Steering the Ship: How Section 179 Empowers the Board to Guide Indian Companies

13th March, 2024 - 6:12 am Categories: News & Updates 0 Comments

INTRODUCTION

The boardroom, or board of directors is the centre of the business and holds the authority to reshape it to suit the interests of the shareholders and boardroom members. This crucial group works on the business strategy that the company will work on and all of the crucial decisions that ultimately decide the company’s success. At the helm of this critical space are leaders entrusted with immense power to steer the organization to success. leaders entrusted with enormous power to drive organizational success. But where does their authority come from and what are the limits of their actions? Section 179 of the Limited Companies Act 2013 applies here, which is the basis for the board and its powers and limitations. Delving into the intricacies of section 179 is like a journey through a carefully crafted legal maze. On the other hand, it authorizes the board, empowering them to exercise all such powers and do all such actions and things that the company is entitled to exercise and do. This seemingly broad mandate creates an image of near-absolute control, giving the board the power to make major decisions on matters ranging from financial investments to strategic mergers. The law itself, as well as the company’s memorandum and articles, serve as guidelines that set limits and delineate permitted actions. This complex interplay of empowerment and limitation highlights the delicate balance of Section 179. Moving forward, we face another important aspect: delegation. Recognizing the wide range and complexity of the tasks entrusted to the board, section 179 empowers them to delegate certain powers to committees, the CEO or other key personnel. However, this delegation is not complete freedom to act as one wishes. This includes responsibility for careful selection and oversight to ensure that delegated authority is used within the law and within company and internal regulations. As we plan the last stage of our journey, we come to the limitations set out in Section 179. Certain matters considered too critical for delegation or unilateral action by the board are expressly reserved for shareholders’ Approval. This provision is an important safeguard to ensure that the future of the company. Through this article, we delve into the complexities of this important part and reveal its impact on corporate governance and board dynamics.

POWERS OF BOARD OF DIRECTORS

As the Section 179[1] sub-section (i) states 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 authorized to exercise and do[2], In the simple language we can understand that the Board of directors is having all such powers which the laws and the shareholders allows the board to do so. Provided that the exercising such powers or doing such act or things the board shall be subject to the provisions contained in that behalf in this Act, or in the any memorandum of understanding signed by the company or any articles of association which is mainly the constitution of the company and which is not inconsistent therewith but he shareholders or the boards of directors with the shareholders decided in the general meetings of the company. Furthermore, that the board of director shall not exercise any such power or any such things which is specifically either mentioned in the memorandum of understanding or the articles of association or otherwise, should only be decided in the general meetings. Therefore, from the above-mentioned provisions we can understand that the powers are given to the board of directors but it is not absolute and it is controlled by the shareholders of the company.

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Section 179 sub section (ii) explains further that no regulations made by the company in the general meetings shall invalidate any prior act of the Board which would have been valid if that regulation had not been made, to understand this firstly, we need to understand the concept of ex-post facto law which means “from a things done afterward”, which means that any regulation that the company would make in the general meetings shall not invalidate any prior act which the board made and would have been valid if that regulation has not been made.

Section 179, sub-section (iii) further explains the powers which the Board of Directors shall exercise on behalf of the company by means of the resolution passed by the meetings of the board. The powers are mentioned in the sections are-: (a) That the board of directors can make a call on shareholders in respect of money unpaid on their shares (b) to authorize if the meetings decide to buy back of securities under section 68. For example, when a company needs the shares which is sold by the company in past the board decide that the shares will be bought back then the board of directors have the power to do so. (c) They have the power to issue securities, including debentures, whether in or outside India. (d) go borrow monies for the company, when there is need for money in the company the board of directors have the power money as decided in the general meeting. (e) to invest the funds of the company as decided in the general meetings of the company (f) to grant loans to anyone as decided or give guarantee or provide security in respect of the loans if needed. (g) to approve the financial statement and board’s report of the company. (h) to diversify the company’s business as decided by the shareholders and the board in the general meetings. (i) if it is approved that the company amalgamation, merger or reconstruction the board of directors have the power to do so. (j) to take over a company or to acquire a controlling or substantial stake in any another company. (k) any other matter which may be prescribed by the board and the stakeholder in the general meetings. Furthermore, additional powers mentioned in the Section, provided that the board may, by resolution passed at the meeting, authorize any committee of the board, the managing director, director or manager of the company or, in the case of a branch of the company, a branch of the managing director, the powers specified in clauses (d) to (f) under the conditions set out therein. Provided that the banking company accepts in the ordinary course of business cash deposits from the public repayable on demand or otherwise and withdrawn by cheque. exchange, arrangement or otherwise or with a deposit from a banking company to another banking company under the conditions determined by the board, the money is not considered a loan or, as the case may be, a loan from the banking company specified in this section. Provided also that in the case of a specific IFSC Private company, the board can exercise its powers with decisions adopted at a board meeting or with decisions adopted on a proposal. Provided also that, in the case of a specific IFSC Private company, the board may exercise its powers by decisions adopted at a board meeting or by decisions adopted on a proposal.

The bare provisions also mentioned some explanation

Explanation I.—Nothing in clause (d) shall apply to borrowings by a banking company from other banking companies or from RBI.[3]

Explanation II.—. In transactions between the company and the bankers, the exercise of the powers specified in clause (d) means an agreement between the company and the bankers to borrow money as an overdraft or cash credit or otherwise. not actual daily activities with overdrafts, cash credits or other accounts that actually use an arrangement so made is actually availed of.[4]

Lastly, the section 179 sub-section (iv)[5] mentions that Nothing in this section shall be deemed to affect the right of the company in general meeting to impose restrictions and conditions to the board to exercise the powers specified in this section. In other words, the Board has the powers mentioned in this section, but the shareholders, acting together in a general meeting, can still control how and when the Board uses them.

CONCLUSION

Section 179 of the Companies Act, 2013 is the cornerstone of corporate governance in India. By giving the board broad powers, it empowers them to move in and to the company, emphasizing their responsibility and accountability. Although there are no major changes to the detail itself, its effect evolves dynamically in a rapidly changing landscape. Regulatory statements that emphasize stakeholder interests and good governance form the framework for governance and decision-making. Statutory interpretations explain the nuances of government and power and duty and set precedents for future application. In an evolving business environment characterized by globalization and technological disruption, governments must provide adaptive and strategic management within the parameters set forth in Section 179. Going forward, the continued interaction of these elements will ensure the relevance and effectiveness of section 179. The constant refinement of the regulation, evolving case law and the ever-changing business environment require further interpretations and implementation changes. Through continued dialogue and best practices, Section 179 can continue to be the cornerstone of ethical, transparent and responsible corporate governance in India.

Author: Abhiket Anand, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

References

[1] Companies Act, 2013

[2] Section 179(i), Companies Act, 2013.

[3] Companies Act, 2013

[4] Section 179(iii), Companies Act, 2013

[5] Companies Act, 2013