Board of Directors : Powers, Roles & Responsibilities

The management of the affairs of a company is vested with Board of Directors. Subject to the restriction of the Companies Act, the Board can delegate any of its authority to its sub-ordinate committee or any other individual. Here, in this article we will discuss about the Roles, Responsibilities and Powers of the Board of Directors as enumerated in the Companies Act.

 

MEETINGS OF BOARD OF DIRECTORS

{APPLICABLE PROVISIONS: Section 173 and 175 of the Act read with rule 3, 4 and 5 of Companies (Meetings of Board and its Powers) Rules, 2014 and Secretarial Standard-1}

 

Meeting: Important Deadlines

Every Company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation except in case of One Person Company and shall hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than One hundred and twenty days shall intervene between two consecutive meetings of the Board.

One Person Company , Small Companies and Dormant Companies are required to conduct one meeting in each half of the Calendar year and the gap between the two meetings should not be less than Ninety days.

Quorum and Adjournment provisions

The quorum for a meeting of the Board of Directors of a company as prescribed by Section 174 of the Companies Act 2013 shall be one third of its total strength or two directors, whichever is higher, but if the Articles of Association of a Company prescribe a higher strength of Quorum, then the requirements of the Quorum shall be subject to the Articles of Association. The participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum and if  a meeting of the board could not be held for want of quorum, then, unless the articles of the company otherwise provide, the meeting shall automatically stand adjourned to the same day at the same time and place in the next week or if that day is a national holiday, till the next succeeding day, which is not a national holiday, at the same time and place.

The quorum should be ascertained before start the meeting for valid transaction of the business to be discussed at the meeting. And any fraction of a number shall be rounded off & deemed as one and Quorum shall be present not only at the time of commencement of the Meeting but also while transacting business.

Director shall not be counted for Quorum in respect of an item in which he is interested and he shall not be present, whether physically or through Electronic Mode, during discussions and voting on such item.

 

Calling of the Meeting: Notice & Agenda

A meeting of the Board shall be called by giving not less than seven days’ notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means.

In case the company sends the Notice by speed post or by registered post or by courier, an additional two days shall be added for the service of Notice.

The Agenda, setting out the business to be transacted at the Meeting, and Notes on Agenda shall be given to the Directors at least seven days before the date of the Meeting, unless the Articles prescribe a longer period. (SS-1)

To transact urgent business, the Notice, Agenda and Notes on Agenda may be given at shorter period of time than stated above, if at least one Independent Director, if any, shall be present at such Meeting.

If no Independent Director is present, decisions taken at such a Meeting shall be circulated to all the Directors and shall be final only on ratification thereof by at least one Independent Director, if any and In case the company does not have an Independent Director, the decisions shall be final only on ratification thereof by a majority of the Directors of the company, unless such decisions were approved at the Meeting itself by a majority of Directors of the company. (SS-1)

 

Participation through Video Conferencing: Keeping up on the Technological Front.

The Board of Directors can Participate in the Meeting of board of Directors  either himself  or through video conferencing or other audio visual means, as prescribed under the act, which are capable of recording and recognizing the participation of the directors and of recording and storing the proceedings of such meetings along with date and time.

And the Central Government may, by notification, specify such matters which shall not be dealt with in a meeting through video conferencing or other audio visual means.

Central Government notified the matters not to be dealt with in a meeting through video conferencing or other audio visual means and these are as given below:

  • To approve the annual financial statements
  • To approve the Board’s report
  • To approve the prospectus
  • Audit Committee Meetings for “consideration of financial statement including consolidated financial statement, if any, to be approved by the Board under sub-section (1) of section 134 of the Act”
  • The approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover

Every director of the company shall attend, at least one Board meeting in a financial year of the company, in person.

The office of a Director shall become vacant in case the Director absents himself from all the Meetings of the Board held during a period of twelve months with or without seeking leave of absence of the Board. (SS-1)

 

Disclosure of Interest (Section 184)

Every director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form No. MBP-1

 

Secretarial Standards: Applicability

Every company shall observe Secretarial Standards with respect to General and Board Meetings specified by ICSI and approved by the Central Government. Duty is cast on the Company Secretary to ensure that the company complies with the applicable Secretarial Standards.

 

 

POWERS OF THE BOARD

{APPLICABLE PROVISIONS: Section 179 of the Act read with rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014}

Discretion of the Board

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 but in exercising such power or doing such act or thing, the Board shall be subject to the provisions contained in that behalf in the Act, or in the memorandum or articles, or in any regulations not inconsistent therewith and duly made there under, including regulations made by the company in general meeting but the Board shall not exercise any power or do any act or thing which is directed or required, whether under the Companies Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting only. And no regulation made by the company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.

