Resolutions

Four precision points, all examinable.

The test is of votes cast, not of members or of capital. A company with a hundred members may pass a special resolution on the votes of three members present, if only four vote and three vote in favour. Absentees and abstentions do not count against.

The notice must specify the intention. A resolution that would otherwise satisfy the three-to-one ratio is not a special resolution if the notice did not say it was proposed as one, and any provision requiring a special resolution is therefore unsatisfied.

The Chairman's casting vote is expressly counted in an ordinary resolution and is not mentioned in the special-resolution definition.

Proxies and postal ballots count in both, which connects this section to [Proxies and Corporate Representation]: a proxy cannot vote on a show of hands, but where he can vote his vote counts towards the majority.

Section 115: special notice

Where, by any provision of the Act or of the articles, special notice is required of a resolution, notice of the intention to move it must be given to the company by members holding not less than one per cent of the total voting power, or holding shares on which such aggregate sum, not exceeding five lakh rupees, as may be prescribed has been paid up; and the company shall give its members notice of the resolution in the prescribed manner.

Three things follow. The notice comes from members to the company, which is the reverse of the usual direction of notice. The threshold is low, one per cent, because the point is to raise an issue rather than to carry it. And the company must then pass it on to the members, so the affected person and the general body learn of it in time to respond.

The resolutions requiring special notice are found in the sections that create them, notably the removal of a director under s.169 and the appointment of an auditor other than the retiring auditor, or the express provision that the retiring auditor shall not be reappointed, under s.140 and s.190 of the earlier scheme. Each of those sections gives the person concerned a right to be heard, which is why [Voting, Poll and Postal Ballot] records that such business cannot be done by postal ballot.

Section 116: resolutions at adjourned meetings

Where a resolution is passed at an adjourned meeting of a company, of the holders of any class of shares, or of the Board of Directors, the resolution is for all purposes treated as having been passed on the date on which it was in fact passed, and shall not be deemed to have been passed on any earlier date.

The provision reverses what would otherwise be an arguable relation back to the original meeting. Its practical importance is in dating: a resolution's effect on filings, on the thirty-day period in s.117, on the validity of acts done in the interval, and on any question of who was a member or director at the relevant time, is fixed by the actual date.

Section 117: filing resolutions and agreements

117(1) requires a copy of every resolution or agreement in respect of the matters specified in sub-section (3), together with the explanatory statement under s.102 if any, to be filed with the Registrar within thirty days of the passing or making, in the prescribed manner and with the prescribed fees. A proviso requires a copy of every resolution which has the effect of altering the articles, and of every agreement referred to in sub-section (3), to be embodied in or annexed to every copy of the articles issued after the resolution or agreement.

117(2) penalises default: the company with a penalty of ten thousand rupees, and, for continuing failure, a further one hundred rupees for each day after the first, subject to a maximum of two lakh rupees; and every officer in default, including the liquidator if any, with ten thousand rupees and the same daily penalty subject to a maximum of fifty thousand rupees.

117(3): what must be filed. The section applies to special resolutions; to resolutions agreed to by all the members which, if not so agreed to, would not have been effective unless passed as special resolutions; to any resolution of the Board or agreement executed by a company relating to the appointment, reappointment or renewal of the appointment, or variation of the terms of appointment, of a managing director; to resolutions or agreements agreed to by all the members of a class of shareholders which, if not so agreed, would not have been effective unless passed by a particular majority, and to all resolutions or agreements effectively binding on all members of a class though not agreed to by all of them; to resolutions requiring a company to be wound up voluntarily passed in pursuance of section 59 of the Insolvency and Bankruptcy Code 2016; and to such other resolutions or agreements as may be prescribed and placed in the public domain.

That fifth item is worth pausing on, because it proves a point made throughout this book. The Act's own cross-reference for voluntary winding up now points at section 59 of the Insolvency and Bankruptcy Code, not at the omitted ss.304 to 323 of this Act. A student who doubts that voluntary winding up has left the Companies Act can settle it from s.117(3) alone. [Voluntary Liquidation under the IBC] takes it up.

A worked example

Konkan Marine Limited holds a meeting at which 60 members are present holding 40,000 votes in all. Three resolutions are moved.

