Powers of the Board of Directors under Section 179, Companies Act?

Introduction:?

The Board of Directors governs an organization registered under the Companies Act, it is not a choice, instead, it is an obligation under the said act. The powers of the board are enshrined under Section 179. “They shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to do”.

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Multiple types of companies can be registered under the Companies Act, and all such forms demand a certain number of individuals on their Board of Directors. Despite the difference in the composition of the Board of Directors, Section 179 empowers the board to manage the affairs of its incorporated company efficiently.

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Section 179 does not explain the specific types of companies recognised under the Act. Yet, it applies to all of them, be it a Private Company, Public Company, or any other form of company mentioned in this Act.

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The powers conferred under this section include various operational and administrative functions, that the board may perform without asking for specific approval from the shareholders. However, the board can’t exercise its power outside the purview of the Articles of Association or the provisions of the Companies Act. That, the board’s power shall not be arbitrarily exercised to perform illicit activities. Nor can it be used to attain personal gains, the authorised powers must only be exercised in the interest of the incorporated company.

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Powers of the Board of Directors under Section 179:

Section 2(10) of the Act defines the Board of Directors as a collective body of directors of a company incorporated under the Companies Act. Each member of this collective body is bestowed with general powers, their specific powers may differ from each other but their general powers are similar and covered under this section. These powers enable the directors to make decisions on behalf of the company, eradicating the scope of confusion and enhancing the smooth functionality of the organisation.

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Powers under Section 179 are like guidelines for the directors, they chalk out specific roles that the board is expected to perform. For instance, it specifies that the directors must not carry out any duty which is to be performed in the general meeting. Even if such an act is mentioned in the AOA or MOA of the company, the directors would be prohibited from executing any power that is supposed to be exercised in the general meeting.

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This section also points out that in general meetings, the company can impose restrictions or direct the board to omit the powers mentioned in this provision. The company can put restrictions under Section 179(4), which specifies that this section can not affect the right to perform certain actions in the general meeting. However, general meetings can not decide to invalidate any past actions of the board, the company can put restrictions only on future actions but can not regulate retrospectively.

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The powers enshrined under this section can primarily be categorised under two heads: Monetary powers and Non-Monetary powers.

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Monetary Powers:

• To call shareholders regarding unpaid share values.
• To authorise the buy-back of securities.
• To issue securities, including debentures, in and outside India.
• To invest Company funds.
• To borrow money, grant loans, assure guarantee, or provide security for loans.
• To approve the Board’s report and the Company’s financial statement.

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Non-Monetary Powers:

• To diversify the Company’s business.
• To approve the reconstruction, merger, or amalgamation of the Company.
• To take over a company.
• To acquire a controlling or substantial stake in another Company.

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The board can exercise the above-mentioned powers through a resolution passed in the general meeting. That, such resolution must be filed with the registrar as required under Section 117 of the Act. It cannot be avoided and any delay in informing the registrar must be fined accordingly. Through a resolution passed in the meeting, the board may delegate some of its power to the company’s executives like the managing director, principal officer, a committee of directors, or any other executive person. However, not every power can be delegated, only a few monetary powers of borrowing money, granting loans, or investing the company’s funds.

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Relation of Banking Companies and other Companies under Section 179?

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The concept of a loan and borrowing shall mean differently for a banking company, the deposits of the bank customer shall not be treated as an outcome of the powers mentioned in Section 179. It will be treated as the normal course of business. It isn’t treated as loans or borrowings because the banking companies ought to pay back the deposits on the customer’s demand, whether through cheques, drafts, or other means.

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It isn’t just about the customer’s money, if a banking company is taking money from some other bank or the RBI even then it won’t be treated as an exercise of the general powers of the board. If the board of a banking company prescribes to deposit their money in some other bank, it shall not be covered under the meaning of loans or borrowings as specified in this section.

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Conclusion:

The significance of Section 179 transcends legal compliance, it empowers directors to act on behalf of the company in various operational and administrative capacities. It embodies the essence of strategic management and ethical management. This section is a stepping stone for the Board of Directors referred to as the general powers.?

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