Analysis of Board Powers Under Section 179 of the Companies Act, 2013 By Divyansh Sachdeva


In this write-up, the author has tried to comprehend Board Powers:

Background:

  • Board of Directors is a recognized group of people under the company law who jointly oversee the activities of an organization, either for a profitable business, non-profit organization, or a government agency.
  • Their Powers, duties, and responsibilities are determined through government regulations (including the jurisdiction's corporation’s law) and the organization's own constitution and bye-laws.
  • The Board of Directors of a company shall be entitled to exercise all powers, and to do all acts and things, as the company is authorised to exercise and do.
  • The Board shall be subject to restrictions imposed under this Act or in Memorandum or Articles or any regulation of the Company.
  • The Board shall not exercise any power which is required to be exercised by the company in general meeting.
  • No regulation made by the company in general meeting shall invalidate any act of the Board done prior to these regulations come into existence and effect.
Note:

Section 179 read with Rule 8 [Chapter XII The Companies (Meetings of Board and its Powers) Rules, 2014] deals with powers of Board

Directors Power to be exercised in the Board Meeting Stated under (Section 179, Sub–Section 3):

The Board shall exercise following powers only by means of a resolution passed in its meeting:
  • To make calls on shareholders in respect of money unpaid on their shares;
  • To authorise the buy-back of securities under section 68;
  • To issue securities, including debentures, whether in or outside India;
  • To borrow monies;
  • To invest the funds of the company;
  • To grant loans or give a guarantee or provide security in respect of loans;
  • To approve the financial statement and the Board’s report;
  • To diversify the business of the company;
  • To approve amalgamation, merger or reconstruction;
  • To take over a company or acquire a controlling or substantial stake in another company; and
  • Any other matter which may be prescribed.
The Board may, by a resolution passed at a meeting, delegate 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, the powers specified in clauses (d) to (f) on such conditions as it may specify.

  • Clause (d) which deals with the power to borrow money needs many explanations. Nothing in this clause (d) shall apply to borrowings by a banking company from other banking companies or from the Reserve Bank of India, the State Bank of India or any other banks established by or under any Act.
  • In respect of dealings between a company and its bankers, the exercise by the company of the power specified in clause (d) shall mean the arrangement made by the company with its bankers for the borrowing of money by way of overdraft or cash credit or otherwise and not the actual day-to-day operation on overdraft, cash credit or other accounts by means of which the arrangement so made is actually availed of.

  • Company to restrict the power of Board (Section 179, Sub – Section 4):

  • The company in general meeting has the power to impose restrictions and conditions on the exercise by the Board of any of the powers specified in this section.
EXCEPTION/ MODIFICATION/ADAPTATION

1. In the case of section 8 company –
 
Matters referred to in clauses (d), (e) and (f) of Sub-section (3) of Section 179 may be decided by the Board by circulation instead of at a meeting. - Notification dated 5th June 2015.
 
2. In the case of Specified IFSC Public Company –
 
In sub-section (3) of Section 179, after the second proviso, the following proviso shall be inserted, namely:-
 
“Provided also that in case of a Specified IFSC public company, the Board can exercise powers by means of resolutions passed at the meetings of the Board or through resolutions passed by circulation.”.

-Notification Dated 4th January 2017.
 
3. In the case of Specified IFSC Private Company –
 
In sub-section (3) of Section 179, after the second proviso, the following proviso shall be inserted, namely:-
 
“Provided also that in case of a Specified IFSC private company, the Board can exercise powers by means of resolutions passed at the meetings of the Board or through resolutions passed by circulation.”.

-Notification Dated 4th January 2017.      
                                                        
Restrictions on Power of Board (Section 180):

The Board of Directors may exercise particular powers only with the consent of the company given by way of special resolution passed in general meeting of the company.

These are:

(a) To sell, lease or otherwise dispose of the undertaking;
 
(b) To invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation;
 
(c) To borrow money; and
 
(d) To remit, or give time for the repayment of, any debt due from a director.
 
Now, adding the details in points
 
To sell, lease or otherwise dispose of the undertaking (Section 180, Sub – section 1, clause a, and sub – section 3, 4):

  • The Consent of Company in General meeting by way of special resolution is required to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company. Where the company owns more than one undertaking, then sell, lease or otherwise dispose of the whole or substantially the whole of any of such undertakings require such consent.

  • “Undertaking” shall mean 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 twenty per cent of the total income of the company during the previous financial year.

  • The expression “substantially the whole of the undertaking” in any financial year shall mean twenty per cent or more of the value of the undertaking as per the audited balance sheet for the preceding financial year.
Nothing contained in this clause shall affect—

(a) 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
 
(b) 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.
 
Any special resolution passed by the company consenting to the transaction as is referred to in clause (a) of sub-section (1) may stipulate conditions specified in such resolution, including conditions regarding the use, disposal or investment of the sale proceeds which may result from the transactions.

To borrow money (Section 180, Sub – section 1, clause c, and Sub – section 2):

  • The Consent of Company in General meeting by way of special resolution is required for 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” 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 general meeting shall specify the total amount up to which monies may be borrowed by the Board of Directors.

  • No debt incurred by the company in excess of the limit imposed by clause (c) of sub-section (1) shall be valid or effectual unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded.

  • The Central Government hereby makes the following rules may be called the Companies (Meetings of Board and its Powers) Rules, 2014, which come into force on the 1st day of April 2014.

In addition to the powers specified under sub-section (3) of section 179 of the Act, the following powers shall also be exercised by the Board of Directors only by means of resolutions passed at meetings of the Board while certain power of the board has been omitted by the Companies (Meeting of Board and its Powers) Amendment Rules, 2015 Dated 18th March 2015:

(1)      To make political contributions;

(2)      To appoint or remove key managerial personnel (KMP);

(3)      To take note of the appointment(s) or removal(s) of one level below the Key Management Personnel;

(4)      To appoint internal auditors and secretarial auditor;

(5)      To take note of the disclosure of director’s interest and shareholding;

(6)      To buy, sell investments held by the company (other than trade investments), constituting five per cent or more of the paid-up share capital and free reserves of the investee company;

(7)      To invite or accept or renew public deposits and related matters;

(8)      To review or change the terms and conditions of the public deposit;

(9)      To approve quarterly, half yearly and annual financial statements or financial results as the case may be
 
Synopsis:

The Companies Act, 2013 conferred several powers on the board of the directors of the company for the efficient and smooth regulation of the company with certain restrictions to keep the hold of the company in the hands of the shareholders.

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