Powers of Board

September 23, 2019

(A) Powers of Board(Section 179)-

Introduction-Section 179(1) of the Companies Act, 2013 i.e., powers of board, provides that board of directors of a company are entitled to exercise the following powers and to do all such acts as may be authorized by the Company: The above referred powers are subject to provisions specified in the memorandum of association [or] articles of association and other regulations as may be applicable. Provision: Section 179(3) of the Companies Act, 2013 read with Rule 8 of the Companies (Meetings of Board and its Powers), Rules, 2014 and Companies (Meetings of Board and its Powers), Amendment Rules, 2015, deals with the powers of the Board of Directors which are required to be passed by means of resolutions at board meetings.

  1. to make calls on shareholders in respect of money unpaid on their shares;
  2. to authorize buy-back of securities under section 68;
  3. to issue securities, including debentures, whether in or outside India;
  4. to borrow monies;
  5. to invest the funds of the company;
  6. to grant loans or give guarantee or provide security in respect of loans;
  7. to approve financial statement and the Board’s report;
  8. to diversify the business of the company;
  9. to approve amalgamation, merger or reconstruction;
  10. to take over a company or acquire a controlling or substantial stake in another company;
  11. to make political contributions;
  12. to appoint or remove Key Managerial Personnel (KMP);
  13. to appoint internal auditors and secretarial auditor;

The Board by passing a resolution at its meeting, may  delegate the powers specified in clauses (d) to (f) above to any committee of directors, the managing director, the manager or any other principal officer of the company or in the case of a branch office of the company, the principal officer of the branch office.

Conclusion: Initially the Ministry of Corporate Affairs (MCA) has covered many other powers vide Rule 8 of the Companies (Meetings of Board and its Powers), Rules, 2014. But later MCA has omitted Sub Rule No. (3), (5), (6), (7), (8) and (9) vide its notification dated 18th March 2015 in Rule 8 of the said rules.
(B) Restrictions on powers of Board (Section 180) Introduction: Section 180 of the Companies Act, 2013, empowers the board of directors to exercise the following the powers only with the approval of the members by means of special resolution at a general meeting: Provisions:

  1. to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings. The expression “undertaking” here means an undertaking in which the investment of the company exceeds twenty per cent. of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates 20% of the total income of the company during the previous financial year. The expression “substantially the whole of the undertaking” in any financial year means 20% or more of the value of the undertaking as per the audited balance sheet of the preceding financial year. This clause shall not apply to:
    1. the title of a buyer or other person who buys or takes on lease any property, investment or undertaking as is referred to in that clause, in good faith; or
    2. the sale or lease of any property of the company where the ordinary business of the company consists of, or comprises, such selling or leasing.

    The special resolution passed in this regard may specify certain conditions regarding the use, disposal or investment of the sale proceeds which may result from the transactions.

  2. to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation
  3. to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business The expression “temporary loans” here means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature. Every special resolution passed by the company in this clause has to specify the total amount upto which monies may be borrowed by the Board of Directors.
  4. to remit, or give time for the repayment of, any debt due from a director.

Conclusion: Earlier, Section 293 of the Companies Act, 1956 was applicable only to public companies i.e. private limited companies were exempted from this requirement and therefore they could borrow any sum of money upto any limit without seeking approval from its members. But now Section 180 of the Companies Act, 2013 is applicable to all companies i.e. public as well as private. So now onwards even private companies are required to seek approval of its members to borrow money exceeding the aggregate of paid-up share capital and free reserves.

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