Board Composition and Powers of the Board: formula sheet

Key formulas

Minimum number of directors

Public company: 3 | Private company: 2 | One Person Company: 1

Section 149(1)(a).

Maximum number of directors

15, unless a special resolution is passed to appoint more

Section 149(1)(b) and first proviso.

Resident director

At least 1 director staying in India for not less than 182 days in the financial year

Section 149(3). For a new company, applies proportionately at the end of the year of incorporation.

Independent directors in a listed public company

Required number = one-third of total directors, with any fraction rounded up to 1

Section 149(4) and its Explanation. Example: 8 directors gives 8 ÷ 3 = 2.67, so 3 independent directors.

Woman director

At least 1 woman director for prescribed classes of companies

Second proviso to section 149(1). The classes are set by rules, so do not state them as in the Act.

Limit on directorships

Max 20 companies in all (dormant companies excluded) | Max 10 public companies

Section 165(1). Private companies that are holding or subsidiary of a public company count towards the public company limit. Members may by special resolution fix a lower limit for their company.

Board size (s. 149(1))

Minimum: public company 3, private company 2, One Person Company 1. Maximum: 15, more only by special resolution.

Applies to every company. The woman director requirement applies to prescribed classes only.

Additional director (s. 161(1))

Appointed by Board if articles permit; holds office up to the next AGM or the last date on which the AGM should have been held, whichever is earlier.

A person who failed to get appointed as director in a general meeting cannot be appointed as additional director.

Alternate director (s. 161(2))

Appointed if authorised by articles or a general meeting resolution; for a director absent from India for not less than three months.

Cannot be a person already alternate for another director in the company or already a director of the same company. He vacates office when the original director returns to India and cannot serve longer than the original director's term.

Alternate for an independent director

Must be qualified to be appointed as an independent director.

First proviso to s. 161(2).

Nominee director (s. 161(3))

Board may appoint, subject to articles, a person nominated by an institution under any law or agreement, or by the Central or State Government through its shareholding in a Government company.

Explanation to s. 149: nominee director also covers one appointed by any Government or other person to represent its interests.

Casual vacancy (s. 161(4))

Board fills the vacancy at a Board meeting, subject to the articles; to be approved by members at the immediate next general meeting; holds office only for the remainder of the predecessor's term.

Applies where the vacated director was appointed by the company in general meeting.

Independent directors in listed public companies (s. 149(4))

At least one-third of the total directors; any fraction is rounded off as one.

So a Board of 7 needs 3 (7 ÷ 3 = 2.33, rounded to 3). The Central Government may prescribe minimums for other classes.

Independent director tenure (s. 149(10), (11))

Up to 5 consecutive years per term; reappointment by special resolution; maximum two consecutive terms; eligible again after a gap of 3 years.

During the 3-year gap he cannot be appointed or associated with the company in any other capacity, directly or indirectly.

Residence (s. 149(3))

At least one director who stays in India for not less than 182 days in the financial year.

For a newly incorporated company, it applies proportionately at the end of the year of incorporation.

Independent director declaration (s. 149(7))

At the first Board meeting he attends, then at the first meeting of every financial year, and whenever circumstances change.

The declaration says he meets the criteria in s. 149(6).

General power of the Board

Board power = all powers the company can exercise − matters reserved for general meeting

Section 179(1). Always subject to the Act, memorandum, articles and valid regulations of the company.

Powers only by Board resolution at a meeting

Section 179(3)(a) to (k): calls, buy-back, issue of securities, borrowing, investing, loans/guarantee/security, financial statement and Board's report, diversification, amalgamation/merger/reconstruction, takeover or controlling stake, other prescribed matters

These must be exercised by resolutions passed at Board meetings, not by individual directors.

Delegable powers

Delegation allowed for clauses (d) to (f) of section 179(3): borrow, invest, loan/guarantee/security

By resolution passed at a meeting, to a committee of directors, managing director, manager or other principal officer (or branch principal officer), on specified conditions.

Protection of prior acts

New regulation in general meeting does not invalidate a prior Board act that was valid without it

Section 179(2).

Members' right to restrict

Company in general meeting may impose restrictions and conditions on exercise of section 179 powers

Section 179(4).

Producer Company

Section 378R: Board powers by resolution at its meeting; Section 378S: listed matters only by resolution at AGM of Members

Section 378R also says a director or group of directors who do not constitute the Board cannot exercise Board powers.

Borrowing limit test

Money to be borrowed + money already borrowed > Paid-up share capital + Free reserves + Securities premium ⇒ special resolution needed

Exclude temporary loans from bankers in the ordinary course of business. The inclusion of securities premium came by the 2018 amendment.

Undertaking

Investment > 20% of net worth (preceding year's audited balance sheet) OR generates 20% of total income (previous financial year)

Either condition is enough.

Substantially the whole of the undertaking

Value of the part sold or leased ≥ 20% of the value of the undertaking (audited balance sheet of the preceding financial year)

The test is 20% or more, so exactly 20% qualifies.

Powers needing a special resolution

Section 180(1): (a) sale of undertaking; (b) investing merger compensation otherwise than in trust securities; (c) borrowing above limit; (d) remitting a director's debt

Learn the four as a list; questions often test which item is outside it.

Borrowing resolution content

Section 180(2): the special resolution must specify the total amount up to which the Board may borrow

A resolution without a stated ceiling is defective.

