Drafting of Resolution

Drafting of a resolution should be in such a manner to specify properly the decision taken by a meeting of the Board of directors and/or members of the company. While drafting a resolution proper care should be taken for inclusion of the following matters in the resolution:—

(a)   it should start with ‘RESOLVED THAT pursuant to section …..’;

(b)   it should be drafted in a formal manner;

(c)   it should be drafted in clear terms, and should be precise and concise;

(d)   separate resolution for different matters;

(e)   where the resolution requires further approval of the Central Government or any other authority it should use the phrase ‘subject to the approval/confirmation of the Central Government/SEBI/FIPB/Stock Exchange/Reserve Bank of India’, etc. as per the requirements;

(f)   it should indicate the time from which it will come into force;

(g) it must contain execution part and it should delegate appropriate authority to the Board of directors/director/secretary/manager or other officer of the company as may be required to implement it;

(h)   it  should  provide  the  reference  of  documents  which  are  placed  before  the meeting and initialed by the chairman;

(i)   it should also authorise the person, to whom powers for execution have been given to accept the modifications if any made by the competent authority while granting their approval;

(j)   in the case of lengthy resolution, it should be properly divided into paragraphs.

Not to forget : 

The following points should therefore be kept in mind while drafting resolutions.

1.  Clarity

It is extremely important that the resolution should be clear, unequivocal and unambiguous. This will enable prompt and suitable follow-up action to be taken. When drafting a resolution, it should be kept in mind that the wording of the resolution will inevitably influence its appeal. It should be clear, concise and specific. Keep the wording of the resolution simple, action-oriented and free of ambiguous terms.

2. Completeness

It should be complete in every respect and should not be read in conjunction with any other matter in order to aid complete comprehension.

3.  Contents

All essential facts should be included in the resolution itself e.g. in the case of selling agency arrangements, the names of parties, period, products and remuneration.

4.   Agreement

Where the resolution is intended to approve an Agreement, particulars which will enable the Agreement to be identified should be given e.g. names of parties, nature of agreement, period and initialling of the draft placed before the Meeting by the Chairman for the purposes of identification.

5. Brief

The resolution should be brief as far as possible.

All unnecessary and meaningless words and phrases should be avoided e.g. where the reference is to the Act, one need not state…”the Companies Act, 1956 (Act 1 of 1956) which came into effect on 1st April, 1956″; it is sufficient to state “the Companies Act, 1956”  or  where  reference  to  the  Act  has  to  be  made  more  than  once  in  the  same resolution, it is enough if the words “the Companies Act, 1956” is mentioned only once in the beginning and the rest of the time, the words “the said Act” may be used. Clarity should not be sacrificed for brevity e.g. where there is reference to more than one Act in the same resolution, the words “the said Act” should be avoided.

6.   Subject-matter

The resolution should confine itself to only one subject. There should be separate resolutions for different subjects. Even for one subject applicable to more than one person,  separate  resolutions  are  desirable  e.g.  in  the  case  of  managing/whole-time directors or sole-selling agents. Further, it may be noted that the Act, vide section 263, prohibits passing of a single resolution for appointment of two or more persons as directors, unless the conditions stipulated in this behalf are first complied with.

7.   Requirements of the Act

Where the Act or any other enactment requires certain things to be specified, the resolution must contain particulars thereof, e.g. a resolution under section 293(1)(d) or (e) of the Act requires the limits for borrowing or donations to be specified. Consequently while drafting a resolution, all legal provisions relating to the subject matter should be carefully studied to ensure compliance therewith.

8.     Provisions in Articles

The resolutions should comply with the requirements of the Company’s Articles of Association e.g. for affixation of Common Seal. Some Articles require authentication by two directors only; others may provide for authentication by two directors and Secretary or other authorised person. However, in respect of share certificates, the Companies (Issue of Share Certificates) Rules, 1960 will prevail.

9.   Paragraphs

Where  the  resolution  is  lengthy,  it  should  be  divided  into  suitable  paragraphs arranged in the logical order having regard to the subject-matter e.g. resolution relating to issue of bonus shares.

10.   Statutory approvals

Where the item specified in the resolution requires approval of the Government/ Statutory Authority it is better to specify the same in the resolution itself even though it is sufficient compliance if the explanatory statement makes a reference thereto e.g. in the case of change of registered office from one State to another, the resolution may start with the words “Subject to the approval of the Company Law Board”. This will focus the attention of the persons approving the resolution the need to obtain such approvals.

11.    Positive form

The resolution should be in positive form, i.e. it must normally approve certain things. The same rule applies to amendments to a resolution. Disapproval can always be indicated by voting against the resolution or amendment, as the case may be. However, a statute may require certain things to be approved in a negative way, e.g.

a resolution that a retiring auditor shall not be reappointed.

[Section 225(1)] In such cases, the resolution may be worded negatively.

12. Wording

A resolution, if it is a formal decision, always starts with the words “Resolved that” whereas the relative motion starts with the word “That”.

A formal resolution should always be in present tense because it is an act of approval at a particular point of time irrespective of the fact that the subject-matter may relate to past, present or future, e.g. “Resolved that approval be and is hereby given to the appointment of …..”.

Other decisions may be recorded in indirect way i.e. in past tense.

“The Proforma Profit and Loss Account upto the month of December, 2010 was considered and directed to be recorded.”

13.  Writing

A resolution is one long sentence, with commas and semi-colons used to separate the ideas and a period at the very end of the document. Drafting a resolution requires using a vocabulary more familiar to Board and members.