Introduction
Company’s Board of Directors is considered to be the brain of the company who looks into the day to day operation of the company on behalf of the company and its shareholders. Boards of Directors’ acts have the direct implications on the growth and development of the any company. However, the powers of board under the section 179 of the Companies Act 2013 are broad, yet it is subjected to various restrictions as well so as to avoid the misuse of such powers. Section 179 of the Companies Act, 2013 confers the necessary powers to the board so as to run the company smoothly.
Section 179
Section 179(1) of the Companies Act, 2013 confers all such powers to the board to exercise and to do all the acts which a company is authorized to exercise and to do. However, such powers are subjected to duly made provisions of the Act, or memorandum, or articles, including the regulations made in the general meeting of a company. It further states that the board shall not exercise any power and do any act directed and required under the act, or by the memorandum, or the articles of the company, or otherwise which is to be exercised and done by the company in its general meeting. Moreover, to avoid any misuse of the power, sub-section 2 of the section 179 of the Act clearly states that any regulations made by the company in its general meeting cannot invalidate the prior act of the board.
In addition to it, sub-section 3 of the act provides for certain powers which are to be exercised only by means of resolutions passed at the meetings of the board. They are as follow:-
(a) To make calls on shareholders in respect of money unpaid on their shares; a crucial component of corporate governance is the ability for directors to make decisions regarding unpaid shares, which is granted under the Companies Act of 2013. It gives the director the authority to demand payment from the shareholders for any sums owed on their shares. Typically, the corporation uses calls to collect payments from its stockholders. At the time of issuance, the first installment of the share amount is paid; subsequent installments are referred to as calls. This functions as a crucial instrument to guarantee that the shareholders fulfill their duties to the company and that the outstanding balances on their shares are settled in full.
(b) To authorize buy-back of securities under section 68; A corporation may repurchase its own securities in accordance with Section 68 of the Companies Act of 2013, provided that both the board of directors and the shareholders approve. The Boards hold this authority, which is a crucial instrument for the organization’s capital structure management. It helps the business to give its shareholders their extra money back, which raises shareholder value. The terms outlined in Section 62 of the Companies Act of 2013 apply to the buyback of shares. It may come from tender offers, open market purchases, or current shareholders. A maximum of 25% of its entire paid-up capital and free reserves may be used for the buyback. The approval of these buybacks lowers the number of outstanding shares, boosts earnings per share, and raises shareholder value. Furthermore, hostile takeovers are more likely to be avoided since there are fewer shares available for purchase. This authority of the directors is subject to some limitations, such as the need for a special resolution to be approved by the shareholders and the ban on buybacks in the event that the deposit or interest thereon is not repaid.
(c) To issue securities, including debentures, whether in or outside India; The board of directors is authorized under the Act to issue securities, including debentures. The Board of Directors has the authority to sell securities in order to raise money for the company’s operations, growth, or investments. Both inside and outside of India are viable options for this. A resolution defining the kind of securities, the quantity to be issued, their face value, and the price at which they are to be issued must be approved by the board of directors. The entire procedure needs to be authorized by the company’s articles and carried out in accordance with the applicable legislation. The directors also need to be careful to ensure that the regulatory bodies have granted the required approvals. Additionally, all disclosures must be provided in accordance with SEBI regulations; otherwise, there may be legal repercussions.
(d) To borrow monies; This clause gives the Board of Directors the authority to borrow money on the company’s behalf. A board resolution outlining the reason for borrowing, the amount to be borrowed, the terms and circumstances of the borrowing, and any security that would need to be given to the creditors is needed in order to exercise this power. The company’s financial consultants are crucial in granting approval for this kind of settlement. The Articles of Association, as well as the company’s borrowing policies, specify the limits within which such power may be used. The board must use caution while using this authority, and they may only do so for things like supporting new initiatives, capital asset investments, business operations finance, and debt repayment that will advance the company’s interests.
