Section 180 of the Companies Act, 2013 restricts the board's power in four matters. These matters require a special resolution of the shareholders, not just a board resolution. The restriction protects the shareholders from major decisions being taken without their approval.
The four restricted matters
Selling or disposing of the undertaking: The board cannot sell or dispose of the company's undertaking without a special resolution. This protects the shareholders from the sale of the company's main business.
Investing in another company: The board cannot invest the company's funds in another company beyond the prescribed limit without a special resolution. This prevents the diversion of funds.
Borrowing beyond the limit: The board cannot borrow money beyond the aggregate of the paid-up capital and free reserves without a special resolution. The borrowing limit is the paid-up capital plus free reserves. This protects the company from excessive debt.
Creating a charge on assets: The board cannot create a charge on the company's assets without a special resolution, where the charge secures a borrowing beyond the limit.
The practical points
The board should check the borrowing limit before borrowing. If the borrowing exceeds the limit, a special resolution is required. The board should obtain the special resolution before the borrowing, not after, because a post-facto resolution may not cure the defect. The company should file Form MGT-14 with the special resolution.
Call to Action: We advise companies on Section 180 compliance, borrowing limits and special resolutions. For a Section 180 review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.