Business Laws and Ethics · Directors - Role, Responsibilities, Qualification, Appointment, Removal, Remuneration and Powers

Powers, Duties and Responsibilities of Directors

Updated 10 October 2026 · Fact-checked

The Board exercises all powers the company can exercise, except those the Act reserves for the general meeting. Section 179(3) lists powers needing a Board resolution at a meeting. Section 180 needs a special resolution for key acts. Section 166 sets directors' duties; breach attracts fine of ₹1,00,000 to ₹5,00,000.

Understand Powers, Duties and Responsibilities of Directors

A company is an artificial person. It acts through its Board of Directors. So the law gives the Board wide powers and, in return, binds each director with strict duties.

Under section 179(1), the Board can exercise all powers and do all acts that the company is authorised to do. Two limits apply. The Board must follow the Act, the memorandum, the articles and valid regulations. It also cannot do anything the Act, the memorandum or the articles require the company to do in general meeting.

The power is layered. Some powers must be used only by a resolution passed at a Board meeting (section 179(3)). Some need the consent of members by special resolution (section 180(1)). The general meeting can also put restrictions and conditions on the Board's exercise of the powers in section 179 (section 179(4)). Think of it as three levels: Board by circular or delegation for routine matters, Board at a meeting for important matters, and members for the most serious matters.

Directors also owe fiduciary duties. They hold a position of trust, so they must act for the company and not for themselves. Section 166 lists these duties: act per the articles, act in good faith, use due care and independent judgment, avoid conflicts of interest, make no undue gain, and never assign the office.

If a director breaks section 166, the director is punishable with a fine of not less than ₹1,00,000 and up to ₹5,00,000. If the director made an undue gain, the director must also pay the company an amount equal to that gain.

Key rules to remember

General power of the Board: Board power = all powers of the company − powers reserved for general meeting; Section 179(1). Board is also subject to the Act, memorandum, articles and valid regulations.
Powers by Board resolution at a meeting (s.179(3)): (a) calls on shares; (b) buy-back under s.68; (c) issue securities; (d) borrow money; (e) invest funds; (f) loans, guarantee, security; (g) approve financial statement and Board's report; (h) diversify business; (i) amalgamation, merger, reconstruction; (j) take over a company or acquire controlling or substantial stake; (k) any other prescribed matter; Memory aid: C-B-I-B-I-L-F-D-A-T. Passed at a meeting, not by one director.
Delegable powers: Clauses (d) to (f) of s.179(3) = borrow, invest, loans/guarantee/security; Board may delegate these by a resolution passed at a meeting to a committee of directors, the managing director, the manager or another principal officer (or branch principal officer). Others cannot be delegated.
Powers needing special resolution (s.180(1)): (a) sell, lease or dispose of whole or substantially whole of an undertaking; (b) invest compensation from merger or amalgamation otherwise than in trust securities; (c) borrow beyond paid-up share capital + free reserves + securities premium; (d) remit or give time for repayment of a director's debt; Temporary loans from bankers in ordinary course are excluded from the borrowing limit.
Undertaking and substantially the whole: Undertaking: investment > 20% of net worth, or generates 20% of total income. Substantially the whole: 20% or more of the value of the undertaking; Net worth and value are taken from the audited balance sheet of the preceding financial year; income is of the previous financial year.
Borrowing limit: Total borrowings (existing + new) ≤ paid-up share capital + free reserves + securities premium; Beyond this, special resolution needed, stating the total amount up to which the Board may borrow (s.180(2)).
Penalty for breach of s.166: Fine: ₹1,00,000 minimum to ₹5,00,000 maximum; plus repayment of undue gain to the company; Section 166(7) and 166(5).

How to solve Powers, Duties and Responsibilities of Directors questions

Use this method for any question on Board powers, restrictions or directors' duties.

1Identify what the director or Board has done: borrowed, sold an asset, gave a loan, took a personal benefit, and so on.
2Check section 179(3) first. If the act is listed, it needs a Board resolution passed at a meeting. Note if it is delegable (clauses d to f only).
3Check section 180(1). If the act is borrowing above the limit, selling an undertaking, or similar, a special resolution of members is also needed.
4Do the numbers. Compute the limit (paid-up capital + free reserves + securities premium) or the 20% test, and compare.
5If the facts involve personal interest, gain, careless conduct or assigning office, match them to the right sub-section of section 166.
6State the consequence: act invalid or not binding, fine under section 166(7), or repayment of undue gain under section 166(5).
7Write a one-line conclusion that answers the exact question asked.

Quickest way: Three-gate test for Board action

When to use it: When a short case question asks whether the Board or a director acted validly.

Gate 1: Is it reserved for the general meeting? If yes, the Board cannot do it alone.
Gate 2: Is it in s.179(3)? If yes, a Board meeting resolution is needed; delegate only if it is clause (d), (e) or (f).
Gate 3: Is it in s.180(1)? If yes, add a special resolution, after checking the numbers.
For director conduct, match to s.166(1) to (6) and quote the fine of ₹1,00,000 to ₹5,00,000.

