COMPANY LAW

RESOLUTIONS- CRITICAL ANALYSIS THROUGH

ANALOGY

SUBMITTED BY

NARGEES BASHEER

ROLL NO 1368

V SEMESTER

THE NATIONAL UNIVERSITY OF

ADVANCED LEGAL STUDIES
 RESOLUTIONS - CRITICAL ANALYSIS THROUGH ANALOGY

A company being an artificial person, all decisions regarding its running are taken in the form of
resolutions. A resolution may be defined as an agreement or decision made by the directors or
members of a company. A proposed resolution is a motion and is binding on the members once
passed. Resolutions by board member may pertain to any subject as the board members are
ultimately responsible for the decisions they make. In the case of general meetings, the
Companies Act has specifically laid down the matters in respect of which resolutions have to be
passed. Resolutions are of two types – ordinary and special. Section 114 of the Companies Act
defines Ordinary and Special Resolutions. The Section defines an ordinary resolution as one
which is required to be passed by the votes cast by the members in favour of the resolution such
that the votes cast in favour exceed those that are cast against the passing of the resolution. A
special resolution is one which has been notified to be so and has been passed by a cast of as
many favourable votes as is not less than three times the number of votes cast against the
resolution.

Ordinary resolutions usually deal with the internal management of the company, third parties
will not as a rule be involved and registration is not a prerequisite for their coming into force. In
addition, the legislature does not expressly forbid resolutions passed by informal assent. The so-
called principle of unanimous assent should not be extended to cover circumstances where
special resolutions are required by the legislature.1

Questions have arisen as to whether a resolution is valid only if passed in the original form.
However, the Court has held that a need for amendment may genuinely arise and the same
should be allowed within reasonable limits2.Where there is scope for amendment of substantive
nature, the same should be notified in the notice. Changes pertaining to grammar and language
used is permissible.

Filing resolutions with the ROC is an important step in the case of certain resolutions under
section 117 of the Act. The section imposes severe fine as well in the instance of not filing the

1
J. S. A. Fourie, Unanimous Assent and Special Resolutions, 96 S. African L.J. 263 (1979).
2
Moorgate Mercantile Holdings Ltd, re, (1980) 1 WLR 227
resolutions as required. Special resolutions, resolutions which have been agreed to by all the
members of a company, but which, if not so agreed to, would not have been effective for their
purpose unless they had been passed as special resolutions and any resolution of the Board of
Directors of a company or agreement executed by a company, relating to the appointment, re-
appointment or renewal of the appointment, or variation of the terms of appointment, of a
managing director are examples of resolutions that need to be filed under this section. Section
115 provides for the resolutions which require special notice. According to this provision, where
it is required by the Act or the Articles of a company that special notice is to be given, notice
regarding the intention to move the resolution shall be given to the company by such number of
members holding not less than one per cent. of 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 such manner as may be
prescribed.

A resolution passed in a board meeting or a general meeting can be rescinded in a subsequent

meeting but cannot be rescinded in the same meeting. Rescission can be by way of passing of a
fresh resolution. As decided in Cawley & Co. in re3., a resolution already recorded and signed in
the minute book can be rescinded or varied by passing a fresh resolution modifying the earlier
resolution. In some situations, rescission of a resolution may not be permissible if it will lead to a
fraudulent activity. Rescission of a resolution cannot be given a retrospective effect. It operates
from the day the resolution to rescind the earlier resolution is passed. Therefore, the original
resolution stands valid from the day it was passed till the passing of the rescinding resolution and
any action taken by the company relying upon the original resolution during that period will bind
the company. The Companies Act does not provide for rescission of resolutions. However, the
same may be deemed as a right of the directors or members. In Amison Foods Limited And Ors.
vs Registrar Of Companies4, it was held that the original resolution was valid till it was rescinded
and that according to the original resolution the company was liable to file with the registrar
notice intimating increase in share capital along with the prescribed fee though the capital was
subsequently reduced and the original resolution rescinded in a subsequent resolution. Where the

3
[L.R.] 42 Ch.D. 209
4
2001 103 CompCas 846 Ker
mere passing of a resolution creates vested rights in favour of a person or class of persons, such
resolutions can be cancelled either with the consent of the affected class or sanction of the court.

