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CS Executive · Company Law and Practice

Board Composition and Powers of the Board for CS Executive

This chapter covers who sits on a company's Board and what the Board can do. Under section 179 the Board exercises all the company's powers, subject to the Act, the articles and decisions reserved for general meetings. Section 180 lists powers needing a special resolution. You answer by stating the provision, applying it to the facts, and concluding.

What this chapter covers

This chapter answers two questions: who forms the Board, and what the Board may do. The first half covers how the Board is composed. Take the exact rules and section numbers from your ICSI study material. The second half covers the Board's powers under section 179 and the limits placed on them by section 180.

The chapter is central to company law. Appointment and removal of directors, meetings, resolutions and corporate governance all assume you know who the Board is and where its authority ends. The split between powers of the Board and powers of the company in general meeting returns in questions on resolutions, related party dealings and winding up.

The last topic is the cessation of the Board's powers when a liquidator is appointed. Section 313, which once dealt with this, is shown as omitted (w.e.f. 15-11-2016) in the official text. Treat it as a legacy topic. Learn the idea, and do not cite section 313 as live law. Section 275 deals only with the appointment of the Company Liquidator, not with cessation of Board powers.

Questions from this chapter are usually application problems. A company borrows, sells a unit, or lends to a director, and you must say whether the Board alone can act or a special resolution is needed. These are easy marks if you know the lists in sections 179 and 180 and the exact conditions. They are lost when you write general statements without the section, the condition and a conclusion.

Board Composition and Powers of the Board: topics in the order to study them

  1. 1Board Composition and Size of the BoardStart with who forms the Board. Learn the composition and size rules, with their section numbers, from your ICSI study material.
  2. 2Types and Categories of DirectorsNext learn the kinds of directors as your study material presents them, since the composition rules refer to them.
  3. 3Powers of the Board of DirectorsOnce you know the Board, study what it can do: the general power in section 179(1) and the list in section 179(3).
  4. 4Restrictions on Powers of the BoardStudy this straight after the powers. Section 180 cuts into section 179, and the two are tested together.
  5. 5Cessation of Board's Powers on Appointment of LiquidatorLeave this for last. It is a short legacy topic. Section 313, which dealt with it, is omitted. Section 275 covers only the appointment of the Company Liquidator and does not explain the cessation, so read it as background on winding up and not as the source of the rule.

How to prepare Board Composition and Powers of the Board

Treat this chapter as a set of lists plus conditions. Build a clean memory of each list, then practise applying it to facts.

  1. Read the composition rules in your ICSI study material and make a one-page table of the size of the Board and any special requirements, with the section number against each point.
  2. Learn each category of director with one line on who appoints them and what makes them distinct. Write the definitions in your own words.
  3. Memorise section 179(3) as a list of powers the Board exercises by resolution at meetings. Mark clauses (d) to (f), borrowing, investing and loans or guarantees, as the ones that can be delegated by a Board resolution to a committee, the managing director, the manager or another principal officer.
  4. Learn section 180(1) clause by clause: sale of an undertaking, investing otherwise than in trust securities the compensation received as a result of any merger or amalgamation, borrowing beyond the limit, and remitting a director's debt. Note the numbers: 20% tests for an undertaking and the borrowing limit.
  5. Work out the interaction. Section 179(1) says the Board cannot do what must be done in general meeting. Section 179(4) preserves the company's right to restrict the Board. Section 180 requires a special resolution.
  6. Read section 275 on appointing the Company Liquidator, and note that it deals only with appointment. Then note that section 313 is omitted. Check the current ICSI study material for how the topic is presented.
  7. Write three or four full answers in exam style: provision, facts, conclusion. Time yourself and cite sections.

Common mistakes in Board Composition and Powers of the Board

  • Saying the Board can do anything the company can do, with no qualification.

    Fix: Always add that the Board is subject to the Act, memorandum, articles and regulations, and cannot do what must be done in general meeting.

  • Treating all section 179(3) powers as delegable.

    Fix: Only clauses (d) to (f) can be delegated: borrow, invest, loans, guarantee or security. Delegation is by a Board resolution passed at a meeting.

  • Saying an ordinary resolution is enough for the section 180 powers.

    Fix: Section 180(1) requires the consent of the company by a special resolution. State this in the answer.

  • Getting the borrowing limit or the 20% tests wrong.

    Fix: Use the current words: paid-up share capital, free reserves and securities premium. Check whether the 20% test is on net worth, total income or value of the undertaking.

  • Citing section 313 as the law on cessation of the Board's powers.

    Fix: Note that section 313 is omitted w.e.f. 15-11-2016. Cite section 275 only for the appointment of the Company Liquidator, and explain the cessation as a principle without citing a section.

  • Ignoring the lender's position in borrowing problems.

    Fix: Apply section 180(5): the excess debt is not valid unless the lender proves good faith and no knowledge that the limit was exceeded. Then conclude.

Last-day revision: Board Composition and Powers of the Board

  • 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.

Board Composition and Powers of the Board practice questions

Board Composition and Powers of the Board in other exams

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

Board Composition and Powers of the Board: frequently asked questions

What is the difference between section 179 and section 180?

Section 179 gives the Board its general powers and lists powers it must exercise by resolution at Board meetings. Section 180 lists powers the Board can exercise only with the company's consent by a special resolution. Read together, section 180 is a limit on section 179.

Can the Board delegate all its powers to the managing director?

No. Under section 179(3), only the powers in clauses (d) to (f) can be delegated: borrowing, investing funds, and giving loans, guarantees or security. The delegation must be by a resolution passed at a Board meeting. Powers like making calls and approving financial statements stay with the Board.

What does 'substantially the whole of the undertaking' mean?

Under 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 the company's investment exceeds 20% of net worth, or which generates 20% of total income in the previous financial year.

Is section 313 still part of the syllabus?

The official text shows section 313 as omitted with effect from 15-11-2016. Learn the idea behind the topic and the appointment of the Company Liquidator under section 275. Do not cite section 313 as current law in your answers.

How should I write answers from this chapter?

State the provision with the section number, apply it to the facts given, and end with a clear conclusion. For borrowing or sale problems, check the special resolution requirement and the numbers before concluding.