Common mistakes in Powers, Duties and Responsibilities of Directors

Saying the Board can delegate any s.179(3) power.
Students remember that delegation exists but not its limit.
Fix: Only clauses (d) to (f) can be delegated: borrowing, investing, and loans, guarantees or security. Issue of securities, buy-back and approving accounts stay with the Board.
Saying borrowing needs a special resolution in every case.
Mixing sections 179 and 180.
Fix: Borrowing needs only a Board resolution at a meeting. A special resolution is needed only when total borrowings would exceed paid-up share capital, free reserves and securities premium.
Leaving out securities premium from the borrowing limit.
Older books say 'paid-up capital and free reserves'.
Fix: The text was amended; the limit now includes securities premium. Use all three items.
Treating temporary loans as part of the limit.
Students miss the exclusion for bankers' loans.
Fix: Temporary loans from bankers in the ordinary course are outside the limit. They are repayable on demand or within six months, but do not include loans for capital expenditure.
Stating the s.166 fine wrongly or forgetting the gain recovery.
Penalty and recovery sit in different sub-sections.
Fix: Write both: fine of ₹1,00,000 to ₹5,00,000 under 166(7), and payment to the company of an amount equal to the undue gain under 166(5).
Saying a director can assign the office to a nominee.
Confusing it with proxies or alternate directors.
Fix: Section 166(6): the director shall not assign the office, and any assignment is void.

Worked examples

Example 1

Sunrise Textiles Ltd has paid-up share capital of ₹40,00,000, free reserves of ₹25,00,000 and securities premium of ₹10,00,000. It has existing borrowings of ₹60,00,000 (none temporary). The Board wants to borrow another ₹20,00,000 term loan for a new plant. Does it need members' approval?

Show the solution

Compute the limit: ₹40,00,000 + ₹25,00,000 + ₹10,00,000 = ₹75,00,000.
Total borrowings after the new loan: ₹60,00,000 + ₹20,00,000 = ₹80,00,000.
Compare: ₹80,00,000 is more than ₹75,00,000, so the limit in section 180(1)(c) is exceeded by ₹5,00,000.
The loan is for capital expenditure, so it cannot be treated as a temporary loan.
So the Board needs the consent of members by a special resolution, which must specify the total amount up to which money may be borrowed (section 180(2)).
The Board must also pass its own resolution at a meeting under section 179(3)(d).

Answer: Yes. Total borrowings of ₹80,00,000 exceed the limit of ₹75,00,000, so a special resolution is required, apart from the Board resolution. Without it, the excess debt is not valid against the company unless the lender proves it lent in good faith without knowing the limit was exceeded (section 180(5)).

Example 2

Rohan, a director of Kaveri Foods Ltd, arranged for the company to buy raw material from a firm owned by his brother at above-market rates. His brother earned an extra ₹3,50,000. Rohan did not disclose the link. State the duties breached and Rohan's liability.

Show the solution

Identify the facts: a personal link with the supplier, undisclosed, and a gain to a relative at the company's cost.
Section 166(4): a director shall not be in a situation where he may have a direct or indirect interest that conflicts, or possibly may conflict, with the company's interest. This is breached.
Section 166(5): a director shall not achieve or attempt to achieve undue gain or advantage for himself or his relatives, partners or associates. The brother's extra ₹3,50,000 is an undue gain to a relative.
Section 166(2) and (3) are also relevant: acting in the company's best interests and with due care and independent judgment.
Liability under 166(5): if found guilty of undue gain, Rohan must pay an amount equal to that gain to the company, which is ₹3,50,000.
Liability under 166(7): fine of not less than ₹1,00,000 and up to ₹5,00,000.

Answer: Rohan breached section 166(4) and 166(5), and probably 166(2) and (3). He must pay ₹3,50,000 to the company and is also punishable with a fine of ₹1,00,000 to ₹5,00,000 under section 166(7).

Exam tips

Write section numbers with each point: 179(3) for Board resolution at a meeting, 180(1) for special resolution, 166 for duties. It earns step marks.
In MCQs, watch for traps on delegation (only d to f), the 20% tests, and the exact fine range of ₹1,00,000 to ₹5,00,000.
For numerical cases, show the limit calculation line by line, then conclude. Do not just write 'yes' or 'no'.
In theory answers, list the s.166 duties in the order of the sub-sections, with one line of explanation each.
Link the answer to the fiduciary idea: directors hold a position of trust, and that is why the duties exist.

Practice questions from Directors - Role, Responsibilities, Qualification, Appointment, Removal, Remuneration and Powers

Powers, Duties and Responsibilities 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 Responsibilities of Directors: frequently asked questions

What are the duties of directors under section 166?

A director must act per the articles, act in good faith for the company's objects and for members, employees, community and environment, use due care, skill, diligence and independent judgment, avoid conflicts of interest, not make undue gain, and not assign the office. Breach is punishable with a fine of ₹1,00,000 to ₹5,00,000.

Which powers can the Board exercise only by a resolution at a meeting?

Section 179(3) lists them: calls on shares, buy-back, issue of securities, borrowing, investing funds, loans, guarantees and security, approving financial statements and the Board's report, diversification, amalgamation or merger, takeover or acquiring a substantial stake, and other prescribed matters. A single director cannot exercise them alone.

Can the Board delegate its powers under section 179?

Only the powers in clauses (d) to (f) of section 179(3), that is borrowing, investing and giving loans, guarantees or security. The delegation must be by a resolution passed at a meeting, to a committee of directors, the managing director, the manager or another principal officer, on stated conditions.

When does the Board need a special resolution of members?

Under section 180(1), for selling or leasing the whole or substantially the whole of an undertaking, investing merger compensation otherwise than in trust securities, borrowing beyond paid-up share capital, free reserves and securities premium, and remitting or giving time for a director's debt.