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Restrictions on powers of Board-Section 180

Restrictions on powers of Board-Section 180

Introduction:

Section 180 of the Companies Act, 2013, empowers the board of directors to exercise the following the powers only with the approval of the members by means of special resolution at a general meeting:

Provisions:

  1. 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.The expression “undertaking” here means an undertaking in which the investment of the company exceeds twenty per cent. 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.The expression “substantially the whole of the undertaking” in any financial year means 20% or more of the value of the undertaking as per the audited balance sheet of the preceding financial year.This clause shall not apply to:

    1. 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
    2. 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.

    The special resolution passed in this regard may specify certain conditions regarding the use, disposal or investment of the sale proceeds which may result from the transactions.

  2. to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation
  3. 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, apart from temporary loans obtained from the company’s bankers in the ordinary course of businessThe expression “temporary loans” here means loans repayable on demand or within six 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.Every special resolution passed by the company in this clause has to specify the total amount upto which monies may be borrowed by the Board of Directors.
  4. to remit, or give time for the repayment of, any debt due from a director.

Conclusion:

Earlier, Section 293 of the Companies Act, 1956 was applicable only to public companies i.e. private limited companies were exempted from this requirement and therefore they could borrow any sum of money upto any limit without seeking approval from its members. But now Section 180 of the Companies Act, 2013 is applicable to all companies i.e. public as well as private. So now onwards even private companies are required to seek approval of its members to borrow money exceeding the aggregate of paid-up share capital and free reserves.

Restrictions on powers of Board-Section 180

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