Lecture 5 - Powers and Duties of The Board

Powers and Duties of
the Board
Lecture 5
Teaching Seminar | Corporate Law
General Powers of the Board
• Section 179(1): (1) 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:
• Provided that in exercising such power or doing such act or thing, the Board shall be subject to
the provisions contained in that behalf in this Act, or in the memorandum or articles , or in
any regulations not inconsistent therewith and duly made thereunder, including regulations
made by the company in general meeting:
• Provided further that the Board shall not exercise any power or do any act or thing which is
directed or required, whether under this Act or by the memorandum or articles of the company
or otherwise, to be exercised or done by the company in general meeting.
• Nibro Ltd. v. National Insurance Co. Ltd. [1991] 70 Comp. Case 388 (Delhi)
Manner of Exercise of Power of the Board
[Section 179]
• (3) 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 on shareholders in respect of money unpaid on their shares ;
• (b) to authorise buy-back of securities under section 68;
• (c) to issue securities, including debenture , whether in or outside India;
• (d) to borrow monies;
• (e) to invest the funds of the company;
• (f) to grant loans or give guarantee or provide security in respect of loans;
• (g) to approve financial statement and the Board’s report;
• (h) to diversify the business of the company;
• (i) to approve amalgamation, merger or reconstruction;
• (j) to take over a company or acquire a controlling or substantial stake in another company;
• (k) any other matter which may be prescribed:
• Provided that the Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing director, the manager or any 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:
Committees of the Board
• Audit Committee [Section 177]
• Nomination and Remuneration Committee [Section 178]
• Stakeholder Relationship Committee [Section 178(5)]
• Corporate Social Responsibility Committee [Section 135(1)]
Restrictions on Powers of the Board
• Section 180 of the Companies Act, 2013 provides for restrictions on the powers of the Board as follows:
• (1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—
• (a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one
undertaking, of the whole or substantially the whole of any of such undertakings.
• (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, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up
share capital, free reserves and securities premium , apart from temporary loans obtained from the company’s bankers in the ordinary course of business:
• (d) to remit, or give time for the repayment of, any debt due from a director.
• (2) Every special resolution passed by the company in general meeting in relation to the exercise of the powers referred to in clause (c) of sub-section (1)
shall specify the total amount up to which monies may be borrowed by the Board of Directors.
• (4) Any special resolution passed by the company consenting to the transaction as is referred to in clause (a) of sub-section (1) may stipulate such
conditions as may be specified in such resolution, including conditions regarding the use, disposal or investment of the sale proceeds which may result
from the transactions:
• (5) 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.
Duties of Directors (section 166)
• (1) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company.
• (2) A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a
whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of
environment.
• (3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent
judgment.
• (4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or
possibly may conflict, with the interest of the company.
• (5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives ,
partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that
gain to the company.
• (6) A director of a company shall not assign his office and any assignment so made shall be void.
• (7) If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not
be less than one lakh rupees but which may extend to five lakh rupees.
Other statutory duties of Directors
• Section 39(4): To file return of allotments
• Section184: To disclose interest in transactions of the company
• Section 191: To disclose receipt from transfer of property
• Section 191: To disclose receipt of compensation from transferee of shares
• Section 167: Duty to attend board meetings
• Section 96 & 100: To convene AGMs and extraordinary general meetings
• Section 134: To prepare and place the financial statements and consolidated financial statement at the
AGM.
• Section 139: To appoint the first auditor of the company
• Section 148: To appoint the cost auditor of the company
Liabilities of Directors
• Liability to the Company: (i) Breach of fiduciary duty (ii) Ultra vires act (iii) Mala fide acts
• Liability to third parties:
• (i) Failure to meet requirements stated in the prospectus
• (ii) With regards to allotment
• (iii) Fraudulent conduct of business
• (iv) Liability for breach of warranty
• Liability for acts of co-directors
• Criminal liability

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