CS Executive Company Law Important Chapters

CS Executive Company Law Important Chapters Notes – Chapter 15

CS Executive Company Law Important Chapters Notes

Notes of Chapter 15 (Board Constitution and its Powers)

CS Executive Company Law Important Chapters Notes – Chapter 15

According to Section 2 (34), “director” means a director appointed to the Board of a company.

According to Section 2 (10), “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company.

The term ‘Board of Directors’ means a body duly constituted to direct, control and supervise the affairs of a company.

Only individual can be appointed as Director
As per Section 149, the Board of directors of every company shall consist of individual only. Thus, no body corporate, association or firm shall be appointed as director.

Office of Director can’t be assigned
Section 166(6) of Companies Act, 2013 prohibits assignment of office of director to any other person. Thus, any assignment of office made by a director shall be void.

Minimum/Maximum Number of Directors in a Company [Section 149(1)]

Every company shall have a Board of Directors consisting of individuals as directors and shall have—
(a) a minimum number of

  • 3 directors in the case of a public company,
  • 2 directors in the case of a private company, and
  • 1 director in the case of a One Person Company;

(b) a maximum of 15 directors

Note:

  • A company may appoint more than 15 directors after passing a special resolution.
  • The restriction of maximum number of directors shall not apply to section 8 companies.
  • Such class or classes of companies as may be prescribed, shall have at least one woman director.

CS Executive Company Law Important Chapters Notes

Regulation 17 of SEBI (LODR) Regulations, 2018

The composition of Board of Directors of the listed entity shall be as follows:
(a)Board of Directors shall have an optimum combination of executive and non-executive Directors with
 at least 1 woman Director and
 not less than 50% of the Board of Directors shall comprise of non-executive Directors.
 Note:Board of Directors of the top 1000 listed entities shall have at least one independent woman Director by April 1, 2020; [Explanation: 1000 entities shall be determined on the basis of market capitalisation, as at the end of the immediate previous financial year.]
(b)

Where the Chairperson of the Board of Directors is a non-executive Director, at least one-third of the Board of Directors shall comprise of Independent Directors and where the listed entity does not have a regular non-executive Chairperson, at least half of the Board of Directors shall comprise of Independent Directors.

Where the regular non-executive Chairperson

  • is a promoter of the listed entity or
  • is related to any promoter or person occupying management positions at the level of Board of Director or at one level below the Board of Directors,

at least half of the Board of Directors of the listed entity shall consist of Independent Directors.

 Explanation.- For the purpose of this clause, the expression “related to any promoter” shall have the following meaning:
 i.if the promoter is a listed entity, its Directors other than the Independent Directors, its employees or its nominees shall be deemed to be related to it;
 ii.if the promoter is an unlisted entity, its Directors, its employees or its nominees shall be deemed to be related to it.
(c)The board of directors of the top 1000 listed  entities (with effect  from April 1, 2019) and the top 2000 listed entities (with effect from April 1, 2020) shall comprise of not less than six directors.  [Explanation: The top 1000 and 2000 entities shall be determined on the basis of market capitalisation as at the end of the immediate previous financial year.]
(d)Where  the  listed  company  has  outstanding  SR  equity  shares,  atleast  half  of  the board of directors shall comprise of independent directors.
No non-executive  director  who  has  attained  the  age  of  75  years unless SR is passed
No listed entity shall appoint a person or continue the directorship of any person as  a  non-executive  director  who  has  attained  the  age  of  75  years  unless  a special  resolution  is  passed  to  that  effect,  in  which  case  the  explanatory  statement annexed to the notice for such motion shall indicate the justification for appointing such a person.
Chairperson shall be non-executive
With effect from April 1, 2022, the top 500 listed entities shall ensure that the Chairperson of the board of such listed entity shall –
(a)be a non-executive director;
(b)not be related to the Managing Director or the Chief Executive Officer:
Explanation -The  top  500  entities  shall  be  determined  on  the  basis  of  market capitalisation, as at the end of the immediate previous financial year.
 

