Corporate and Economic Laws · Board of Directors and Key Managerial Personnel

Powers, Duties and Liabilities of Directors under the Companies Act, 2013

Updated 11 October 2026 · Fact-checked

The Board may exercise all powers the company can exercise, except those the Act or articles reserve for the general meeting (Section 179). Some powers need a special resolution (Section 180). Directors owe duties of good faith, care and no conflict (Section 166). A breach of Section 166 attracts a fine of ₹1,00,000 to ₹5,00,000.

Understand Powers, Duties and Liabilities of Directors

A company is an artificial person. It acts through its Board of Directors. So the law first gives the Board wide powers, then limits them, then imposes duties on each director.

Section 179 is the general grant. The Board can exercise all powers and do all acts that the company is authorised to do. Two limits apply. The Board is subject to the Act, the memorandum, the articles and valid regulations made by the company in general meeting. And it cannot do anything that must be done by the company in general meeting.

Section 179(3) lists powers the Board must exercise only by resolutions passed at Board meetings. These include making calls on shares, buy-back authorisation, issuing securities, borrowing, investing funds, giving loans, guarantees or security, approving financial statements and the Board's report, diversifying business, approving amalgamation, merger or reconstruction, and taking over a company or acquiring a controlling or substantial stake in another. The Board can delegate the powers in clauses (d) to (f), that is borrowing, investing and loans or guarantees, to a committee, the managing director, the manager or another principal officer, by a resolution passed at a meeting.

Section 180 restricts the Board. Four powers need the company's consent by a special resolution: selling, leasing or otherwise disposing of the whole or substantially the whole of an undertaking; investing otherwise in trust securities the compensation received on merger or amalgamation; borrowing beyond the limit of paid-up share capital, free reserves and securities premium (apart from temporary loans from bankers in the ordinary course); and remitting or giving time for repayment of a debt due from a director.

Section 166 sets out duties: act in accordance with the articles; act in good faith for the benefit of members as a whole and in the best interests of the company, employees, shareholders, community and environment; use due and reasonable care, skill and diligence and independent judgment; avoid conflicts of interest; not make undue gain; and not assign the office. Breach brings a fine, and undue gain must be paid back to the company.

Key rules to remember

Section 179(1): general power: Board powers = all powers the company can exercise − powers reserved for the general meeting; Subject to the Act, memorandum, articles and valid regulations made in general meeting.
Section 179(3): powers by Board resolution at a meeting: Calls; buy-back; issue of securities; borrowing; investing; loans/guarantee/security; financial statements and Board's report; diversification; amalgamation/merger/reconstruction; takeover or controlling/substantial stake; other prescribed matters; Delegation by a resolution at a meeting is allowed only for clauses (d) to (f): borrowing, investing, loans/guarantees/security.
Section 180(1): special resolution items: (a) sale/lease/disposal of whole or substantially whole of an undertaking; (b) investing merger compensation otherwise than in trust securities; (c) borrowing beyond limit; (d) remitting or giving time for a director's debt; All four need consent of the company by special resolution.
Undertaking and substantially the whole: Undertaking: investment > 20% of net worth (audited balance sheet of preceding year) OR generates 20% of total income of previous year. Substantially the whole: 20% or more of the undertaking's value per preceding audited balance sheet; Learn both 20% tests; they are examined often.
Borrowing limit, Section 180(1)(c): Existing borrowings + proposed borrowing > paid-up share capital + free reserves + securities premium → special resolution needed; Temporary loans from bankers in the ordinary course are excluded: repayable on demand or within six months.
Penalty under Section 166(7): Fine: not less than ₹1,00,000, may extend to ₹5,00,000; Under Section 166(5), undue gain must also be paid to the company.

How to solve Powers, Duties and Liabilities of Directors questions

Most questions give a Board decision and ask whether it is valid, or whether a director is liable. Use the same sequence each time.

1Identify the act: borrowing, sale of undertaking, loan, investment, conflict of interest, and so on.
2Check whether it is a Section 179(3) power. If yes, the Board must decide by a resolution at a meeting. Check whether delegation is allowed (only clauses (d) to (f)).
3Check Section 180. Does the act fall in one of the four special resolution items? If yes, the company's special resolution is needed.
4For borrowing, add existing and proposed borrowings and compare with paid-up share capital + free reserves + securities premium. Exclude temporary loans.
5For a sale of an undertaking, apply the 20% tests with the audited figures of the preceding year (or previous year's income).
6For conduct questions, match the facts to the Section 166 sub-section: articles, good faith, care and independent judgment, conflict, undue gain, assignment.
7State the consequence: Section 180(5) debt validity, Section 166(5) repayment of gain, Section 166(7) fine.
8Conclude clearly: valid or not, who is liable, and what the Board should do.

Quickest way: Three-question filter

When to use it: Use it for MCQs and short case scenarios where time is tight.

Is it a Section 180 item? If yes, the answer is almost always: special resolution is required.
If not, is it a Section 179(3) item? Then Board resolution at a meeting. Delegation only for borrowing, investing and loans.
If the facts are about a director's behaviour, map to Section 166 and recall the fine of ₹1,00,000 to ₹5,00,000.
For numbers, compute against the 20% tests or the borrowing ceiling and compare once.

