Board and its

Powers
DISTRIBUTION OF POWERS OF A
COMPANY
– The directors while exercising their powers do not act as agents for the majority
or even all the members.
– The powers of management are vested in the directors.
– The only way in which the general body of the shareholders can control the
exercise of the powers vested by the articles, in the directors, is by altering the
articles.
– The relationship of the Board of directors with the shareholders is more of
federation than one of subordinates and superior.
– Some powers are specially reserved for the Board e.g. appointing directors in
casual vacancies, the power to issue debentures, etc.
Meetings of the Board

– Section 173 of the Act deals with Meetings of the Board

– Section 174 deals with quorum.
– First Board meeting should be held within thirty days of the date of
incorporation.
– In case of One Person Company (OPC), small company and dormant company,
at least one Board meeting should be conducted in each half of the calendar year
– In case of Section 8 Company, after MCA exemptions Notification Dated
05.06.2015, the provision of Section 173(1) shall apply only to the extent that the
Board of Directors
Notice of Board Meetings

– The Act requires that not less than seven days’ notice in writing shall be given to
every director at the registered address as available with the company.
– If Board meeting is called at shorter notice, at least one independent director shall
be present at the meeting.
Agenda of Board Meetings

– The Secretarial Santard -1 issued by ICSI requires a Company to circulate

Agenda, setting out the business to be transacted at the Meeting, and Notes on
Agenda to the Directors at least seven days before the date of the Meeting
 Requirements and Procedures for Convening and
Conducting Board’s Meetings

– Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides for the requirements and
procedures, in addition to the procedures required for Board meetings in person.
– The notices of the meeting shall be sent to all the directors
– At the commencement of the meeting, a roll call shall be taken by the Chairperson when every
– director participating through video conferencing or other audio visual means shall state, for the
– record, the following namely :
1. name;
2. the location from where he is participating;
3. that he can completely and clearly see, hear and communicate with the other participants;
4. that he has received the agenda and all the relevant material for the meeting;
– After the roll call, the Chairperson or the Secretary shall inform the Board about the names of persons other
than the directors who are present for the said meeting at the request or with the permission of the Chairman
 Matters not to be dealt with in a Meeting through Video
Conferencing or other Audio Visual
Means

– Rule 4 prescribe restriction on the following matters, which shall not be dealt with
in any meeting held through video conferencing or other audio visual means:
1. the approval of the annual financial statements;
2. the approval of the Board’s report;
3. the approval of the prospectus;
Compliance with Secretarial Standards relating
to Board Meetings

– Companies Act, 2013 has given statutory recognition to the Secretarial Standards
– Section 118(10)
– Every company shall observe secretarial standards with respect to general and
Board meetings
Quorum for Board Meetings

– One third of total strength or two directors, whichever is higher, shall be the
quorum for a meeting.
– Section 174(1)
– Articles of Association of the company, then, the continuing Directors may act for
the purpose of increasing the number of Directors to that required for the quorum
or for summoning.
– Board of directors, the number of directors who are not interested and present at
the meeting, being not less than two shall be the quorum during such time.
 Passing of Resolution by Circulation

– Section 175
– A company may pass the resolutions through circulation.
– The said resolution must be passed by majority of directors or members entitled
to vote.
– If more than one third of directors require that the resolution must be decided at
the meeting, the chairperson shall put the resolution to be decided at the meeting.
 Defects in Appointment of Directors
not to Invalidate Actions Taken
– Section 176
– All acts done by directors shall be valid notwithstanding that it is subsequently
noticed that his appointment
– But this section doesn’t give validity to any act done by directors whose
appointment has been notices to be invalid or to have terminated.
BOARD COMMITTEES

– A board committee is a small working group identified by the board, consisting of

board members.
– Committees are generally formed to perform some expertise work.
– Members of the committee are expected to have expertise in the specified field.
– Mandatory Committees under the Companies Act 2013 are:
1. Audit Committee
2. Nomination and Remuneration Committee
3. Stakeholders Relationship Committee
4. Corporate Social Responsibility Committee
AUDIT COMMITTEE

