Board of directors: powers, distribution of powers and duties

Company Law · Unit III · Topic 10 of 22 · 7 min read

The general power of the Board under section 179, powers exercisable only at Board meetings, restrictions requiring a special resolution under section 180, the division of power between the Board and the general meeting (Automatic Self-Cleansing Filter, John Shaw), the legal position of directors, and their duties under section 166 and the case law from City Equitable to Dale and Carrington.

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On this page

1. General power of the Board: section 179
2. Restrictions: section 180
3. Distribution of powers between Board and general meeting
4. Legal position of directors
5. Duties of directors: section 166
6. The case law behind the codified duties
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. The company acts through two organs: the Board and the general meeting. Once the articles vest management in the Board, the members cannot override the Board's decisions by ordinary resolution; their remedy is to change the articles or change the directors. Against that wide power stand the directors' duties, now codified in section 166, which they owe to the company.

1. General power of the Board: section 179

Under section 179(1) the Board is entitled to exercise all such powers, and do all such acts, as the company is authorised to exercise and do. Two provisos limit this: the Board is subject to the Act, the memorandum, the articles and regulations made by the general meeting; and the Board shall not exercise any power which the Act, the memorandum, the articles or otherwise require to be exercised by the company in general meeting. A regulation made by the general meeting does not invalidate a prior act of the Board that was valid when done (section 179(2)).

Powers exercisable only by resolution at a Board meeting (section 179(3)), not by circulation: to make calls on unpaid shares; to authorise buy-back under section 68; to issue securities, including debentures; to borrow money; to invest the company's funds; to grant loans or give guarantees or security; to approve the financial statements and the Board's report; to diversify the business; to approve amalgamation, merger or reconstruction; and to take over a company or acquire a controlling stake in another. The powers to borrow, invest and lend may be delegated to a committee, the managing director, the manager or a principal officer.

2. Restrictions: section 180

The Board may exercise the following powers only with the consent of the company by special resolution (section 180(1)):

to sell, lease or otherwise dispose of the whole or substantially the whole of an undertaking (an undertaking being one in which the investment exceeds twenty per cent of net worth or which generates twenty per cent of total income);
to invest, otherwise than in trust securities, compensation received on a merger or amalgamation;
to borrow money where the total borrowing (excluding temporary loans from bankers in the ordinary course) will exceed the aggregate of paid-up share capital, free reserves and securities premium; and
to remit, or give time for repayment of, a debt due from a director.

A buyer in good faith is protected (section 180(3)), and a debt incurred beyond the borrowing limit is invalid unless the lender proves he lent in good faith without knowledge that the limit was exceeded (section 180(5)). Contributions to charitable funds exceeding five per cent of average net profits of the three preceding years need prior approval of the general meeting (section 181), and political contributions are regulated by section 182.

3. Distribution of powers between Board and general meeting

The general meeting retains the powers the Act reserves to it: altering the memorandum and articles, appointing and removing directors (sections 152, 169), appointing auditors (section 139), declaring a final dividend at the annual general meeting (under Table F, not exceeding what the Board recommends), altering and reducing capital (sections 61, 66), approving the matters in section 180, and resolving to wind up. Everything else belongs to the Board if the articles so provide.

The courts held early that the members cannot interfere. In Automatic Self-Cleansing Filter Syndicate Co. v. Cuninghame (Court of Appeal, 1906) the articles gave the directors power to sell the company's property. The general meeting, by ordinary resolution, directed them to sell to a named buyer. The directors refused and were upheld: the articles were a contract by which the members had vested the power in the directors, and that could be changed only by altering the articles by special resolution. In John Shaw & Sons (Salford) Ltd. v. Shaw (1935) Greer L.J. put it in the form usually quoted: if powers of management are vested in the directors, they and they alone can exercise them; the only way the general body of shareholders can control them is by altering the articles or by refusing to re-elect directors whose actions they disapprove.

When the general meeting may act. Residual power returns to the members where the Board cannot or will not act:

Deadlock on the Board: Barron v. Potter (1914), where two directors would not meet, and the general meeting could appoint additional directors.
No quorum or disqualification, so that the Board is incompetent to act: Foster v. Foster (1916).
Ratification of an act done irregularly or beyond the directors' authority but within the company's powers: Grant v. United Kingdom Switchback Railways Co. (1888).
Where the directors are themselves the wrongdoers and will not sue in the company's name.

4. Legal position of directors

No single label fits. Directors are agents of the company: when they contract in its name they bind the company and are not personally liable (Ferguson v. Wilson, 1866). They are trustees of the company's money and property and of the powers entrusted to them, which they must exercise for the purposes for which they were given; but not trustees in the strict sense, since they hold no legal title to the company's property. They are sometimes described as managing partners. They are not employees merely by being directors, though a whole-time or managing director may also be an employee. Their duties are owed to the company, not to individual shareholders: Percival v. Wright (1902), where directors who bought a shareholder's shares without disclosing pending takeover negotiations were not liable to him.

5. Duties of directors: section 166

The 2013 Act codified the duties for the first time. A director shall:

act in accordance with the articles (section 166(1));
act in good faith to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of the environment (section 166(2));
exercise his duties with due and reasonable care, skill and diligence and exercise independent judgment (section 166(3));
not be involved in a situation in which he has a direct or indirect interest that conflicts, or possibly may conflict, with the company's interest (section 166(4));
not achieve or attempt to achieve any undue gain for himself or his relatives, partners or associates; if he does, he must pay an equal amount to the company (section 166(5)); and
not assign his office; an assignment is void (section 166(6)).

Contravention is punishable with fine of one lakh to five lakh rupees (section 166(7)). Allied duties: to disclose his interest in contracts and arrangements and not take part in the Board's discussion on them (section 184), and to observe the restrictions on related party transactions (section 188) and on loans to directors (section 185).

6. The case law behind the codified duties

Care and skill. In Re City Equitable Fire Insurance Co. (1925) Romer J. held that a director need show no greater skill than may reasonably be expected of a person of his knowledge and experience; need not give continuous attention to the company's affairs; and may, in the absence of grounds for suspicion, trust officials to whom duties are properly delegated. Section 166(3) now sets an objective standard of “due and reasonable” care.
No secret profit. In Regal (Hastings) Ltd. v. Gulliver (House of Lords, 1942) directors who personally took up shares in a subsidiary, an opportunity that came to them as directors, had to account for their profit to the company although they acted honestly and the company could not itself have taken the shares.
Proper purpose. In Dale and Carrington Investment (P) Ltd. v. P.K. Prathapan, 2004 INSC 515, (2005) 1 SCC 212, the managing director of a private company allotted additional shares to himself, turning the majority shareholder into a minority. The Supreme Court held that directors stand in a fiduciary position, that the power to issue shares must be exercised for the company's benefit and not to gain control, and set the allotment aside as oppressive.

Trap. Section 166(2) lists employees, the community and the environment alongside shareholders. Do not write that a director now owes enforceable duties directly to employees or to the public. The duty is still owed to the company, and is enforced by the company or by members through the oppression and class action remedies; the wider list tells the director whose interests he must take into account.

How this is examined

June 2025 asked “What are the powers and duties of a company director?” for 10 marks. The syllabus names “distribution of powers between Board of Directors and general meeting” and it is set as an essay in its own right. For powers: sections 179 and 180 with the good faith protections. For distribution: the reserved matters, then Cuninghame and John Shaw, then the exceptions. For duties: section 166 clause by clause, supported by City Equitable, Regal (Hastings) and Dale and Carrington.

Now try the real questions: Company Law past question papers.