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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Debt and Procedural Aspects

The articles of Meghdoot Industries Ltd. restrict the Board from borrowing beyond a stated limit unless shareholders approve. The Board wishes to borrow above that limit by itself, arguing that Section 179(3) gives it the power to borrow. Which view is correct under Section 179?

The Board cannot borrow beyond the limit alone. Under Section 179 the Board's powers are subject to the Act, memorandum and articles, and the company in general meeting may impose restrictions and conditions on the exercise of those powers, so the articles' limit binds the Board.

  1. AThe Board cannot, because it exercises its powers subject to the articles, and the company in general meeting may impose restrictions and conditions on the exercise of the Board's powersCorrect
  2. BThe Board can, because Section 179(3) overrides the articles in all cases
  3. CThe Board can, if the managing director consents
  4. DThe Board can, if the restriction is not registered with the Registrar

Explanation

The first proviso to Section 179(1) makes the Board's powers subject to the Act, the memorandum or articles. Section 179(4) preserves the right of the company in general meeting to impose restrictions and conditions on the Board's powers. Hence the articles' limit binds the Board.

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