– Audit Committee is one of the main pillars of the corporate governance

mechanism in any company.
– The constitution of Audit Committee is mandated under the Companies Act, 2013
and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
– Under the Companies Act, 2013, the Audit Committee’s mandate is significantly
different from what was laid down under Section 292A of the Companies Act 1956
Constitution of Audit Committee

– Section 177(1) of the Companies Act, 2013 read with Rule 6 Companies
(Meetings of the Board and its Powers) Rules, 2014.
– Board of directors of following companies are required to constitute a Audit
Committee of the Board-
1. All listed companies
2. All public companies with a paid up capital of 10 crore rupees or more;
3. All public companies having turnover of 100 crore rupees or more;
4. All public companies, having in aggregate, outstanding loans or borrowings or
debentures or deposits exceeding 50 crore rupees or more.
Composition of the Audit Committee

– Audit Committee shall consist of a minimum of three directors.

– Independent directors should form a majority. (Not applicable for Section 8
companies vide notification no. GSR 466(E), dated 5-6-2015)
– Majority of members of Audit Committee including its Chairperson shall be
persons with ability to read and understand the financial statements.
Functions/Role of the Audit
Committee
– Section 177(4)
– Review and monitor the auditor’s independence and performance, and effectiveness
of audit
– process;
– Examination of the financial statements and the auditors’ report thereon;
– Scrutiny of inter-corporate loans and investments;
– Valuation of undertakings or assets of the company, wherever it is necessary;
– Evaluation of internal financial controls and risk management systems;
– Monitoring the end use of funds raised through public offers and related matters.
Powers of the Audit Committee

– Section 177(5) and (6)

– The Audit Committee has the power to call for the comments of the auditors
about internal control systems, the scope of audit, including the observations of
the auditors and review of financial statements.
– The Audit Committee has authority to investigate into any matter in relation to the
items specified in terms of reference or referred to it by the Board
– The auditors of a company and the key managerial personnel have a right to be
heard in the meetings of the Audit Committee
Number of Meetings and Quorum

– The Audit Committee of a listed entity shall meet at least four (4) times in a year
and not more than 120 days
– The quorum for audit committee meeting shall either be
1. 2 members, or
2. 1/3rd of the members of the audit committee, whichever is greater;
3. With at least 2 independent directors.
Audit Committee and Vigil
Mechanism
– The companies which are required to constitute an audit committee shall oversee
the vigil mechanism through the committee.
– In case of other companies, the Board of directors shall nominate a director to
play the role of audit committee.
– This vigil mechanism shall provide for adequate safeguards against victimization
of employees and directors who avail of the vigil mechanism and also provide for
direct access to the chairperson of the Audit committee
– In case of repeated frivolous complaints being filed by a director or an employee,
the audit committee or the director nominated to play the role of audit committee
may take suitable action against the concerned director or employee
The role of the audit committee shall
include the following:
– Oversight of the listed entity’s financial reporting process and the disclosure of its
financial information to ensure that the financial statement is correct
– Recommendation for appointment, remuneration and terms of appointment of
auditors of the listed entity
– Approval of payment to statutory auditors for any other services rendered by the
statutory auditors
– Reviewing, with the management, the quarterly financial statements before
submission to the board for approval
– Approval or any subsequent modification of transactions of the listed entity with
related parties
The audit committee shall mandatorily review
some information

– Management discussion and analysis of financial condition and results of

operations
– Statement of significant related party transactions (as defined by the audit
committee), submitted by management
– Management letters / letters of internal control weaknesses issued by the
statutory auditors;
– Internal audit reports relating to internal control weaknesses; and
– The appointment, removal and terms of remuneration of the chief internal auditor
shall be subject to review by the audit committee.
Nomination and Remuneration Committee and Stakeholders
Relationship
Committee

