Discuss the powers of directors. Are there any restriction on their powers?
Ans. Power of directors—The power of directors are general’) contained in the articles and there is usually a clause giving them the powers of management of the company and all other powers which are otherwise dealt therein. This clause is, however, not be construed ejusdem generis but it has been held to cover and render valid all acts of the tots done bona fide in the management of the company [RePyle Merits (No. 2), (1891) 1 Ch. 173]. The directors of a company can do whatever the company can do subject to the restrictions imposed in the articles of the company [Tata Iron and Steel Co. Ltd., A.I.R. 1928 Bom. 80] Directors have implied powers to do whatever is incidental to the land:less of the Company. Though the members in general body meeting, decide to sell out the undertaking of the company, the directors according to Kerala High Court have power to refuse the sale, in the exercise of their discretionary power of the board, if they feel that such sale is detrimental to the interest of the company. The power of sale of assets is vested in die board of directors and they are responsible for the proper exercise of [Pothen v. Hindustan Trading Corporation, (1967) 37 Com. Cas. 266].
The Companies Act lays down specific provisions in regard to the ‘lowers that may and may not be exercised by directors and the manner . exorcise of such powers. Section 179 provides that the Board of I Hrectors of a company shall be entitled to exercise all such powers and ti) do .11 such acts and things as the company is authorised to do. The AIM of this section is that subject to the restrictions contained in the 801, and in memorandum and articles, the powers of directors are co-mdensive with those of the company itself. There are, however, two important limitations upon their powers. Firstly, the board is not competent it) do what the Act, memorandum and articles require to be done by the 4taroholders in general meeting and secondly, in the exercise of their oow.rti the directors are subject to the provisions of the Act, memorandum and articles and other regulations not inconsistent therewith, made by tilt company in general meeting. The powers, thus conferred on the directors, are conferred collectively on the Board. An individual director directors can exercise these powers only by delegation by the Board, MI and when a director is appointed as manager or managing director or apecial committee of the board is set up to deal with some special work.
The board shall not exercise any power or do any act or thing which ut directed or required to be done by the company in its general meeting. Moreover, in exercising any such power or doing any such act or thing, the ‘board shall be subject to the provisions contained in that behalf, in this or any other Act or in the memorandum or articles of the company or any other regulations. (Sec. 177)
Where under the articles, the directors enjoy full power of managing dir business of the company, the shareholders are not entitled, by a ..elution passed at the general meeting to give effective direction to the directors to the effect as to how to manage the business of the company, without altering the articles. This even cannot overrule the decision of directors in the conduct of the business. Consequently, the directors of a banking company are entitled to enforce payment of a debt even though the getieral body passes the resolution to write off the debt [Subarban Bank Pvt. Ltd., Trichur v. Tariath and another, (1968) 38 Com. Cas. 13].
The entity of a company is entirely separate from that of shareholders and if a company does not possess a fundamental right, then its shareholders cannot be allowed to file a petition for enforcement of fundamental right on the ground that company is nothing more than association of shareholders and members. [Prithis Cotton Mills Ltd. v. Broach Borough Municipality and others, A.I.R. 1968 Gujarat 124].
The Board shall exercise the following powers on behalf of the Company and it shall do so, only by means of resolutions passed at the meeting of the Board:-
(1) the power to make call on shareholders in respect of money unpaid on their shares;
(2) the power to issue debentures;
(3) the power to borrow moneys otherwise than on debentures;
(4) the power to invest the funds of the company; and
(5) the power to make loans. However, the Board by a special resolution may delegate to any committee of directors, the managing agent; secretaries and treasurers the manager or any other principal officer of the company, the power, specified in (c), (d) and (e) above.
Even where there was no actual resolution authorising a director tee enter into a transaction on behalf of the company either by the Board of Directors or by the Boaid of managing agents a claim of creditors could not be affected if the terms of its memorandum and articles of association authorized such a transaction. In such cases the person negotiating with the company is entitled to pressure that att the formalities in connection therewith have been complied with.
Restrictions on the powers of Board.- (Section 180)
(1) The Board of Directors of a public company or of a private company which is a subsidiary of a public company shall not, except with the consent of such company in general meeting-
(i) sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking;
(ii) remit or give time for the re-payment of, any debt due by a director except in the case of renewal or continuance made by a Banking company to its director in the ordinary course of business;
(iii) invest otherwise than in trust securities;
(iv) borrow moneys that will exceed the aggregate of the paid up vital and the free reserves of the company;
(v) contribute to charitable, and other funds not directly related to the business of the company or the welfare of its employees, any amount die aggregate of which will, in any financial year, exceed fifty thousand ‘mires or five per cent, of its average net profits. [S. 181]. An agreement ‘only to transfer the undertaking by directors does not violate the section it being merely tentative, subject to final approval by company at the Ilrnrral meeting. [S. Chakravarty and others v. The Controller of Insurance, Government of India, A.L R.. 1962’S.C. 1355].