Power of Boards (Section 179 of Companies Act, 2013)– Discussed!

The article provides the detailed analysis on Powers of Board pursuant to Section 179 read with Rule 8 of the Companies (Meeting of Board and its Powers) Rules, 2014.

As we all know Company being an artificial person, while having unique feature of being separate legal entity, though cannot act by its own and thus the role of Board of directors of the Company comes into existence.

Section 179(1):

Section 179(1) prescribes that 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.

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

• Act;
• Memorandum;
• Articles;
• In any regulations not inconsistent therewith and duly made thereunder;
• Including regulations made by the company in general meeting.

Also the Board shall not exercise any power or do any act or thing which is directed or required, whether under:

• Act;
• Memorandum ;
• Articles ; or
• Which is to be exercised or done by the company in general meeting.

Section 179(2):

Section 179(2) provides that 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.

Section 179(3):

As per 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 debentures, 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

Rule 8 of the Companies (Meeting of Board and its Powers) Rules, 2014 prescribes additional powers which can also be exercised by the Board of Directors 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.

By passing the resolution at its meeting, the Board may delegate the powers specified in clauses (d) to (f) on such conditions as it may specify to:

• any committee of directors,
• the managing director,
• the manager,
• any other principal officer of the company or
• the principal officer of the branch office (in the case of a branch office of the company)

It shall also be noted that the 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
• the placing of monies on deposit

by a banking company with another banking company on such conditions as the Board may prescribe, shall not be deemed to be a borrowing of monies or making of loans by a banking company within the meaning of this section as the case may be.

Explanations to section 179(3)

I. Nothing in clause (d) shall 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.

II. 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.

Section 179(4):

Nothing in this section shall be deemed to affect the right of the company in general meeting to impose restrictions and conditions on the exercise by the Board of any of the powers specified in this section.

Conclusion

Company being an Artificial person cannot perform any functions by its own thus the need of Board of directors arises. The Board of directors ensures that the company’s management acts on the behalf of the shareholders. As the shareholders are the owners of the Company, the board makes decisions as a fiduciary on their behalf. The board should be a representation of both management and shareholder interests. And thus Companies Act governs the powers and duties of the board as it manages the functioning of the Company.

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