Effect of excess debt

Section 180(5): debt above the limit is not valid or effectual unless the lender proves good faith and no knowledge that the limit was exceeded

The burden of proof lies on the lender.

Protections

Section 180(3): title of a good-faith buyer or lessee is unaffected; sale or lease is outside clause (a) where it is the company's ordinary business

Example: a real estate company selling its flats.

Core principle

Liquidator appointed → Board's management powers cease → directors act only if liquidator/Tribunal permits

State this as the principle. It reflects the old Section 313 idea and the liquidator's role under Section 290. Do not cite Section 313 as in force.

Status of Section 313

Section 313 = omitted (w.e.f. 15-11-2016)

Omitted by Section 255 and the Eleventh Schedule of the Insolvency and Bankruptcy Code, 2016. Section 314 is omitted likewise.

Appointment of liquidator (Section 275)

Tribunal appoints Company Liquidator at the time of winding up order, from registered insolvency professionals

The liquidator must file a declaration of conflict of interest within seven days of appointment.

Liquidator's powers (Section 290)

Powers exercised subject to directions and overall control of the Tribunal

They include carrying on business as necessary, selling property, raising money on assets, and instituting or defending suits in the company's name.

Effect on staff (Section 277(3))

Winding up order = notice of discharge to officers, employees and workmen, unless business is continued

Applies to Tribunal winding up.

Time limits (Section 277)

Intimation to liquidator and Registrar: within 7 days of order | Application for winding up committee: within 3 weeks of order

The committee has the Official Liquidator, a secured creditors' nominee and a Tribunal-nominated professional.

Sanction needed (Section 343)

Paying a class of creditors in full, or compromising claims → needs Tribunal sanction

The liquidator himself is controlled by the Tribunal for these acts.

Quick revision

• Section 179(1): the Board may exercise all powers of the company, subject to the Act, memorandum, articles and regulations.
• The Board cannot do anything that the Act, the articles or otherwise requires to be done in general meeting.
• Section 179(3) powers are exercised by resolution passed at Board meetings.
• Under section 179(3), the powers in clauses (d) to (f) can be delegated by a Board resolution to a committee of directors, the managing director, the manager or another principal officer.
• Delegable powers are borrowing, investing funds, and granting loans, guarantees or security. Making calls, buy-back, issuing securities and approving financial statements stay with the Board.
• Section 180(1) powers need a special resolution of the company.
• Undertaking: investment above 20% of net worth, or generating 20% of total income. Substantially the whole: 20% or more of its value.
• Borrowing limit is paid-up share capital, free reserves and securities premium taken together. Temporary bank loans in the ordinary course are excluded.
• The special resolution on borrowing must state the total amount up to which the Board may borrow.
• A debt above the limit is not valid unless the lender proves good faith and no knowledge of the excess.
• Under section 275(2), the provisional liquidator or Company Liquidator is appointed by the Tribunal from insolvency professionals registered under the IBC, 2016. Section 275 deals with appointment, not with cessation of Board powers.
• Section 313 is omitted w.e.f. 15-11-2016, so do not cite it as current law.

Common mistakes

• Stating the minimum for a private company as three. Fix: Learn the trio 3-2-1 in the order public, private, OPC.
• Saying a company can never have more than fifteen directors. Fix: Always add that more than fifteen is allowed after passing a special resolution.
• Saying an additional director holds office until the next AGM only. Fix: Write: up to the date of the next AGM or the last date on which the AGM should have been held, whichever is earlier.
• Treating an alternate director as a permanent director who continues after the original director returns. Fix: Remember that the alternate vacates office when the original director returns to India and cannot hold office longer than the original director's term.
• Saying the Board has absolute power over the company. Fix: Always add that the Board is subject to the Act, the memorandum, the articles, and matters reserved for general meeting.
• Saying all section 179(3) powers can be delegated. Fix: Only clauses (d) to (f) can be delegated: borrowing, investing, and loans, guarantee or security.
• Leaving out securities premium from the borrowing limit. Fix: Use paid-up share capital, free reserves and securities premium, as the text now reads.
• Saying a Board resolution is enough for borrowing. Fix: Remember: ordinary borrowing is a Board power, but borrowing above the Section 180(1)(c) limit needs a special resolution.
• Quoting Section 313 as a current provision. Fix: Say it is omitted w.e.f. 15-11-2016 and rely on Sections 275, 277 and 290 for Tribunal winding up.
• Saying directors cease to hold office the moment a liquidator is appointed. Fix: Write that their management powers cease. Do not claim they are automatically removed unless the question says so.

Exam tips

• Write the section number with the number: section 149(1)(a) for the minimum, 149(1)(b) for the maximum and 149(3) for the resident director.
• Always add the special resolution proviso when you state the maximum of fifteen.
• For a listed company problem, show the division by three and the rounding up. Examiners award marks for the working.
• End each answer with a one-line conclusion, as ICSI answers follow provision, analysis and conclusion.
• Keep the 182-day rule separate from independence and citizenship; do not mix them.
• Learn Section 161 sub-section by sub-section. Questions usually ask for the difference between additional, alternate and nominee directors, so prepare a short comparison on appointing authority, trigger and tenure.
• Always write the section number with each rule. The answer format is provision, analysis, conclusion.
• For independent directors, memorise the five-year term, two-term limit and three-year cooling-off period, and the declaration requirement in Section 149(7).