Restrictions on Powers of Board | Section 180 | Companies Act, 2013

Analysis On Section 180 (Restrictions On Powers of Board) of Chapter XII of The Companies Act, 2013

Section 180(1) is talking about the following powers which can’t be exercised by the Board of Directors (Board) without passing special resolution in the general meeting of the members of the Company :

(a) To sell, lease or dispose of the whole or substantially the whole of the undertaking of the company;

(b) To invest the amount of the amount of compensation received by it as a result of any merger or amalgamation;

(c) To borrow money exceed the aggregate of its paid-up share capital, free reserves and securities premium (together with the money already borrowed by the company); if Special Resolution passed in relation to borrow money exceed the aggregate of its paid-up share capital, free reserves and securities premium, shall specify the amount upto which Board may borrow money without passing another special resolution.

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

Meaning of undertaking and substantially the whole of the undertaking:

Undertaking means an undertaking in which investment of the company exceeds 20% of its net worth as per audited balance sheet of preceding financial year or an undertaking which generates at least 20% of the total income of the company during the previous financial year; and

Substantially the whole of the undertaking means 20% or more of the value of the undertaking of the company as per the audited balance sheet of the preceding financial year.

Meaning of borrow money:

Here borrow money does not include temporary loans obtained from the company’s bankers in the ordinary course of business.

Temporary loans means:

1. Repayable on demand;

2. within six months from the date of acceptance of loan;

3. Cash credit etc;

Not applicability:

-As per clause (c) a banking company, in the ordinary course of its business, accepts deposits money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, and order or otherwise, shall not be deemed to be a borrowing of monies by the banking company within the meaning of this clause.

-As per clause (b) a company invest the amount of compensation received by it as a result of any merger or amalgamation in trust securities;

-As per clause (a) a company sale or lease of any property, where the ordinary business of the company consists of, or comprises, such selling or leasing; and

-In case of private company, the whole section 180 is not applicable.