Company Law and Practice · Board Composition and Powers of the Board

Restrictions on Powers of the Board under Section 180

Updated 11 October 2026 · Fact-checked

Section 180 lists four powers the Board can use only with the company's consent by special resolution: selling the whole or substantially the whole of an undertaking, investing compensation from a merger in non-trust securities, borrowing beyond paid-up capital, free reserves and securities premium, and remitting a director's debt. Identify the power, apply the test, then conclude.

Understand Restrictions on Powers of the Board

The Board manages the company. Section 179(1) lets it exercise all powers the company has, except those the Act, the memorandum or the articles require the company to exercise in general meeting. Section 179(4) also keeps the company's right to put restrictions on the Board.

Section 180 is the main list of such restrictions. For four named powers, the Board must first get consent of the company by a special resolution. A plain Board resolution is not enough. The reason is simple: these decisions can change the nature or risk of the business, so the owners must approve them.

The four powers are: (a) selling, leasing or otherwise disposing of the whole or substantially the whole of an undertaking; (b) investing otherwise than in trust securities the compensation received on a merger or amalgamation; (c) borrowing beyond the limit of paid-up share capital, free reserves and securities premium taken together; (d) remitting or giving time for repayment of a debt due from a director.

The terms have defined meanings. An undertaking is one where the company's investment exceeds 20% of its net worth as per the audited balance sheet of the preceding financial year, or one which generates 20% of the total income of the company during the previous financial year. Substantially the whole of an undertaking means 20% or more of the value of the undertaking as per the audited balance sheet of the preceding financial year.

For borrowing, the limit is the aggregate of paid-up share capital, free reserves and securities premium. The test counts the new borrowing together with money already borrowed. Temporary loans from the company's bankers in the ordinary course of business are left out. These are loans repayable on demand or within six months, such as cash credit and bill discounting, but not loans raised for capital expenditure.

Key rules to remember

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.

How to solve Restrictions on Powers of the Board questions

Use this order for any problem or case on Section 180. It keeps your answer in the provision, facts, conclusion format.

1Identify the power the Board wants to use: sale of undertaking, merger compensation, borrowing, or remitting a director's debt.
2Check whether the case falls in an exception: ordinary business of selling or leasing, or temporary bank loans in the ordinary course.
3Apply the numeric test. For borrowing, add the new and existing borrowings and compare with paid-up capital + free reserves + securities premium. For undertaking, test 20% of net worth or income, then 20% of value.
4Use the correct year: preceding financial year's audited balance sheet for net worth and value; previous financial year for income.
5State the approval needed: a special resolution passed by the company in general meeting, not just a Board resolution under Section 179(3).
6For borrowing, add that the resolution must specify the total amount of borrowing.
7Mention consequences: excess debt is not valid unless the lender acted in good faith without knowledge (Section 180(5)).
8Write a one-line conclusion answering exactly what was asked.

Quickest way: Four-power checklist

When to use it: Use it for short case questions with a number or two where you need the answer in a couple of minutes.

Write the four powers (a) to (d) in one line.
Match the facts to one power.
Do the arithmetic once: total borrowing vs the three-part limit, or 20% tests.
Write: Section 180(1), special resolution needed or not, and the reason.

Common mistakes in Restrictions on Powers of the Board

Leaving out securities premium from the borrowing limit.
Older notes say only paid-up capital and free reserves.
Fix: Use paid-up share capital, free reserves and securities premium, as the text now reads.
Saying a Board resolution is enough for borrowing.
Section 179(3) lets the Board borrow by resolution at a meeting, so the two sections get mixed up.
Fix: Remember: ordinary borrowing is a Board power, but borrowing above the Section 180(1)(c) limit needs a special resolution.
Counting temporary bank loans towards the limit.
Students treat all borrowings alike.
Fix: Exclude loans repayable on demand or within six months from the company's bankers in the ordinary course, but not loans for capital expenditure.
Applying clause (a) to a company that sells property as its business.
Students ignore Section 180(3)(b).
Fix: If the ordinary business consists of selling or leasing such property, clause (a) does not apply.
Using 20% of the whole company instead of the undertaking.
The word 'undertaking' is read loosely.
Fix: Test substantially the whole as 20% or more of the value of the undertaking, using the preceding year's audited balance sheet.
Forgetting that the resolution must state a borrowing ceiling.
Students focus on the type of resolution only.
Fix: Add that under Section 180(2) the special resolution specifies the total amount up to which monies may be borrowed.

Worked examples

Example 1

Sundaram 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 being temporary loans). The Board proposes to borrow another ₹20,00,000 for a new plant. Is a special resolution needed?

Show the solution

Provision: Section 180(1)(c) requires a special resolution if the money to be borrowed, together with money already borrowed, exceeds the aggregate of paid-up share capital, free reserves and securities premium.
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.
₹80,00,000 exceeds ₹75,00,000 by ₹5,00,000. The loan is for a capital purpose, so it is not a temporary loan.

Answer: Yes. Total borrowings of ₹80,00,000 exceed the limit of ₹75,00,000, so the Board needs the consent of the company by a special resolution, which must specify the total amount up to which it may borrow (Section 180(2)).

Example 2

Kaveri Industries Ltd has three undertakings. Undertaking X has a value of ₹10,00,000 per the last audited balance sheet and generates 25% of the company's total income. The Board wants to sell assets of X worth ₹2,50,000 without shareholder approval. Can it?

Show the solution

Provision: Section 180(1)(a) requires a special resolution to sell the whole or substantially the whole of an undertaking.
X is an undertaking because it generates 20% or more of total income (here 25%).
Substantially the whole means 20% or more of the value of the undertaking as per the preceding year's audited balance sheet.
20% of ₹10,00,000 = ₹2,00,000. The proposed sale of ₹2,50,000 is 25% of X, which is above 20%.
No exception applies, as the company's ordinary business is not selling such assets.

Answer: No. The sale is of substantially the whole of an undertaking, so the Board needs a special resolution passed by the company under Section 180(1)(a).

Exam tips

Write the section number and the phrase 'special resolution' in the first line of your answer.
Show the arithmetic for the limit line by line; marks go for the working.
Mention the exceptions: temporary loans and ordinary-business sales or leases.
Link Section 180 to Section 179: Board powers by meeting resolution versus powers needing the company's consent.
If a lender is involved, add Section 180(5) and the good faith test.

Practice questions from Board Composition and Powers of the Board

Restrictions on Powers of the Board: frequently asked questions

Does Section 180 need an ordinary or special resolution?

A special resolution passed by the company. Section 180(1) says the Board can exercise these powers only with the consent of the company by a special resolution.

What is the borrowing limit under Section 180(1)(c)?

It is the aggregate of paid-up share capital, free reserves and securities premium. The test includes money already borrowed. Temporary loans from bankers in the ordinary course are left out.

What happens if the Board borrows more than the limit without approval?

Under Section 180(5), debt above the limit is not valid or effectual. The exception is where the lender proves it lent in good faith and did not know the limit had been exceeded.

Can a company sell property without a special resolution if that is its business?

Yes. Section 180(3)(b) says clause (a) does not affect the sale or lease of property where the company's ordinary business consists of or comprises such selling or leasing.