(12.14.9) Powers of the Board of Directors

Section 291 provides for general powers of the Board of directors. It provides:

Subject to the provisions of the Act, 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.

However, the board cannot exercise any Power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting. In exercising any such power or doing any such act or thing, the Board will be subject to the provisions contained in that behalf in this or any other Act, or in the memorandum or articles of the company, or in any regulations not inconsistent therewith and duly made thereunder, including regulations made by the company in general meeting.

Thus, the Board may exercise all powers of the company and can do all such acts and things that the company can do. But the exercise of such powers of the Board

shall be in conformity with the provisions of the Companies Act or any other Act and Memorandum, Articles and resolutions of the company in general meetings. Thus, a general meeting may, by amending the articles, restrict the powers of the Board. But the meeting cannot invalidate any act validly done by the Board except in the following cases: 1. where the directors are either unable or unwilling to act [Barrona. v. Potter(1914) 1 Ch.895]; 2. when the directors act for their own personal interests in complete disregard to the company [Marshall’s Value Gear Co. Ltd. v. Manning Wardle & Co. Ltd (1909) Ch. 267];3. when the Board has become incompetent to act e.g. where all the directors constituting the Board are interested in a dealing or where none of the directors was validly appointed [B.N. Vishwanathan v. Tiffins B.A. and Ltd. AIR (1953) Mad 510].

The mode ot manner of exercise of board’s powers, Section 292 provides that the

Board of directors of a company shall exercise the following powers on behalf of the company and it shall do so only by means of resolutions passed at meeting of the Board: (i) the power to make calls on shareholders in respect of money unpaid on their shares; (ii) the power to issue debentures; (iii) the power to borrow money otherwise than on debentures; (iv) the power to invest funds of the company; and (v) the power to make loans.

The Board may, however, by a resolution passed at a meeting delegate to any committee of directors, the managing directors, the manager or any other principal officer of the company, the powers specified in clauses (iii), (iv) and (v) on such conditions as the Board may prescribe.

Besides the powers specified in s.292, there are certain other powers also which can be exercised only at the meeting of the board. These are: (i) The power of filling casual vacancies in the Board (s.262); to appoint additional directors (s.260); and to appoint alternate disectors (s.313) (ii) sanctioning of a contract in which a director is interested [s.297]. (iii) the power to recommend the rate of dividend to be declared by the company at the Annual General Meeting, subject to the approval by the shareholders.

In the following cases, not only that the powers be exercised at the Board’s meeting but also that every director present and entitled to vote must consent thereto: 1. The power to appoint a person as managing director or manage, who is already managing director or manager of another company (Ss.316 and 386). 2. The power to invest in any shares and debentures of any other body corporate (s.372).

Restrictions on powers of directors. Section 293 provides that the Board of Directors of a public company or a private company which is a subsidiary of a public company cannot exercise the following powers without the consent of the shareholders in general meeting:

  1. Sell, lease or otherwise dispose of the whole, 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 such undertaking.

However, this restriction does not apply to the case of a company whose ordinary business is to sell or lease properly.

  2. Remit or give time for the re-payment of any debt due by a director except in the case of renewal or of continuance of an advance made by a banking company to its director in the ordinary course of business.

  3. Invest, otherwise than in trust securities, the amount of compensation received by the company in respect of compulsory acquisition of any fixed assets of the company.

  4. Borrow money exceeding the aggregate of the paid-up capital of the company and its free reserves. "Borrowing’ does not include temporary loans obtained from the company’s bankers in the ordinary course of business.

  5. Contribute in any year, to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amount exceeding Rs 50,000 or 5% of its average net profit for the last three financial years, whichever is greater.

However, contributions of National Defence Fund or any other fund approved by the Central Government for the purpose of national defence are exempted from the above provisions. Any amount maybe contributed without obtaining the sanction of the company is general meeting.

The Companies Act does not expressly empower companies to borrow money. Therefore, most of companies expressly provide for such borrowing powers in the memorandum. In such case, where memorandum authorises the company to borrow, the Articles provide as to how and by whom these powers shall be exercised. It may also fix up the maximum which can be borrowed by the company.