POWERS OF THE BOARD of directors

under companies act,2013

In the corporate world, the Board of Directors exercise powers to direct, supervise and oversee the management of the Company. Power is an ability to influence others in their acts and beliefs. Power and Authority are often used interchangeably because of common objective of influence of actions but both are different. Power is capacity to control and influence the act or beliefs of others while Authority is a formal legal right or permission to do the acts or things and entails power.

A Business Organisation is driven by maximization of profits and every minute act, strategy, and decision in specific are determined and evolved by exercise of powers vested with the Board. The combined environment of optimal resources and the drivers of the profits i.e. expansions, new ventures, closures, and course corrections etc., compel the Board of Directors for timely executions for desired results and powers are critical aspect to execute the same. The Company has the general powers to do everything except those that are ultravires.

A Company, being an artificial person, acts through its Board of directors who are multifaceted playing as agent, trustee and employees and draw their powers from the statutes and constitutional documents of the Company. At this juncture, it is pertinent to note that the Company and Directors relationship is that of principal and agent. It has been established in the case of Ferguson v. Wilson (1904) that Directors are agents of the Company and further reiterated in the case of Raj Cylinders and Containers vs Hindustan General Industries Ltd.

Inherent Powers of Board under Companies Act, 2013

Section 179 of the Companies Act, 2013 (“the Act”) deals with the powers of the Board. Sub Section (1) of Section 179 provides the Board’s entitlement for the powers exercised by the Company. The Board of directors are authorised to exercise the powers and do the things and acts on behalf of the Company. However, the exercise of power under section 179 is circumscribed by making the power of the Board under section 179 subject to provisions of:

i) Companies Act,2013 or
ii) Memorandum of Association(“MOA”) or
iii) Articles of Association(“AOA”) or
iv) Regulations made by the Company in the general meeting consistent with the Act

 Whether Shareholder’s Agreements can curtail Board’s powers?

At this juncture, question arises whether the shareholders agreements can curtail the powers of the Board of Directors. It has been held in the case of Rolta India Ltd., Mumbai and Another v. Venire Industries Ltd. Haryana and Others (1999) that shareholders agreements, if not incorporated in the AOA do not bind the Company and so the Board of Directors, and also, pooling agreements cannot restrict the inherent the powers or statutory rights of the Directors but have an impact on the outcome of Company’s decision. Pooling agreement is an arrangement between the shareholders to vote in coordinated manner.

Second proviso explicitly states that as required or directed by the Act or MOA or AOA, certain powers shall be exercised by the Board only in the general meeting.

Sub Section (2) of Section 179 provides that a regulation made by the Company in the general meeting shall not invalidate the prior valid acts of the Board. Thus, any restriction on the powers of the Board by the members shall be prospective rather than retrospective. Shareholders regulations must be aimed to avert any abuse of power by the Board and for upholding the corporate governance principles by the Board.

 Specific powers of Board as mentioned under Sec. 179(3)

Sub Section (3) of the Section 179 provides for specific powers as enlisted below which shall be exercised by the Board of Directors only by means of resolution passed at their meeting.
a) Making calls on shareholders regarding unpaid share amounts.
b) Authorizing the buy-back of securities under Section 68.
c) Issuing securities, including debentures, domestically or internationally.
d) Borrowing funds.
e) Investing the company’s funds.
f) Granting loans or providing guarantees or securities for loans.
g) Approving financial statements and the Board’s report.
h) Diversifying the company’s business activities.
i) Approving amalgamations, mergers, or reconstructions.
j) Acquiring control or a substantial stake in another company.
k) Any other matters prescribed by regulations.

The aforesaid powers are not absolute but restrictive in nature. For instance, passing of special resolution at the general meeting is mandatory for the following: –
• Buy back of securities above ten percent of total paid up capital and free reserves under section 68;
• Loans, investment or guarantee exceeding the prescribed percent under section 186 and mandates unanimous approval of the Board;
• Selling or leasing or disposal of undertakings, borrowing of monies under section 180.

Further, sub section (3) prescribes that the Board shall exercise the aforesaid powers only at the meeting of Board of Directors and not by circulation. Section 175 of the Act provides for passing of certain resolutions through circulation for the purpose of administrative convenience.

In addition to the above powers, Rule 8 of Companies (Meetings of Board and its Powers) Rules,2014 provides the Board to exercise the powers in respect of:
(1) to make political contributions;
(2) to appoint or remove key managerial personnel (KMP);
(3) to appoint internal auditors and secretarial auditor;
Further, the Board of Directors shall exercise the powers collectively by means of resolution passed at their meeting. An Individual Director has no power to act on behalf of a Company of which he is a director unless by some resolution of the Board of Directors of the company specific power is given to him/her.
First proviso to sub section (3) of section 179 provides for delegation of powers, which is limited in scope . The Board may delegate the powers in respect of clause (d) to (f) i.e., borrowing of monies, investment of funds and grating loans or give guarantee or provide security to
– Committee of directors
– Managing Director
– Manager,
– Principal of the company or branch office

It is necessary to understand the term “delegate” in reference to above proviso. Delegation means a person or entity granting authority to other person to perform certain task/actions on its behalf which otherwise would have performed themselves. It does not mean parting the powers by the person who grants authority and such delegated power is subject to resumption. Thus, Board may resume its authority over delegated powers at any time.

For the purpose of smooth functioning of business, the Board of Directors can delegate the powers only in respect of borrowing monies or investment or grant of loan or provide security or give guarantee and shall delegate by means of passing a resolution at their meeting providing the terms of reference i.e., setting the limits , object, validity, authorisation and on such other conditions in specific. Further, it is to be noted that these delegated powers are subject to provisions of the Act and constitutional documents of the Company.

Second proviso to sub section (3) exempts the Banking companies only to the extent of borrowing monies as acceptance of deposits from the public repayable on demand and withdrawal and placing of deposit by the banking company is not deemed to be borrowing of monies.

Sub-section (4) of Section 179 states that the Company has the power to impose the restrictions and conditions on the exercise by the Board of any of the powers specified under section 179. This provision aims to have check and balances on the powers exercised by the Board.

Conclusion

Being the brain of the organization, the Board of Directors have the oversight role beginning from fundamentals to execution for creating a long-term value and sustainability which demands effective Corporate Governance. Power plays key role in effecting the Corporate Governance in the Organization that is composed of with people, system and process. Power, which is nothing but an authority shapes up thinking and actions influencing the decision-making process. It is proven fact that well governed companies make good in commercial terms and also, an acknowledgement. Thus, the Board shall exercise their powers diligently for facilitating a good Corporate Governance in the Company.