Detailed Analysis of Section 179 of the Companies Act, 2013

No Comments

Section 179 of Companies Act 2013

The Companies Act, 2013 provides a cornerstone of the Indian business legislation. Section 179 of Companies Act 2013 is a significant rule for defining the Company’s board of director’s powers. In this analysis of the Legal Window team, we navigate through the depths of Section 179 of Companies Act 2013 and provide details of its provisions, implications, and practical applications. By revealing its complexities, our purpose is to show significant corporate decision-making and governance practices in India.

Table of Content

Brief about the Company’s Board of Directors

The Board of Directors of the company is generally the brain of the company and has access to and manages the day-to-day company’s functions. Their work is directly executed for the enhancement of the company. However, the powers are also defined under section 179 of Companies Act, 2013, yet there are certain restrictions on them to avoid the misuse of these powers. Section 179 of Companies Act, 2013 provides the necessary power of the board of directors to run the company easily.

Powers of Board and restriction on board, Companies Act, 2013

Section 179 of Companies Act, 2013

Section 179(1) of Companies Act, 2013 defines all powers, which are exercised by the board and have to be performed as per the provision of the act. Furthermore, these powers are subjected to made provisions of the Act, memorandum, or articles, such as the regulations created in the company’s general meeting. It is also mentioned that the board shall not perform any power and do any act, which is directed and needed under the act, or by any company’s memorandum or the articles, or further it can also be mentioned in the general meeting of the company. If there is any confusion, or to avoid the misuse of powers, then there are further regulations conferred under section 179(2) of the Companies Act, 2013. It provided that any regulations created by the company in their general meeting cannot void the prior act of the board. 

Moreover, section 179(3) of the Companies Act, 2013 defines certain powers that need to be performed only using resolutions passed at the meetings of the board. These are as discussed below:

  • Issue securities such as debentures, if it is in or outside India: As per the Companies Act, 2013 authorized the board of directors to issue securities, such as debentures. The board is authorized to sell any securities to raise funds for the enhancement, functions, or investments of the company. These are options open for both outside and inside India. The whole process of the securities issues is mentioned under the article of associations of the company, and according to that, only the legislation will be applicable.
  • Shareholder’s calls concerning money for unpaid shares: In corporate governance, the ability to make decisions by the directors for unpaid shares is significant, which is provided by the Companies Act, 2013. The Director has the authority to demand payment from the shareholders for any sums owed on their shares. Generally, provisions offer the use of calls to collect payments from its stockholders. 
  • To invest the company’s funds: The company’s funds can be invested by the Board of Directors, which is authorized under the Companies Act, 2013. This role is important as it is a high amount of risk that’s why the board needs to manage it carefully. Before starting to invest, a comprehensive plan must be prepared. Similarly, the resolution permitted the decision to invest the company’s money must mention the investment nature, associated risks, the amount to be invested, and the anticipated returns. 
  • Section 68: to authorize buy-back of securities: A company may repurchase their shares as per provisions of section 68 of the Act. It provided both shareholder and board permission. It is important for the company’s capital framework management. Through this manner, it helps companies to provide their shareholders extra money back which increases the value of shareholders. 
  • To attain permission in financial statements and the board’s report: Certain further appropriate papers such as auditor’s report and notes to accounts, financial statements have a cash flow statement, balance sheet, and profit and loss account. The report of the board of directors is necessary to have such details as the current situation of the company’s operations, financial results, and the particulars of the board meetings, all mentioned under Section 134 of the Companies Act, 2013. The report of boards shall include the company’s reflection by showing CSR policies. On the other hand, the financial statements shall provide a true and fair picture of the business and also be ready for appropriate accounting rules. 
  • To borrow money: The board of directors has the authority to borrow funds on behalf of the company. A board resolution confers the borrowing reason, money borrowed, the terms and situations of the borrowing, and any security that will be required to be provided to creditors for exercising the powers. 
  • To permit amalgamation, merger, or reconstruction: Any transactions need to be done, before that the board of director’s approval must be necessary. During the deal, the director is expected to give details to the shareholders about the company’s rationale, the aim of the merger, acquisition, or amalgamation, and the anticipated advantages of the transaction. 
  • To provide loans or offer a guarantee or grant security for loans: The Board of Directors has authority for all these things with association to loans. They cannot use this authority without having restrictions. A company does not lend money to its directors or to anyone else to whom the director has some connection as per section 185 of the Companies Act, 2013. There are certain exceptions defined in the act, such as loans created to employees as part of their employment contracts. 
  • Diversifying the company’s business: The board of directors of the company has the authority to propose the company’s venture into a new business sector. A comprehensive report shall be made, mentioning the reasons for diversifying the company’s operations, any merits or demerits, and the impact of diversification on the bottom line.

Final Words 

In conclusion, we can say that the board of directors of the company has several acts mentioned by the Companies Act, 2013, and its related legislation. Section 179 of Companies Act, 2013 applies to private companies. The authorities have been given to them so that the company will run effectively and efficiently. While using these authorities, the directors need to act according to the best interests of the company. The board remains transparent as well as free from interference from outside or personal sources. The board of directors is also responsible for making sure that the laws and regulations are followed and encouraging moral behavior. The directors need to use relevant caution and diligence when performing their obligations.

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.

About us is a professional technology driven platform of multidisciplined experts like CA/CS/Lawyers spanning with an aim to provide concrete solution to individuals, start-ups and other business organisation by maximising their growth at an affordable cost.

Ask an Expert

More from our blog