Board of Directors Companies Act 2013 (Duties & Powers)

The Following article is an detailed explanation under the Companies Act 2013of Board of Directors Meaning, Powers of Board of Directors, Duties of Board of Directors along with the Restriction on Powers of Board etc. Section 179 deals with the Powers of Board, Section 180(1) deals with the Restriction on Powers of Board. Also read our Previous articles on Directors Appointment in casual Vacancy, Appointment of Additional Director  and Appointment of Alternate Director Lets Know about the detailed explantion of Board Directors.

Board of Directors Powers Duties Restrictions companies act 2013

Board of Directors Meaning

A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization, which can include a non-profit organization or a government agency or corporation.

A board of directors’ activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. The board of directors appoints the Chief Executive Officer of the corporation and sets out the overall strategic direction.

Powers of Board of Directors

Section 179 empowers the board to exercise its powers in all areas of the Act, except where it is specifically mentioned in the Act or in the memorandum or articles that the power shall be exercised at a general meeting by the shareholders.

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:

  1. to make calls on shareholders in respect of money unpaid on their shares;
  2. to authorise buy-back of securities under section 68;
  3. to issue securities, including debentures, whether in or outside India;
  4. to borrow monies;
  5. to invest the funds of the company;
  6. to grant loans or give guarantee or provide security in respect of loans;
  7. to approve financial statement and the Board’s report;
  8. to diversify the business of the company;
  9. to approve amalgamation, merger or reconstruction;
  10. to take over a company or acquire a controlling or substantial stake in another company;
  11. 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 other 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:

Provided further 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, as the case may be, a making of loans by a banking company within the meaning of this section.

Explanation 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.

Explanation 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.

Rule 8 of the Companies(Meeting of Board and its powers) Rules, 2014

provides that in addition to the powers specified under section 179(3) of the Act, the following powers shall 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 take note of appointment(s) or removal(s) of one level below the Key Management Personnel;
  4. to appoint internal auditors and secretarial auditor;
  5. to take note of the disclosure of director’s interest and shareholding;
  6. to buy, sell investments held by the company (other than trade investments), constituting five percent or more of the paid up share capital and free reserves of the investee company;
  7. to invite or accept or renew public deposits and related matters;
  8. to review or change the terms and conditions of public deposit;
  9. to approve quarterly, half yearly and annual financial statements or financial results as the case may be

Restriction on Powers of Board

According to section 180(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.

Explanation : For the purposes of this clause, –

  1. “undertaking” shall mean an undertaking in which the investment of the company exceeds twenty per cent. of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates 20% of the total income of the company during the previous financial year;
  2. the expression “substantially the whole of the undertaking” in any financial year shall mean 20% or more of the value of the undertaking as per the audited balance sheet of the preceding financial year;

(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 and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business:

Provided 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, shall not be deemed to be a borrowing of monies by the banking company within the meaning of this clause.

Explanation : For the purposes of this clause, the expression “temporary loans” means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature;

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

According to section 180(3) nothing contained in clause (a) of sub-section (1) shall affect –

  1. the title of a buyer or other person who buys or takes on lease any property, investment or undertaking as is referred to in that clause, in good faith; or
  2. the sale or lease of any property of the company where the ordinary business of the company consists of, or comprises, such selling or leasing.

Section 180(2) contains provisions on limits on borrowing the section provides that 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.

Any special resolution passed by the company consenting to the transaction as is referred to in clause (a) of subsection (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:

Provided that this sub-section shall not be deemed to authorise the company to effect any reduction in its capital except in accordance with the provisions contained in this Act.[Section 180(4)]

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. [section 180(5)]

Duties of Board of Directors

  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. The director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
  4. 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

Board of Directors – Contribution of Bonafide and Charitable Funds

According to section 181 the Board of Directors of a company may contribute to bona fide charitable and other funds:

Provided that prior permission of the company in general meeting shall be required for such contribution in case any amount the aggregate of which, in any financial year, exceed five per cent. of its average net profits for the three immediately preceding financial years.

Prohibition and Restrictions Regarding Political Contribution

According to section 182 (1) the following companies are barred from making political contributions

  • Government company
  • The company which has been in existence for less than 3financial years, may contribute any amount directly or indirectly to any political party:

Provided that the amount referred to in sub-section (1) or, as the case may be, the aggregate of the amount which may be so contributed by the company in any financial year shall not exceed seven and a half per cent. of its average net profits during the three immediately preceding financial years:

Provided further that no such contribution shall be made by a company unless a resolution authorising the making of such contribution is passed at a meeting of the Board of Directors and such resolution shall, subject to the other provisions of this section, be deemed to be justification in law for the making and the acceptance of the contribution authorised by it.

Board of Director – Contributions for Political Purpose

Section 182(2) provides that without prejudice to the generality of the provisions of section 180(1)

(a) a donation or subscription or payment caused to be given by a company on its behalf or on its account to a person who, to its knowledge, is carrying on any activity which, at the time at which such donation or subscription or

payment was given or made, can reasonably be regarded as likely to affect public support for a political party shall also be deemed to be contribution of the amount of such donation, subscription or payment to such person for a political purpose;

(b) the amount of expenditure incurred, directly or indirectly, by a company on an advertisement in any publication, being a publication in the nature of a souvenir, brochure, tract, pamphlet or the like, shall also be deemed, –

  1. where such publication is by or on behalf of a political party, to be a contribution of such amount to such political party, and
  2. where such publication is not by or on behalf of, but for the advantage of a political party, to be a contribution for a political purpose.

Board of Director –  Contribution to National Defence Fund

Section 183(1) states that the Board of Directors of any company or any person or authority exercising the powers of the Board of Directors of a company, or of the company in general meeting, may, notwithstanding anything contained in sections 180, 181 and section 182 or any other provision of this Act or in the memorandum, articles or

any other instrument relating to the company, contribute such amount as it thinks fit to the National Defence Fund or any other Fund approved by the Central Government for the purpose of national defence.

Every company shall disclose in its profits and loss account the total amount or amounts contributed by it to the Fund referred to in sub-section (1) during the financial year to which the amount relates. [section 183(2)]