Restrictions on Powers of Board under Section 180 of Companies Act, 2013 – A Detailed Analysis

Introduction
While Section 179 of the Companies Act, 2013 confers wide powers on the Board of Directors to manage a company’s affairs, these powers are not unfettered. To ensure that crucial corporate decisions impacting ownership, capital structure, and borrowings are not taken unilaterally, Section 180 imposes restrictions on the Board, requiring shareholders’ approval by way of a special resolution in certain cases.

This article explores the scope, statutory framework, and practical implications of Section 180, supported by case law and regulatory guidance.

Statutory Framework — Section 180(1)

Section 180(1) specifies that the Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution:

(a) Disposal of Undertakings

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, the whole or substantially the whole of any such undertaking.

Explanation:

• “Undertaking” means an undertaking in which the investment of the company exceeds 20% of its net worth or which generates 20% of its total income.
• “Substantially the whole” means 20% or more of the value of the undertaking.

(b) Investment of Compensation from Mergers/Amalgamations

To invest otherwise than in trust securities the amount of compensation received by the company as a result of:

• Merger, amalgamation, or
• Compulsory acquisition of any undertaking of the company.

(c) Borrowing Beyond Limits

To borrow money, where the money to be borrowed, together with the money already borrowed by the company, will exceed the aggregate of:

• Its paid-up share capital, free reserves, and securities premium account.

Note:

• Temporary loans obtained from the company’s bankers in the ordinary course of business are excluded.
• “Temporary loans” means loans repayable on demand or within 6 months from the date of the loan.

(d) Remission of Debt Due by a Director

To remit, or give time for the repayment of, any debt due from a director.

Section 180(2) — Mortgage/Charge on Assets

Every special resolution passed under clause (c) shall specify the total amount up to which money may be borrowed by the Board.

Filing Requirement — Section 117(3)(g)

Resolutions passed under Section 180(1) must be filed with the Registrar of Companies in Form MGT-14 within 30 days of passing the resolution.

Applicability

• Section 180 applies to public companies only.
• Private companies were exempted through the Notification dated 5th June 2015, issued under Section 462 of the Act.

Interplay Between Section 179 and 180

• Section 179 confers powers on the Board (e.g., borrowings, investments, loans).
• Section 180 restricts the exercise of some of these powers by requiring shareholder approval.
• Example: The Board can borrow under Section 179(3)(d), but if borrowings cross the specified limits, approval under Section 180(1)(c) becomes mandatory.

Judicial Guidance

1. Larsen & Toubro Ltd. v. State of Gujarat (2017) — clarified that disposal of assets beyond specified limits requires special resolution under Section 180(1)(a).
2. ICICI Bank v. Sidco Leathers Ltd. (2006) — reiterated the principle that shareholders must have the ultimate say in strategic decisions affecting company undertakings.

Practical Implications for Companies

√ Special Resolution — must be passed at a general meeting for transactions under Section 180.

√ Explanatory Statement — should clearly disclose particulars of the transaction and its impact.

√ ROC Filing — ensure timely filing of resolutions in prescribed forms.

√ Compliance for Borrowings — keep a record of total borrowings vis-à-vis limits to avoid violations.

√ Governance Angle — shareholder approval ensures transparency and accountability in high-stake decisions.

Conclusion

Section 180 plays a critical role in striking a balance between Board autonomy and shareholder control. By restricting unilateral action in key matters like disposal of undertakings, large-scale borrowings, and remission of director’s debt, it reinforces corporate democracy and protects shareholder value.

For Company Secretaries and compliance professionals, tracking thresholds, drafting accurate resolutions, and ensuring ROC filings are vital to prevent regulatory non-compliance and safeguard directors from liability.