Resolution A, to appoint a director in place of one retiring, is proposed as an ordinary resolution. On a poll, 15,000 votes are cast in favour, 12,000 against, and 13,000 abstain. It passes: the votes in favour exceed those against, and abstentions are not counted.

Resolution B, to alter the objects clause, is proposed and the notice specified that it would be moved as a special resolution. On a poll, 15,000 are in favour and 6,000 against. Three times 6,000 is 18,000, which exceeds 15,000, so the resolution fails. Had 5,000 been cast against, three times that is 15,000, and votes in favour being not less than three times those against, it would have passed. That arithmetic is exactly what an examiner tests.

Resolution C, to remove a director, is moved without any member having given the company notice of the intention to move it. It is bad for want of special notice under s.115: notice must come from members holding at least one per cent of the total voting power, or the prescribed paid-up value, and the company must then notify its members. The director's right to be heard depends on it.

The meeting is adjourned to the following week, and Resolution B is put again and carried with the required majority. By s.116 it is treated as passed on the actual date of the adjourned meeting, not on the date of the original meeting, which matters because the thirty-day filing period in s.117(1) runs from that later date.

Filing. Resolution B, being a special resolution, must be filed with the Registrar within thirty days, with the s.102 explanatory statement; and, since altering the objects does not alter the articles, the proviso requiring embodiment in the articles does not bite, though it would for a resolution altering the articles. Failure to file exposes the company to ten thousand rupees and one hundred rupees a day up to two lakh, and every officer in default to ten thousand rupees and the same daily penalty up to fifty thousand.

Distinctions

What it does NOT mean

Not seventy-five per cent of the members. The special-resolution test is a three-to-one ratio of the votes actually cast; members who do not vote are irrelevant to it.

Not effective without the right notice. Section 114(2)(a) requires the notice to specify the intention to propose the resolution as special, and s.114(1) and (2)(b) both require the notice the Act demands to have been duly given.

Not passed on the date of the original meeting. Section 116 fixes the date of an adjourned meeting's resolution at the date it was in fact passed.

Quick revision

s.114(1): ordinary, notice duly given, votes for including the Chairman's casting vote exceed votes against. s.114(2): special, intention specified in the notice, notice duly given, votes for not less than three times votes against; both counted on votes cast, in person, by proxy or by postal ballot. s.115: special notice from members holding one per cent of the voting power or shares with the prescribed paid-up value not exceeding five lakh rupees; the company then notifies members. s.116: a resolution at an adjourned meeting is passed on the actual date, not relating back. s.117(1): file with the Registrar within thirty days, with the s.102 statement; resolutions altering the articles and s.117(3) agreements to be embodied in every copy of the articles. s.117(2): company ten thousand rupees plus one hundred a day to a maximum of two lakh; officer in default, including the liquidator, ten thousand plus one hundred a day to fifty thousand. s.117(3): special resolutions; unanimous resolutions that would otherwise need to be special; Board resolutions and agreements on the appointment, reappointment, renewal or variation of terms of a managing director; class resolutions and agreements binding a class; resolutions for voluntary winding up under s.59 of the IBC; and prescribed resolutions.

Test yourself

1. State the special-resolution test exactly. The intention to propose it as a special resolution must be specified in the notice, the notice required by the Act must have been duly given, and the votes cast in favour must be not less than three times the votes cast against by members entitled and voting, in person, by proxy or by postal ballot.

2. Ten thousand votes are cast in favour and three thousand five hundred against, on a resolution properly proposed as special. Does it pass? No: three times 3,500 is 10,500, which exceeds 10,000, so the votes in favour are not "not less than three times" those against.

3. Who gives special notice, to whom, and what must the company then do? Members holding not less than one per cent of the total voting power, or shares on which the prescribed sum not exceeding five lakh rupees is paid up, give notice of the intention to move the resolution to the company, which must then give its members notice of the resolution in the prescribed manner.

4. When is a resolution passed at an adjourned meeting treated as passed? On the date on which it was in fact passed; s.116 excludes any relation back to an earlier date.

5. Which provision of the Act shows that voluntary winding up is no longer governed by the Companies Act? Section 117(3), which requires the filing of resolutions requiring a company to be wound up voluntarily passed in pursuance of section 59 of the Insolvency and Bankruptcy Code 2016.