Common mistakes in Powers, Duties and Liabilities of Directors

Saying the Board can delegate every Section 179(3) power to the managing director.
Students remember that delegation exists but not its limit.
Fix: Only clauses (d) to (f) can be delegated, and only by a resolution passed at a meeting. Buy-back, issue of securities and approving financial statements stay with the Board.
Including temporary bank loans in the borrowing limit test.
Students add all liabilities together.
Fix: Section 180(1)(c) excludes temporary loans from bankers in the ordinary course. These are repayable on demand or within six months. Loans for capital expenditure are not temporary.
Using paid-up capital plus free reserves only for the borrowing limit.
The old wording is still in older notes.
Fix: The limit is paid-up share capital, free reserves and securities premium. Securities premium was added in 2018.
Treating a sale of any asset as needing a special resolution.
Section 180(1)(a) is remembered loosely.
Fix: It applies to the whole or substantially the whole of an undertaking, tested at 20%. Section 180(3)(b) also says it does not affect sales or leases that are the company's ordinary business.
Saying the lender can never recover a loan beyond the Section 180 limit.
Section 180(5) is read as an absolute bar.
Fix: The excess debt is invalid unless the lender proves it lent in good faith and without knowledge that the limit was exceeded.
Limiting director duties to duty to shareholders.
Students think only of owners' interest.
Fix: Section 166(2) also covers the company, employees, the community and protection of the environment.

Worked examples

Example 1

Aarav Textiles Ltd has paid-up share capital of ₹40,00,00,000, free reserves of ₹25,00,00,000 and securities premium of ₹5,00,00,000. It has existing borrowings of ₹60,00,00,000, which include no temporary loans. The Board wants to borrow ₹20,00,00,000 more for a plant. Does it need a special resolution?

Show the solution

Borrowing ceiling = 40,00,00,000 + 25,00,00,000 + 5,00,00,000 = ₹70,00,00,000.
Total borrowing after the new loan = 60,00,00,000 + 20,00,00,000 = ₹80,00,00,000.
₹80,00,00,000 exceeds ₹70,00,00,000, so Section 180(1)(c) applies.
The money is for capital expenditure, so it cannot be treated as a temporary loan.
The resolution must also specify the total amount up to which the Board may borrow (Section 180(2)).

Answer: Yes. Total borrowings of ₹80,00,00,000 exceed the limit of ₹70,00,00,000, so the company must pass a special resolution, which must specify the total borrowing amount. Without it, the excess debt is not valid unless the lender proves good faith and no knowledge of the breach (Section 180(5)).

Example 2

Meera Foods Ltd has a net worth of ₹100 crore as per its last audited balance sheet. Its Dairy division has investment of ₹30 crore, and the division's value in that balance sheet is ₹32 crore. The Board plans to sell the Dairy division for a good price and has a director, Rohan, who secretly holds a stake in the buyer. Advise on the approval needed and on Rohan's position.

Show the solution

Is Dairy an undertaking? Investment of ₹30 crore is 30% of the net worth of ₹100 crore, which exceeds 20%. So it is an undertaking.
The Dairy division is the whole of that undertaking, so it is a sale of the whole of an undertaking under Section 180(1)(a).
The Board therefore needs the company's consent by a special resolution. A Board resolution alone is not enough.
Section 180(4) allows the resolution to set conditions on the use of the sale proceeds.
Rohan's undisclosed interest in the buyer is a situation in which his interest may conflict with the company's. This breaches Section 166(4).
If he gains unduly, Section 166(5) requires him to pay the amount of the gain to the company.
Under Section 166(7) he is also punishable with a fine of ₹1,00,000 to ₹5,00,000.

Answer: The sale needs a special resolution of the company under Section 180(1)(a), since Dairy is an undertaking (investment above 20% of net worth) and the whole of it is being sold. Rohan has breached Section 166(4). He must pay any undue gain to the company and is liable to a fine of ₹1,00,000 to ₹5,00,000.

Exam tips

Case-based MCQs often hide a Section 180 trigger in the numbers. Compute the 20% tests or the borrowing ceiling before choosing an option.
Learn the delegation rule exactly: clauses (d) to (f) only, by a resolution passed at a meeting.
In descriptive answers, quote the section number and state the consequence. A full answer names the rule, applies it and concludes.
For Section 166, list the duties in the order of the sub-sections, then give the penalty figures. This earns structured marks.
Mention the lender's good-faith protection in Section 180(5) whenever an excess borrowing question appears.

Practice questions from Board of Directors and Key Managerial Personnel

Powers, Duties and Liabilities of Directors in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Powers, Duties and Liabilities of Directors: frequently asked questions

What is the difference between Section 179 and Section 180?

Section 179 gives the Board its general powers and lists those it must exercise by Board resolution at a meeting. Section 180 restricts the Board in four matters, which need a special resolution of the company. Think of 179 as the grant and 180 as the limit.

Which Board powers can be delegated under Section 179?

The Board can delegate the powers to borrow, to invest funds, and to grant loans or give guarantee or provide security. It can delegate them to a committee of directors, the managing director, the manager or another principal officer. This must be done by a resolution passed at a meeting, on conditions the Board specifies.

What is the penalty for breach of directors' duties under Section 166?

A director who contravenes Section 166 is punishable with a fine of not less than ₹1,00,000, which may extend to ₹5,00,000. If a director makes an undue gain, they must also pay an amount equal to that gain to the company.

What counts as substantially the whole of an undertaking?

Under the Explanation to Section 180(1)(a), it means 20% or more of the value of the undertaking as per the audited balance sheet of the preceding financial year. An undertaking itself is one where investment exceeds 20% of net worth, or which generates 20% of the company's total income in the previous financial year.