Regulation 17 (1C) of SEBI(LODR) Regulations – We.f. 1.2.2022
The listed entity shall ensure that approval of shareholders for appointment of a person on the Board of Directors is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier.

CS Executive Company Law Important Chapters Notes

 

Number of Directorships [Section 165]

Maximum Number of Directorship [Sub-section 1]
No person, after the commencement of this Act, shall hold office as a director, including any alternate directorship, in more than 20 companies at the same time.

But maximum number of

  • public companies + private companies that are either holding or subsidiary company of a public company

in which a person can be appointed as a director shall not exceed 10.

For reckoning the limit of directorships of 20 companies, the directorship in a dormant company shall not be included.

Further, Section 8 company will not be counted for the purpose of maximum number of Directorship.

Members’ power to restrict the number of directorship [Sub-section 2]
The members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as directors.

Fine for default [Sub-section 6]
If a person accepts an appointment as a director in contravention of sub-section (1), he shall be liable to a penalty of Rs. 5000 for each day after the first during which such contravention continues.

If a person accepts an appointment as a director in violation of this section, he shall be liable to a penalty of Rs. for each day after the first during which such violation continues, subject to a maximum of 2 lakh rupees.  [Substituted by the Companies (Amendment) Act, 2020. Notification dated 28th September, 2020 Amendment Effective from 21st December 2020]

Note:

  • For the purpose of counting such directorship in public company, directorship in private companies that are either holding or subsidiary of a public company shall be included.
  • Alternate directorship shall also be included while calculating the directorship of 20 companies.
  • Section 8 company will not be counted for the purpose of maximum number of Directorship.

CS Executive Company Law Important Chapters Notes

Woman Director [Section 149(1)]

Such class or classes of companies as may be prescribed, shall have at least 1 woman director.
Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014
Following class of companies shall appoint at least one woman director-
(i)every listed company;
(ii)every other public company having :-
(a)paid up share capital of 100 crore rupees or more; or
(b)turnover of 300 crore rupees or more.
Note:
The paid up share capital or turnover, as the case may be, as on the last date of latest audited financial statements shall be taken into account.
Any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than
immediate next Board Meeting or
3 months from the date of such vacancy
whichever is later.

Powers of Board (Section 179)

General Powers of BOD [Section 179(1)]
The Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do.

The powers of BOD shall be subject to the provisions contained in that behalf

  • in this Act, or
  • in the memorandum or articles, or
  • in any regulations, including regulations made by the company in general meeting.

Restrictions on BOD
BOD shall not exercise any power or do any act or thing which is directed or required, whether under this Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting.

Act of BOD once completed can’t be invalidated by company in general meeting [Section 179(2)]
No regulation made by the company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.

Powers to be exercised by BOD at Board meetings only [Section 179(3)] The Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the Board, namely:—
(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans;
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in another company;
(k) any other matter which may be prescribed

Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014
In addition to the powers specified under sub-section (3) of section 179 of the Act, the following powers shall also be exercised by the Board of Directors only by means of resolutions passed at meetings of the Board.-

  • to make political contributions;
  • to appoint or remove key managerial personnel (KMP);
  • to appoint internal auditors and secretarial auditor;

Power to delegate powers to any committee
Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing director, the manager or any other principal officer of the company:
(a) to borrow monies;
(b) to invest the funds of the company;
(c) to grant loans or give guarantee or provide security in respect of loans;

Company may put restrictions on BOD’s powers [Section 179(4)]
Company in general meeting can impose restrictions and conditions on the exercise by the Board of any of the powers specified in this section.

Note:

  • Acceptance by a banking company in the ordinary course of its business of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise, shall not be deemed to be a borrowing of monies or, as the case may be, a making of loans by a banking company within the meaning of this section.
  • Nothing in Section 179(3)(d) shall apply to borrowings by a banking company from other banking companies or from the Reserve Bank of India, the State Bank of India or any other banks established by or under any Act.
  • In case of Section 8 companies resolutions related to borrow monies, to invest funds of the company and to grant loans or give guarantee or provide security in respect of loans by section 8 companies may be decided by the Board by circulation.

