decision taken by resolution ensures that the decision is fair, transparent, legally valid, and binding on the company.

Frequently Asked Questions (FAQs)

How many types of resolutions come under the Companies Act 2013?

Under the Companies Act 2013, there are two types of resolutions one is a member resolution and the other is a director’s resolution. Member resolutions have two sub types- ordinary resolutions under Section 114(1) and special resolutions that come under Section 114(2) of this Act.

What are the differences between ordinary resolution and special resolution?

As per the Companies Act 2013, Section 14(1), it provides provisions for an ordinary resolution that is passed by a simple majority of votes. As per Section 14(2), a special resolution is passed by a large number of votes, like three-fourths or more than 75% of the total members of the company.

What is the role of the board of directors in passing any resolutions?

The board of directors creates a proposal of resolutions and presents resolutions in front of shareholders in a general meeting to take concerns from them. Generally, they are drafting and presenting resolutions as per the company’s strategic objectives and interests.

What is the concept of quorum and why is it important in corporate governance?

As per Section 103 of the Companies Act 2013, quorum means the minimum number of directors that must be present in a meeting to make the meeting valid. They can present as a person, by proxy, or by any electronic form like video or audio call, as permitted by the company. This provision applies to all companies, including public and private companies. Quraum is decided for each meeting by the company; it can depend on the size of the company or what type of business is conducted by the company.

References

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