– SECTION 178
– The Nomination and Remuneration Committee helps the Board of Directors in the
preparations relating to the election of members of the Board of Directors, and in
handling matters within its scope of responsibility that relate to the conditions of
employment and remuneration of senior management, and to management’s and
personnel’s remuneration and incentive schemes. The responsibilities of the
Nomination and Remuneration Committee are defined in its policy document
Duties of the Nomination and Remuneration
Committee

– Identifying persons who are qualified to become Directors and who may be
appointed in senior management in accordance with the criteria laid down;
– Recommend to the Board their appointment and removal;
– Carry out evaluation of every Director’s performance;
– Formulate the criteria for determining qualifications, positive attributes and
independence of a Director and
– Recommend to the Board a policy, relating to the remuneration for the
Directors, KMP and other employees.
The Stakeholders Relationship
Committee
– Section 178(5) of the Companies Act, 2013
– The Board of a company that has more than one thousand shareholders,
debenture-holders, deposit-holders and any other security holders at any time
during a financial year is required to constitute a Stakeholders Relationship
Committee.
– The Stakeholders Relationship Committee shall consider and resolve the
grievances of security holders of the company.
Penalty for Contravention.

– Section 178(8)
– Schedule IV under Section 149(7) of the Act contains the Code for Independent
Directors. Under Sl. No. II (5) of the Code, Independent Directors are mandated
to safeguard the interest of all stakeholders, especially the Minority Shareholders
and balance the conflicting interests of the stakeholders.
– Directors must reconcile the concerns of various stakeholder groups, and respect
views of colleagues who may have a different perspective. Non-financial
considerations need to be taken into account.
Risk Management Committee under
SEBI
– Regulations 21 of the SEBI
– The majority of members of Risk Management Committee shall consist of
members of the board of directors.
– The Chairperson of the Risk management committee shall be a member of the
board of directors and senior executives of the listed entity may be members of
the committee.
Corporate Social Responsibility
Committee
– India has one of the richest traditions of CSR. Much has been done in recent years
to make Indian entrepreneurs aware of social responsibility as an important
segment of their business activity but CSR in India has yet to receive widespread
recognition.
– If this goal has to be realized then the CSR approach of corporates has to be in
line with their attitudes towards mainstream business- companies setting clear
objectives, undertaking potential investments, measuring and reporting
performance publicly.
– One of the key changes in the Companies Act, 2013 is the introduction of a
Corporate Social Responsibility section making India the first country to mandate
CSR through a statutory provision.
Other Board Committees

– Corporate Governance Committee

– Science, Technology & Sustainability Committee
– Regulatory, Compliance & Government Affairs Committee
Power of Board

– Section 179 of the Act deals with the powers of the board; all powers to do such
acts and things for which the company is authorised is vested with board of
directors.
– The following [Section 179(3) read with Rule 8 of Companies (Management &
Administration) Rules, 2014]
Restriction on Powers of Board

– The board can exercise the following powers only with the consent of the company by
special resolution, namely –
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.
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 business;
4. To remit, or give time for the repayment of, any debt due from a director.
Prohibitions and Restrictions Regarding Political
Contributions

– Section 182
– Company, other than a government company which has been in existence for
less than three financial years, may contribute any amount directly to any political
party.
– The limit of contribution to political parties is 7.5% of the average net profits
during the three immediately preceding financial years.
Disclosure of Interest by Director

– Section 184
– The Act provides for the disclosure by directors relating his concern or interest in
any company or companies or body corporate (including shareholding interest),
firms or other association of individuals by giving a notice in writing in form MBP 1
(Rule 9(1)) at the first meeting of board after being appointed as director and at
first meeting of board of every financial year, in addition to this, any change
required to be disclosed in next board meeting.
RELATED PARTY TRANSACTIONS

– Regulation 2(1)(zb) of SEBI (Listing Obligations And Disclosure Requirements)

Regulations, 2015 defines that “related party” means a related party as defined
under sub-section (76) of section 2 of the Companies Act, 2013 or under the
applicable accounting standards.
– According to Section 2(76) of Companies Act 2013, “related party
Nature of Related Party Transactions

