COMPANIES ACT, 2013: POWERS OF BOARD AND ITS RESTRICTIONS
Updated: Sep 30, 2022
The Governing Body of the Company is the Board of Directors, who are in charge of the day-to-day operations of the company day-to-day operations. Certain rights are granted to the Directors or the Board for the company's business activities to run smoothly. Moreover, some restrictions are also there to function the company in an organized manner.
POWERS OF BOARD:
As per Section 179 of The Companies Act, 2013, the following are the powers of the board of directors:
The Board of Directors has the authority to entertain all such powers delegated to it by the company.
The Board of Directors has the authority to act on all the matters charged to it by the company.
Board authority is subject to other provisions.
While exercising the board of directors' authority, the board must obey the rules and conditions of the following:
· The Memorandum of Association
· The Companies Act, 2013
· The Articles of Association
· Or Any regulation made by the company during the general meetings
The company's authority, in particular, can be defined as the powers of the board. However, the board's power can be limited, if necessary, by the Companies Act, the Memorandum of association, and the Articles. Shareholder resolutions can potentially restrict the board's authority.
In General Meeting, the Company Exercises Power’
The board of directors is not permitted to exercise any power or make any decisions intended to be exercised or made in a General Meeting.
Acts passed by the board are not rendered invalid by new regulations’
As per Section 179 of the Companies Act, 2013, resolutions taken at a General Meeting cannot nullify provisions adopted by the board of directors previous to the resolution.
At Board Meetings, power is performed through passing resolutions.’
Certain board powers can only be exercised by calling a board meeting. This is done in accordance with Section 175, The Companies Act 2013. As a result, the board of directors can only exercise the following authorities by approving a resolution at board meetings:
· to make calls on shareholders for unpaid dividends on their shares;
· to authorize the repurchase of securities under Section 68;
· to issue securities, including debentures, in or out of India;
· to borrow funds;
· to invest the company's funds;
· to make loans, guarantee loans, or offer security for loans;
· to approve the financial statement as well as the board's report;
· to diversify the company's business;
· to sanction a merger, amalgamation, or rebuilding;
· to take over a corporation or acquire a controlling or significant position in another;
In addition, in reference to Section 117 of the Companies Act 2013, a copy of every board resolution must be filed with the Registrar within 30 days of the resolution's passage.
Furthermore, Rule 8 of the Companies Rules 2014 has granted the board additional authority. Resolutions that can be passed at board meetings include:
1. Contributing to politics
2. Appointing or dismissing key management staff.
3. Appointment of internal and secretarial auditors
The Delegation of powers of boards’
By approving a resolution in a board meeting, the Board of Directors may delegate powers such as investing money, making loans, and providing guarantees or security:
· Managing Director
· Committee of Directors
· Any other principal officer of the company
· The principal officer of a branch office
RESTRICTION ON POWER OF BOARD:
This means that Section 180 of the Companies Act limits the general powers of the Board of Directors. Section 180 prescribes the following items, which are explained below:
A special resolution passed by the company's General Meeting is necessary to sell, lease, or otherwise dispose of the company's entire or practically entire undertaking. If the corporation has more than one undertaking, consent is required to sell, lease, or otherwise dispose of the whole undertaking or almost the entire undertaking.
The term "undertaking" refers to an undertaking in which the firm invests more than 20% of its net worth according to the audited balance sheet of the previous fiscal year, or an undertaking that generates 20% of the company's total income during the previous fiscal year.
In any fiscal year, "essentially the entire undertaking" implies 20% or more of the worth of the enterprise as determined by the audited balance sheet of the prior fiscal year.
This clause of section 180 does not affect some transactions:
If the company intends to sell, lease, or otherwise dispose (including mortgages) of the entire undertaking, prior shareholder approval is required through a special resolution. Suppose a corporation fails to pass a special resolution for such a transaction and someone buys or leases a property in good faith without knowing that the company failed to pass such a resolution and thus failed to comply with the law. In that case, the person's title to the property remains unchanged.
If the company intends to sell or lease property in the ordinary course of business, shareholder approval is not required.
The Board of Directors must also obtain shareholder approval before investing any funds received by the company as a result of a merger or amalgamation. It is important to highlight that the corporation does not need the shareholders' consent to invest in trust securities.
A company's contest by passing a special resolution in a general meeting is also required to borrow money, where the amount to be borrowed, together with the amount already borrowed by the company, is greater than the aggregate of its paid-up share capital, free reserves, and securities premium, excluding temporary loans taken by the company in its ordinary course of business.
The company also requires special resolution permission in the event that the company decides to remit or allow time for the settlement of any debt owed by any director of the company.
The Board of Directors of any company is like the company's mind, because of which the company runs. Because they contribute significantly to the company's growth and development, their position is critical for any firm.
The Companies Act of 2013 delegated specific rights to the Board of Directors in order for them to provide their best efforts to the firm effectively and efficiently. Along with powers, the Companies Act establishes various constraints on the exercise of such powers in order to avoid misuse of such powers.