Powers of Board & Restriction on Powers of Board – Companies Act

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Powers of Board & Restriction on Powers of BoardUnder the Companies Act 2013, a Company can exercise its power through a Board of Directors or shareholders. The relationship between the shareholders and the board of directors works as an alliance because the board of directors has some powers that are exercised exclusively by them and also has some powers that can only be exercised with the approval of the shareholders either through an ordinary resolution or a special resolution.
This article will analyze the provisions of the Companies Act 2013 which relate to the limitation of board powers. First, the powers of the Board of Directors under Section 179 of the Act are discussed here to better understand the limitations placed on these powers under Section 180 of the Act. Thus this article will also discuss the restriction on the powers of the Board of Directors.

Table of Contents

Powers of the Board of Directors

Section 179 of the Act empowers the board of directors and authorizes them to exercise all these powers, and the board of directors, within the scope of this authority, may perform any act or thing on behalf of the company that the company is authorized to do and act, if:

  • When the board of directors exercises such powers or any such in or matter, it shall be subject to certain provisions contained herein in that representation under the Companies Act, or the memorandum, or articles of association, or some other regulations duly made thereunder and includes also the regulations of the company at their general meeting.

This means that the powers vested in the board of directors should be within the limits of the Companies Act, Articles of Association, Memorandum of Association, or any rule or regulation made by the Companies Act or any order made by the company in general meeting.
The Board of Directors cannot exercise any power that is inconsistent with the Companies Act, the Articles, the Articles of Association, or any rule or regulation made by the Companies Act or any regulation of the company in general meeting.

  • Nor can the Board of Directors exercise its powers or do any act or thing which is either ordered or required, either by the Companies Act or by the memorandum or articles of association, which can only be done or done by the company at a general meeting of the company.

It simply means that there are some powers that the board of directors cannot exercise alone, as these powers must be exercised by the shareholders at the general meeting, either under the Companies Act or under the company’s memorandum or articles of association.
This section makes it very clear that if the board wishes to exercise any such power that requires the consent of the shareholders, then before exercising such power the board must first obtain the consent of the shareholders either by ordinary resolution or special resolution.

Restriction on powers of Board of Directors

Section 180 of the Companies Act 2013 prescribed certain matters requiring the approval of the shareholders by way of a special resolution before the board could exercise such power. Here it can be said that Section 180 limited the general powers of the board of directors.
To achieve the matters mentioned in Section 180, the board of directors requires the consent of the shareholders through a special resolution.

Here are the following matters prescribed in Section 180:

  1. Sell, lease, or otherwise dispose of all or substantially all of the Company’s business, or if the Company owns more than one business, all or substantially all of any such business.
  • If the company wishes to sell, lease or otherwise dispose of (including by mortgage) the whole of the business or a substantial part of the business, it requires the prior approval of the shareholders through a special resolution.
  • Unless the company passes a special resolution for the above transaction, and the purchaser or other person in good faith buys or takes on lease any property without knowing that the company has failed to comply with the law, then the claim of such person against such person’s property shall not be affected thereby.
  • If the company sells or leases real estate in the ordinary course of business, shareholder approval is not required.
  • Any special resolution adopted by the Company for the foregoing transaction may, within the scope of such resolution, set forth such conditions as to the use, disposition, or investment of the proceeds of sale which may arise from the transactions.To otherwise invest in the trust securities the amount of compensation it receives as a result of any merger or amalgamation
    If the company has received any amount of compensation as a result of any merger or amalgamation and wants to invest such amount anywhere, the company requires the approval of the shareholders through a special resolution.
    It may be noted that the approval of the shareholders is not required if the company wants to invest such an amount in trust securities.Borrow money where the money to be borrowed by the company, together with money already borrowed by the company, exceeds the aggregate of its paid-up share capital, free reserves, and securities premium, excluding temporary loans obtained from the company’s bankers in the ordinary course of business:Temporary loans mean loans payable on demand or within six months from the date of the loan, such as short-term, cash credit arrangements, bill discounting and issuance of other short-term loans of a seasonal nature, it does not include loans obtained for financial expenses of a capital nature.
  • If a company wants to borrow money and the amount of money already borrowed plus the amount of money to be borrowed exceeds its paid-up capital, free reserves, and securities premium. In such a case, the company requires the approval of the shareholders through a special resolution.

    (Amount already borrowed + amount to be borrowed > paid-in share capital, free reserve,s, and securities premium) = a special resolution is required.It can be said that if the money already borrowed and the money to be borrowed is less than the sum of its paid-up share capital, free reserves, and securities premium, a resolution of the board of directors is sufficient and no special resolution needs to be passed.(Amount already borrowed + Amount to be borrowed < paid-up share capital, free reserves, and premiums for securities) = Resolution of the board of directors is sufficient.
  • The acceptance by banking companies of any deposits of money from the public, payable on demand or otherwise and redeemable by check, bill of exchange, order or otherwise, in the ordinary course of business, shall not be deemed to be money lending to the banking company within the meaning of this section.
  • If a banking company accepts any deposits of money from the public which are payable on demand or otherwise and which can be collected by cheque, draft, order, or otherwise, then it does not require the approval of the shareholder by special resolution provided that the transaction should be in the ordinary course of its business.
  • This means that unless the transaction is in the ordinary course of business, it will require shareholder approval through a special resolution.
  • No debt incurred by the company over the specified limit shall be valid or effective unless the creditor proves that he made the loan in good faith and without knowledge that the specified limit was exceeded.
  • If the company does not pass a special resolution and borrows money over the above limits, then the onus is on the creditor to prove that he made the loan in good faith and without knowing that the limit was exceeded.
  • Each special resolution adopted by the general meeting of the company with borrowed money determines the total amount up to which the board of directors can borrow funds.
  • This means that shareholders can set an upper limit up to which the company can borrow without shareholder approval. If the board wishes to borrow any amount above this cap, it will again require shareholder approval through a special resolution.
    To remit or allow time for the repayment of any debt due by a director

If the company waives (waives) or allows time for the payment of any debt due to any of the directors of the company, it requires a special resolution for such a decision.

Annual ROC Compliances for companies

Final words

The board of directors of any company is like the mind of the company, for which the company runs and as they are significantly involved in the growth and development of the company, therefore their position becomes very crucial for any company.
The Companies Act 2013 gives certain powers to the board of directors so that they can effectively and efficiently contribute to the best for the company. In addition to the powers, the Companies Act also imposes certain restrictions on the exercise of these powers to prevent any misuse of these powers.

CS Urvashi Jain is an associate member of the Institute of Company Secretaries of India. Her expertise, inter-alia, is in regulatory approvals, licenses, registrations for any organization set up in India. She posse’s good exposure to compliance management system, legal due diligence, drafting and vetting of various legal agreements. She has good command in drafting manuals, blogs, guides, interpretations and providing opinions on the different core areas of companies act, intellectual properties and taxation.

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