What is a “resolution“:
The word “resolution” is not defined in our Companies Act 1994. Usually, in terms of company law, a resolution means the formal decision of a body (either the board of directors and/or shareholders) which has been taken in
a meeting after proper deliberations. In a normal scenario, any proposed action (that require prior approval) is set out before the board of directors or shareholders as agenda for their approval. After the quorum is
fulfilled, the board of directors or shareholders discuss, amend and vote such agenda. If the agenda is approved by a majority of the directors/shareholders, it becomes a resolution.
Kinds of resolutions:
Under the Companies Act 1994, (the “Act”) there are three kinds of resolutions for general meetings – i) Ordinary; ii) Special; and iii) Extraordinary resolution.
There is also resolution of board meetings. But in this post, I will only discuss resolutions of general meetings.
In the Act it is not clarified what kind of resolution can be called ‘Ordinary Resolution’. An ordinary resolution is a resolution which is passed by a simple majority of the shareholders who are entitled to vote at a general meeting of the company. In the Act there are certain business which is required to be approved by resolution in a general meeting. Those resolutions mean an ordinary resolution unless the context otherwise provides.
According to section 87 (1) of the Companies Act, a resolution is an extraordinary resolution if -i) in the notice it was mentioned that this would be an extraordinary resolution; ii) passed by a majority of three fourth of the members who are entitled to vote as are present in person or by proxy, where proxy is allowed.
Special resolution is described in section 87(2) of the Companies Act. A special resolution is a resolution -i) which has been passed by such a majority as required for passing an extraordinary resolution; ii) in the notice it was mentioned that the resolution would be a special resolution; and iii) a notice of not less than 21 days’ has been given.
So, from section 87(1) and 87(2) of our Companies Act, it transpired that the basic difference between extraordinary resolution and special resolution is that for special resolution, you must serve a 21 days’ notice to the shareholders.
But, for holding a valid shareholder meeting (except Annual General Meeting), you must serve a 21 days’ notice to the shareholders. (There is also the option of calling a shareholder meeting with a short notice. For this post, we will not discuss short notice.) So technically there is no difference between a special resolution and an extraordinary resolution.
Having said that, you cannot disregard the requirement/ restriction imposed by the act for special or extraordinary resolution. For some specific acts, you will need either special or extraordinary resolution. For those acts, you will have to mentioned in the notice that the resolution would be either special or extraordinary resolution and serve a 21 days’ notice. If you do not do that, you are risking the validity of the resolution.