– The scope of dealing with Related Party Transactions has been widened in
Companies Act, 2013. Section 188 (1)
– no company shall enter into any contract or arrangement with a related party with
respect to—
 sale, purchase or supply of any goods or materials;
 selling or otherwise disposing of, or buying, property of any kind;
 leasing of property of any kind;
 availing or rendering of any services;
Conditions to be fulfilled before entering into
Related Party Transactions

– Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014
provides that a company shall enter into any contract or arrangement with a
related party subject to the following conditions, namely:-
1. the name of the related party and nature of relationship;
2. the nature, duration of the contract and particulars of the contract or arrangement;
3. the material terms of the contract or arrangement including the value
4. any other information relevant or important for the Board to take a decision on the
proposed transaction.
PRIOR APPROVAL OF THE COMPANY BY A
RESOLUTION

– First Proviso to the Section 188 (1) of the Act provides that no contract or
arrangement, in the case of a company having a paid-up share capital of not less
than such amount, or transactions not exceeding such sums, as prescribed, shall
be entered into except with the prior approval of the company by a resolution.
RELATED PARTY NOT TO VOTE ON
RESOLUTION

– Exemption to Private Companies: In case of private companies second proviso

shall not apply (Notification No. GSR 464(E) dated 5-6-2015).
– Exemption to Government Companies: In case of Government companies above
mentioned Second Proviso to the Section 188 (1)
Section 189: Register of Contracts or Arrangements in which Directors are interested

– Every company is required to keep one or more registers in Form MBP 4 giving separately the
particulars of
– all contracts or arrangements and shall enter therein the particulars of (Rule 16(1))-
1. Company or companies or bodies corporate, firms or other association of individuals, in which any
director has any concern or interest as mentioned in sub-section (1) of section 184. But the particulars
of the company or companies or bodies corporate in which a director himself together with any other
director holds two percent or less of the paid-up share capital would not be required to be entered in
the register.
2. Contracts or arrangements with a body corporate or firm or other entity as mentioned under
subsection (2) of section 184, in which any director is, directly or indirectly, concerned or interested;
and
3. Contracts or arrangements with a related party with respect to transactions to which section 188
applies;
 Payment to Director for Loss of Office, etc., in
Connection with Transfer of
Undertaking, Property or Shares
1. Name of the director
2. Amount proposed to be paid;
3. Event due to which compensation become payable;
4. Rate of Board meeting recommending such payment;
5. Basis for the amount determined;
6. Reason/justification for the payment;
7. Manner of payment - whether payable in cash or otherwise and how;
8. Sources of payment; and
9. Any other relevant particulars as the Board may think fit.
Restriction on Non- Cash Transactions
Involving Directors
– Section 192
– Where a Company enters into an agreement by which-
1. A director of the company or its holding, subsidiary or associate company or a
person connected with him acquires or is to acquire assets for consideration other
than cash, from the company; or
2. The company acquires or is to acquire assets for consideration other than cash,
from such director or person so connected.
 Contract by One Person Company

– Section 193
– Where One Person Company limited by shares or by guarantee enters into a
contract except in its ordinary course of business with the sole member of the
company who is also the director of the company, the company shall ensure that
the contract is in writing
 Prohibition on Forward Dealings in Securities of
Company by Director or Key
Managerial Personnel
– Right to call for delivery or a right to make delivery at a specified price and within
a specified time, of a specified number of relevant shares or a specified amount
of relevant debentures; or
– A right, as he may elect, to call for delivery or to make delivery at a specified price
and within a specified time, of a specified number of relevant shares or a
specified amount of relevant debentures.
Prohibition on Insider Trading of
Securities
– SECTION 195
– Insider trading of securities by director or key managerial personnel, including any
trading is totally prohibited in the Act. Any communication required in the ordinary
course of business or profession or employment or under any law is not
amounting to insider trading.