Although it is desirable that two or more resolutions be moved separately, there is nothing
against choosing to move them together. Where a resolution that is otherwise valid is combined
as a part of the same transaction with an invalid resolution, the whole transaction would be void.

To draw a parallel between the Companies Act, 2006 of the UK and the Companies Act 2013, of
India, the Indian law having a common law origin has displayed many features of its English
counterpart. However, differences are notable. The English law has done away with the need of
holding and Annual General Meeting every year through the 2006 Act. The Act provides a
simple and far-reaching system for taking decisions within private companies by written
resolutions rather than by resolutions passed at a meeting of the shareholders. This method for
taking shareholder decisions is automatically available to all such companies and for all
decisions put to its members, whether under the Act or otherwise. However, for the removal of a
director or an auditor before the expiration of their period of appointment the mode of written
resolution cannot be resorted to. Under the Indian law, it is compulsory for every company to
call at least one meeting of its shareholders each year under Section 96 of the Act. In case of
non-compliance with this provision, any member can apply to the Tribunal and the latter will
order the calling of a meeting. It is also an offence punishable with fine. In Sree Meenakshi Mills
Co Ltd v Registrar of Joint Stock Companies5, the court held that “there should be one meeting
per year and as many meetings as there are years”.

Under the Indian Companies Act, maximum number of directors can be 15 and can be
increased if special resolution has been passed in General Meeting whereas in UK Act there is no
statutory maximum number of directors.

As per Section 161(2) A company may appoint an alternate director, if the articles confer such
power on company or a resolution is passed (if a Director is absent from India for at least three
months) whereas there is no such provision in the Act authorising a director to appoint an
alternate to act on their behalf in their absence, so alternates may be appointed only if the articles
specifically provide for this.

5
AIR (1938) Mad 640
The rule laid down in Foss v Harbottle6 needs to be discussed to understand how the
management of a company is based on the majority rule and that resolutions passed by the
majority is permitted which may lead to oppression of the minority. The members holding the
maximum shares are considered to be the majority shareholders in a company. This principle is
that the will of the majority should prevail and bind the minority and is known as the principle of
majority rule. This is also known as the Foss v. Harbottle Rule. Foss v Harbottle is a leading
English precedent in corporate law. Thus, injuries allegedly caused to the corporation alone and
not to its members, must be remedied not by the members but by corporate action. This was the
rule followed in India too since it is derived from common law. Presently, the rule has been
diluted to suit the changing needs and offer protection to the minority shareholders as well. In
India, In the early period, the Court followed the Majority rule completely and allowed even the
irregular acts of the majority shareholders to be made regular through resolution. This was seen
in the case Bhajekar v. Shinkar7 where the board of directors of a company passed a resolution
appointing certain persons as managing agents. The resolution was confirmed by the company in
the general meeting with the complete knowledge of all the material facts. Some minority
directors brought a suit claiming the resolution to be declared invalid since it was irregular. The
court held that it was the right of the company to ratify any type of agreement even if it was
irregular and the Court will not interfere in the internal affairs at any cost. In Rajahmundry
Electric Supply Corpn Ltd. v. Nageshwara Rao8, it was observed that the Courts will not
interfere in the internal affairs of the Company or the management of the directors as long as
they act within the ambit of the powers conferred on them under the Articles of Association of
the company. However, over the years, the Judiciary has deviated from the strict sense of the
majority rule, so as to safeguard the interest of minority over majority.

Under the Indian Companies Act, the relief, in case of oppression and mismanagement has been
provided under the Sections 241-246, according to which the affected party can approach the
National Company Law Tribunal (NCLT). The concept of class action has also been introduced
in the Act. The class action suits can be instituted against the company as well as against the

6
(1843) 67 ER 189
7
(1934) 36 BOMLR 483.
8
1956 AIR 213.
auditors of the company. The minority shareholders have some right in the decision making also.
According to Section 151, small shareholders have to appoint a director in listed companies.

It is worthy of acknowledgement that the Indian law has diluted the concept of majority rule and
found ways to make the system inclusive and more democratic.

The Companies Act 2013 has provided for passing of resolutions as a manner in which meetings
of the Company can be made more systematic and orderly. The procedure and law is quite clear.
The majority rule does act as a detriment in ensuring a democratic mode of decision making.
However, exceptions to the rule and ensuring justice by the proper intervention of the judicial
system set the ball rolling in the right manner.