When the Special Resolution Fails: The Alternate Mechanism

Special Resolution Fails explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Between 2022 and now, this is the SEBI change most likely to be missing from your reference material — and it solves a problem that was genuinely embarrassing.

Listed companies need a special resolution to appoint an independent director. A 75% threshold. And in widely-held companies with low promoter stakes and patchy retail turnout, perfectly good appointments were failing — not because shareholders objected, but because 75% of votes cast is a very high bar when a single institutional block votes against.

SEBI's answer was a second test that runs when the first one fails.

Regulation 25(2A): appointment, re-appointment and removal of an independent director in a listed entity require a special resolution (75% of votes cast). If it fails, the alternate mechanism applies — the resolution still carries if votes in favour exceed votes against and public shareholders' votes in favour exceed public shareholders' votes against. An ordinary-majority test plus a majority-of-the-minority test. Where a director was appointed this way, the same threshold governs their removal.

The base rule

Regulation 25(2A) requires a special resolution for the appointment, re-appointment and removal of an independent director of a listed entity.

Note that removal is in there too. Under the Companies Act, a first-term independent director could be removed by ordinary resolution under Section 169; a second-term one needs a special resolution. For a listed company, SEBI requires a special resolution in every case — first term or second.

That symmetry is deliberate. If it takes 75% to put an independent director in, it should take 75% to take them out. Otherwise a board that finds an independent director inconvenient could remove them more easily than it appointed them.

Why the threshold became a problem

A special resolution needs 75% of votes cast in favour. It's a proportion of votes actually cast, not of total capital — so turnout shapes the outcome.

In a company where the promoter holds 60%, the promoter alone gets you most of the way there and appointments rarely fail.

In a widely-held company where the promoter holds 25%, the arithmetic is unforgiving. Institutional investors vote; retail shareholders largely don't. So a single large institution voting against — sometimes on a proxy adviser's blanket policy rather than any objection to the individual — could sink an appointment supported by a clear majority of everyone who voted.

The perverse result: the companies with the most dispersed ownership, which is to say the ones least in need of protection from a dominant promoter, were the ones that couldn't fill independent director seats.

The alternate mechanism

Introduced by the LODR Sixth Amendment, 2022, notified in November 2022.

Where the special resolution fails to get the requisite majority, the appointment or removal is nonetheless deemed to have been made if both conditions are satisfied:

1. Votes cast in favour exceed votes cast against — an ordinary majority of all votes cast; and
2. Votes cast by public shareholders in favour exceed votes cast by public shareholders against — a majority of the minority.

Both. Not either.

And where an independent director was appointed under this alternate mechanism, the same threshold governs their removal. You can't appoint someone through the back door and then remove them on a different test.

Worked examples

Assume 100 votes are cast in each case.

Case 1 — the special resolution passes. Promoter casts 40 in favour. Public casts 60: 35 in favour, 25 against. In favour: 75. Against: 25. That's 75% — the special resolution passes. No need for the alternate test.

Case 2 — the special resolution fails, the alternate mechanism saves it. Promoter casts 30 in favour. Public casts 70: 40 in favour, 30 against. In favour: 70. Against: 30. That's 70% — the special resolution fails. Now the alternate test:

• Votes in favour (70) exceed votes against (30). �

• Public in favour (40) exceed public against (30). �

The appointment is deemed made.

Case 3 — the special resolution fails and so does the alternate test. Promoter casts 55 in favour. Public casts 45: 15 in favour, 30 against. In favour: 70. Against: 30. Special resolution fails. Alternate test:

• Votes in favour (70) exceed votes against (30). �

• Public in favour (15) exceed public against (30)? No. ❌

The appointment fails.

Case 3 is the whole point of the design. A promoter cannot carry an independent director appointment over the objection of the public shareholders — the second limb makes the minority's view decisive when the 75% threshold isn't met on its own.

Note who the mechanism actually helps. In Case 2, the promoter holds a modest stake and the public supports the appointment. In Case 3, the promoter is pushing a candidate the public doesn't want. The mechanism rescues the first and blocks the second, which is exactly the right way round.

What "public shareholders" means

Public shareholding is the shareholding other than the promoter and promoter group, as classified in the entity's shareholding pattern filed with the exchanges.

Getting this right at the counting stage matters. The scrutiniser must be able to separate public shareholder votes from promoter group votes, which means the voting records and the shareholding pattern classification have to line up. This is the practical work the mechanism creates — the second limb is easy to state and slightly fiddly to compute.

Practical notes for the company secretary

• Draft the resolution as a special resolution. The alternate mechanism is a fallback that applies by operation of the regulation; you don't put an alternative resolution to the meeting.
• Brief the scrutiniser to report both the overall split and the public shareholder split, so the fallback can be applied without a second exercise.
• The explanatory statement still has to justify the appointment and confirm the board's opinion on independence — Schedule IV requires it regardless of the voting route.
• Record which route the resolution passed on. It determines the threshold for any future removal.
• The Companies Act layer still applies. Schedule IV requires members' approval; Regulation 25(2A) sets the threshold for listed entities.

Key takeaways

• Special resolution for appointment, re-appointment and removal in a listed entity.
• SEBI requires it for removal even in a first term, unlike the Companies Act.
• The alternate mechanism needs both an ordinary majority and a public shareholder majority.
• It rescues widely-held companies and blocks promoters pushing a candidate the public rejects.
• Same threshold governs removal of a director appointed under the alternate route.
• Brief the scrutiniser to report the public shareholder split separately.
• Record the route the resolution passed on.

Read next

• Independent Director Appointment: Full Process Under Companies Act and LODR
• Resignation and Removal of an Independent Director
• Regulation 25 of SEBI LODR: Every Obligation of an Independent Director
• Independent Director Tenure: Two Terms and the 3-Year Cooling-Off

Law stated as on 5 September 2026. Vote computation should be confirmed with the scrutiniser against the current text of Regulation 25(2A) and the entity's shareholding pattern classification.