 

Powers to be exercised by Board only at meeting

The Act mandates 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 meetings of the Board:-

a. The power to make calls on shares holders in respect of money unpaid on their shares
b. To authorize buy-back of securities under section 68
c. The power to issue securities, including debentures
d. The power to borrow monies
e. The power to invest the funds of the company
f. The power to grant loans or give guarantee or provide security in respect of loans
g. To approve financial statement and the Board’s Report
h. To approve amalgamation, merger or reconstruction
i. To take over a company or aquire a controlling or substantial stake in another company
j. To make political Contribution
k. To Appoint or Remove KMP
l. To Appoint or remove Internal and Secretarial Auditor

 

Delegation of Authority

However, the Board may, by a resolution passed at a meeting delegate to any committee of directors, the managing director, or the manager of the company or any other principal officer of the company or in the case of a branch office of the company, a principal officer of the branch office, the powers specified in clauses c, d and e, to the extent specified in the resolution and subject to such conditions as may be imposed.

 

RESTRICTIONS ON POWERS OF BOARD

{APPLICABLE PROVISIONS: Section 180 of the Act read with Rule 9 of Companies (Meetings of Board and its Powers) Rules, 2014}

The board of directors is empowered to run the affairs and business of the company in a free manner but the Companies Act puts certain restrictions on the powers of the Board.
As per the provisions of the Act, the Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:-

  • 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.
  • To invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation.
  • 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 but 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.
  • To remit, or give time for the repayment of, any debt due from a director.

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) of section 180 shall specify the total amount up to which monies may be borrowed by the Board of directors.

 

Resolution by Circulation

The Act requires certain business to be approved only at Meetings of the Board. However, other business that requires urgent decisions can be approved by means of Resolutions passed by circulation. Resolutions passed by circulation are deemed to be passed at a duly convened Meeting of the Board and have equal authority.

No resolution shall be deemed to have been duly passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the directors, or to all the members of the committee, then in India (not being less in number than the quorum fixed for a meeting of the Board of committee, as the case may be), and to all other directors or members at their usual address in India, and has been approved by such of the directors as are then in India, or by a majority of such of them, as are entitled to vote on the resolution.

The Resolution is considered as passed when it is approved by a majority of the Directors entitled to vote on the Resolution, unless not less than one-third of the total number of  Directors for the time being require the Resolution under circulation to be decided at a Meeting.

The Resolution, if passed, shall be deemed to have been passed on the last date specified for signifying assent or dissent by the Directors or the date on which assent from more than two-third of the Directors has been received, whichever is earlier, and shall be effective from that date, if no other effective date is specified in such Resolution.

 

As per SS-1, following is the Illustrative list of items of business which shall not be passed by circulation and shall be placed before the Board at its Meeting

 

General Business Items

  • Noting Minutes of Meetings of Audit Committee and other Committees.
  • Approving financial statements and the Board’s Report.
  • Considering the Compliance Certificate to ensure compliance with the provisions of all the laws applicable to the company.
  • Specifying list of laws applicable specifically to the company.
  • Appointment of Secretarial Auditors and Internal Auditors.

 

Specific Items

  • Borrowing money otherwise than by issue of debentures.
  • Investing the funds of the company.
  • Granting loans or giving guarantee or providing security in respect of loans.
  • Making political contributions.
  • Making calls on shareholders in respect of money unpaid on their shares.
  • Approving Remuneration of Managing Director, Whole-time Director and Manager.
  • Appointment or Removal of Key Managerial Personnel.
  • Appointment of a person as a Managing Director / Manager in more than one company.
  • According sanction for related party transactions which are not in the ordinary course of business or which are not on arm’s length basis.
  • Purchase and Sale of subsidiaries/assets which are not in the normal course of business.
  • Approve Payment to Director for loss of office.
  • Items arising out of separate meeting of the Independent Directors if so decided by the Independent Directors.

Corporate Actions

  • Authorize Buy Back of securities
  • Issue of securities, including debentures, whether in or outside India.
  • Approving amalgamation, merger or reconstruction.
  • Diversify the business.
  • Takeover another company or acquiring controlling or substantial stake in another company.

For any queries and legal opinions please contact:-

J. K. Gupta & Associates

257, Vardhaman City Center,

Gulabi Bagh, Near Shakti

Nagar Railway Under Bridge

New Delhi-110052

Phone No- 011-23654449/ +919810043622

Email Id:- [email protected]

Post Tagged with board of directors, Company secretary, Director’s power, meetings of board, meetings of directors, powers of board of directors, Quorum of board meeting, responsibilities of directors, roles of directors, secretarial audit, secretarial compliance audit,

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