CS Executive Company Law Important Chapters Notes

Restrictions on powers of Board (Section 180)

Powers which can be exercised by BOD with the consent of the company by a special resolution [Section 180(1)]
The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—
(a)to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
(b)to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation;
(c)to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves and Securities Premium, apart from temporary loans obtained from the company’s bankers in the ordinary course of business.
(d)to remit, or give time for the repayment of, any debt due from a director.
 
Note: For the purpose of clause (a)
(i)

“undertaking” shall mean

  • an undertaking in which the investment of the company exceeds 20% of its net worth as per the audited balance sheet of the preceding financial year or
  • an undertaking which generates 20% of the total income of the company during the previous financial year;
(ii)the expression “substantially the whole of the undertaking” in any financial year shall mean 20% or more of the value of the undertaking as per the audited balance sheet of the preceding financial year;
Note:
 
  • The acceptance by a banking company, in the ordinary course of its business, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise, shall not be deemed to be a borrowing of monies by the banking company within the meaning of clause ‘C’.
  • “Temporary loans” means loans repayable on demand or within 6 months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature;
Exceptions of Sub Section 1(a) [Section 180(3)]
Nothing contained in clause (a) of sub-section (1) shall affect—
(a)the title of a buyer or other person who buys or takes on lease any property, investment or undertaking as is referred to in that clause, in good faith; or
(b)the sale or lease of any property of the company where the ordinary business of the company consists of, or comprises, such selling or leasing.
In case of debt taken by company in excess of the limit imposed by sub-section (1)(c) [Section 180(5)]
No debt incurred by the company in excess of the limit imposed by clause (c) of sub-section (1) shall be valid or effectual, unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded.

Section 180 shall not apply to Private Companies.

Company to contribute to bona fide and charitable funds, etc. (Section 181)

The Board of Directors of a company may contribute to bona fide charitable and other funds.

If contribution exceeds 5% of its average net profits for the 3 immediately preceding financial years, prior permission of the company in general meeting shall be required.

Prohibitions and restrictions regarding political contributions (Section 182)

General Permission [Section 182(1)]
A company may contribute any amount directly or indirectly to any political party.

General Restrictions
Following companies can’t make political contributions:

  • a Government company and
  • a company which has been in existence for less than three financial years,

Condition – Resolution at meeting of Board of Directors
No such contribution shall be made by a company unless a resolution authorising the making of such contribution is passed at a meeting of the Board of Directors.

Details of political contribution in profit and loss account [Section 182(3)/(3A)]
Every company shall disclose in its profit and loss account the total amount contributed by it under this section during the financial year to which the account relates.

Notwithstanding anything contained in sub-section (1), the contribution under this section shall not be made except by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.

Punishment for contravention of the provisions of this section [Section 182(4)]
If a company makes any contribution in contravention of the provisions of this section,

  • the company shall be punishable with fine
    • which may extend to 5 times the amount so contributed and
  • every officer of the company who is in default shall be punishable
    • with imprisonment for a term which may extend to 6 months and
    • with fine which may extend to 5 times the amount so contributed.

Power of Board and other persons to make contributions to national defence fund, etc. (Section 183)

In spite of anything contained in

  • sections 180, 181 and section 182 or
  • any other provision of this Act or
  • the memorandum, articles or any other instrument relating to the company,

BODs or company in general meeting, may, contribute such amount as it thinks fit to the

  • National Defence Fund or
  • any other Fund approved by the Central Government for the purpose of national defence.

Every company shall disclose in its profits and loss account the total amount or amounts contributed by it to the Fund referred above during the financial year to which the amount relates.

CS Executive Company Law Important Chapters Notes

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