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Powers of Board of Directors (BOD) of a Company

Provisions related to exercise of Powers of Board of Directors (BOD) of a company and restrictions thereof as per section 179 of the Companies Act 2013.

Chapter-XII (Section 173-195) of the Companies Act, 2013 (CA 2013) deals with the provisions related to meetings of board of directors of a company and its powers. Section 179 of CA 2013 specifically provides for Powers of Board of Directors (BOD) of a Company. Section 179 come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.

Recently, we have discussed the provisions of section 178 of the Companies Act, 2013 and come to know about the Nomination and Remuneration Committee and Stakeholders Relationship Committee. Today, we shall discuss about the provisions of section 179 i.e. Powers of Board. You should read section 179 of CA 2013 with the Companies (Meetings of Board and its Powers) Rules, 2014.

Powers of Board of Directors of a Company

Powers of Company is Power of Board [Section 179(1)]:

As per section 179(1) of CA 2013, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do.

That means:

  1. BOD can exercise all such powers for which company is authorised.
  2. BOD can do all such acts or things for which company is authorised.

Power of Board subject to Other Provisions [First proviso of Section 179(1)]:

While exercising such power, or doing such act or thing, the Board shall be subject to the provisions contained in that behalf:

a) In the Companies Act, 2013; or
b) In the Memorandum; or
c) In the Articles; or
d) In any Regulations, not inconsistent therewith and duly made thereunder, including regulations made by the company in general meeting.

Therefore, you may say that if company can, Board can except what only members can do. Board is supreme power of a company after the shareholders. However, the power of Board can be restricted by the Companies Act 2013, AOA, MOA and members of company by passing a resolution in this behalf.

As per Section 2(5) of CA, 2013, Articles means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of the Companies Act, 2013.

As per Section 2(56) of CA, 2013, Memorandum means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of the Companies Act, 2013.

Power exercised by Company in GM [Second Proviso of Section 179(1)]:

The Board shall not exercise any power or do any act or thing which is directed or required, whether under the Companies Act, 2013 or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting.

New Regulation Not Invalidate Act done by BOD [Section 179(2)]:

No regulation made by the company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.

That means restrictions on power of Board made by members shall be prospective effect rather retrospective i.e. Members can’t invalidate prior act done by BOD.

Powers exercised Only by Passing Resolutions at Board Meeting

There are certain powers of Board that can only be exercised by passing resolution at board meeting. That means you have to call a board meeting instead of passing a resolution by circulation as per section 175 of the CA 2013. The board meeting has to be held for some special type of business. In other words, section 179(3) of CA 2013 prescribed some powers to be exercised by passing Board Resolution (BR) at Board Meeting (BM) only.

According to the provisions of sub-section (3) of section 179 of the Companies Act, 2013, the Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the Board, namely: —

(a) To Make Calls:

BR at BM required to exercise the power of board to make calls on shareholders. If any share of company is partly paid, then board may make call in respect of money unpaid on such shares. Therefore, the Board may make calls upon the members in respect of any monies unpaid on their shares by passing board resolution at board meeting.

(b) To Authorise Buy-back:

BR at BM required to authorise buy-back. We know that buy-back is restricted under section 68 of CA 2013. However, the buy-back shall be done if authorised by AOA and passing SR in GM. Instead of passing SR in GM, the board has power to authorise buy-back of securities under section 68 if the buy-back is up to 10% of total paid-up equity capital and free reserves of the company.

(c) To Issue Securities:

BR at BM required to issue securities including debentures, whether in or outside India.

(d) To Borrow Monies:

BR at BM required to borrow monies.

(e) To Invest the Funds:

BR at BM required to invest the funds of the company.

(f) To Grant Loans:

BR at BM required to grant loans or give guarantee or provide security in respect of loans.

(g) To Approve Financial Statement:

BR at BM required to Approve Financial Statement and the Board’s report.

(h) To Diversify the Business:

BR at BM required to diversify the business of the company.

(i) To Approve Amalgamation:

BR at BM required to approve amalgamation, merger or reconstruction.

(j) To Take over a company:

BR at BM required to take over a company or acquire a controlling or substantial stake in another company.

(k) any other matter which may be prescribed.

Note that in compliance with the provisions of section 117 of CA 2013, a copy of every Board Resolution shall be filed with the Registrar within 30 days of the passing thereof.

As per explanation I of section 179(3) of CA 2013, clause (d) shall not 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.

Explanation II of section 179(3) of CA 2013 provides that 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.

In case of Section 8 (Non-profit) Companies, 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 vide Notification No. G.S.R. 466(E) dated 5th June, 2015.

Further, the following shall not be deemed to be a borrowing of monies or a making of loans by a banking company within the meaning of section 179 of CA 2013:

  1. Acceptance by a banking company in the ordinary course of its business of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise; or
  2. The placing of monies on deposit by a banking company with another banking company on such conditions as the Board may prescribe.

Additionally, Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014 has prescribed certain more powers of board in addition to the powers specified under section 179(3) of the CA 2013. Accordingly, the following powers shall also be exercised by the Board of Directors of company only by means of resolutions passed at meetings of the Board:

  1. to make political contributions;
  2. to appoint or remove key managerial personnel (KMP);
  3. to appoint internal auditors and secretarial auditor;

In case of a Specified IFSC (International Financial Services Centre) public company, the Board can exercise powers by means of resolutions passed at the meetings of the Board or through resolutions passed by circulation vide Notification No. G.S.R. 08(E) dated 4th January, 2017.

In case of a Specified IFSC Private Company, the Board can exercise the powers by means of resolutions passed at the meetings of the Board or through resolutions passed by circulation vide Notification No. G.S.R. 09(E) dated 4th January, 2017.

Delegation of Powers of Board of a Company

The powers of board specified in clauses (d) to (f) of sub-section (3) of section 179 of CA 2013 shall be delegated on such conditions as may be specified. The BOD may delegate such powers (i.e. borrow monies, invest the funds and grant loans or give guarantee or provide security in respect of loans) to the following persons by passing a resolution in the board meeting:

  • To any Committee of Directors;
  • To the Managing Director;
  • To the manager;
  • To any other principal officer of the company; or
  • To the principal officer of the branch office.

Restrictions and Conditions on Powers of Board of Directors

In compliance with the provisions of section 179(4) of CA 2013, the company may impose restrictions and conditions on the exercise by the Board of any of the powers specified in section 179 of CA 2013.

Therefore, the shareholders may impose restrictions and conditions on the exercise by the Board of any of the powers specified in section 179 by passing Ordinary Resolution in General Meeting.

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