(e) To invest the funds of the company; The Board of Directors has the authority to make investments with the company’s capital under the Companies Act of 2013. This role is crucial since it carries a certain amount of risk, which the BOD is supposed to manage carefully. Prior to making an investment, a comprehensive assessment of the investment’s nature, associated risk, and prospective rewards must be completed. Similar to this, the resolution approving the decision to invest business funds must specify the nature of the investment, the amount to be invested, the anticipated returns, and the associated risks. Other considerations that need to be made include the organization’s financial standing and the potential effects of investments on the business’s operations. In order to safeguard the interests of the business and its stakeholders, the directors must periodically assess the investments made and make sure they are compliant with the company’s financial goals and investment policies.
(f) To grant loans or give guarantee or provide security in respect of loans; The BoD has the authority to make loans, offer guarantees, or offer security in connection with loans. The directors are unable to use this authority, nevertheless, without restriction. A firm cannot lend money to its directors or to anyone else in whom the director has an interest under Section 185 of the Companies Act of 2013. Certain exceptions to this have been outlined in the Act, including loans made to employees as part of their employment contracts and loans made in the regular course of business. The directors are responsible for ensuring that the loans or securities are only granted following resolution approval from the board and that they remain within the restrictions outlined in the company’s articles of incorporation and rules.
(g) To approve financial statement and the Board’s report; Together with additional relevant papers like notes to accounts and an auditor’s report, a company’s financial statements consist of a balance sheet, profit and loss account, and cash flow statement. According to Section 134 of the Companies Act of 2013, the board report needs to include information about the financial results, the current state of the company’s activities, and the specifics of the board meetings. The board report must also include a reflection of the company’s CSR policies, which are the means by which an organization incorporates social and environmental issues into its operations. The financial statements must give a true and fair picture of the company’s financial situation and be prepared in accordance with the relevant accounting rules. It must to be completed following a process outlined in the Act and in line with any applicable regulations, including the Companies (Accounts) Rules of 2014. The directors must sign the aforementioned documents attesting to their review and approval of the financial statements and reports, which must be approved at the board meeting.
(h) To diversify the business of the company; The Board of Directors is vested with this authority. The company’s directors have the authority to propose that the company venture into a new business sector. A comprehensive report must be prepared, outlining the reasons for diversifying the company’s operations, any possible advantages or disadvantages, and the effect of diversification on the bottom line.
(i) To approve amalgamation, merger or reconstruction & (j) to take over a company or acquire a controlling or substantial stake in another company; The board of directors must always provide their approval before moving forward with any transaction. This is where the directors’ fiduciary duty comes into play. At the time of the deal, the director is expected to provide information to the stakeholders regarding the company’s rationale, the purpose of the merger, acquisition, or amalgamation, and the anticipated advantages of the transaction. The establishment of a committee including independent directors is mandated by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, which requires the BOD to furnish well-reasoned recommendations regarding the transactions. The company is obliged to publicize these recommendations.
Furthermore, Section 179 stipulates that the BoD may assign its authority to borrow money, invest money, make loans, or issue securities to any committee, managing director, manager, or branch office principal by means of a resolution adopted at a board meeting.
A limitation on the Board of Directors’ authority to act is provided under Section 179(4). It declares that, in the course of the Board of Directors’ exercise of their authority under Section 179, the Company may, by resolution of its general meeting, impose limitations and requirements on them. Furthermore, the Companies Act of 2013’s Section 180 places limitations on the BoD’s mandated powers and makes sure they are not used arbitrarily.
Conclusion
A company’s board of directors is endowed with several functions by the Companies Act of 2013 and its related regulations. They have been given this authority so they may effectively run and manage the business. When using their authority, directors ought to act in the organization’s best interests. It is the fiduciary duty of directors to act in the company’s best interest. The company’s and its stakeholders’ interest The board’s decisions must be made strictly on the basis of their best judgment and in the best interests of the company, free from any interference from outside or personal sources. While using their authority, directors must remain transparent. There should be no excuse for the other firm stakeholders to remain in the dark. The directors are also responsible for encouraging moral behavior and making sure that laws and regulations are followed. Directors can guarantee the organization’s long-term viability and success by adhering to these guidelines. The directors are required to use reasonable caution and diligence when executing their duties. They have to make every effort to obtain data, evaluate risks, and come to well-informed conclusions.
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