Page 213 - DCOM106_COMPANY_LAW

Company Law

Notes 13.2.4 Other Restrictions on the Borrowing Powers of the Board

The Board can exercise the following powers, inter alia, only by means of resolutions passed at
Board meeting and not by the circulation of resolution: (i) the power to issue debentures; (ii) the
power to borrow money otherwise, than on debentures. The Board may, however, by a resolution
passed at a meeting, delegate the power in (iii) above, to any committee of directors, the managing
director, the manager or any other principal officer of the company, mentioning therein the
limit up to which amount can be borrowed by the delegate. Also, the Act empowers the company
in general meeting to impose restrictions and conditions on the powers of the Board to issue
debentures and borrow money.

13.2.5 Procedure for Delegating Powers to Borrow Money otherwise
than on Debentures

Section 292 empowers the Board to borrow money on behalf of the company by means of
resolution passed at the meeting of the Board. However,
1. Section 292 (1) permits the Board to delegate, by means of a resolution passed at a meeting,
to a committee of directors, the manager or any other principal officer of the company, the
power to borrow money otherwise than on debentures.
2. Section 292 (2) further provides that, every resolution delegating the power referred to
above, relating to the power to borrow money otherwise than on debentures must specify
the total amount outstanding at anyone time up to which money may be borrowed by the
delegate. In case a company has a branch office, the power to borrow as referred to above
may be delegated to the principal officer of such branch.
The company thus, should follow the following procedure for delegating its power to borrow
money otherwise than on debentures:
1. Convene a meeting of the Board of directors.
2. Ensure that every director gets the proper notice of the meeting along with the agenda.

3. Pass a resolution in the board’s meeting delegating the stated power to the desired official
of the company.
4. Ensure that the resolution does state the maximum amount that the official shall be allowed
to borrow.

13.3 Prevention of Oppression and Mismanagement

13.3.1 Rule of Majority

The principle of rule by majority is made applicable to the management of affairs of the company.
The shareholders pass resolutions on various subjects either by simple majority or by three-
fourths majority. Once a resolution is passed, then it is binding on all the members of the
company. As a resultant corollary, the court will not intervene to protect minority against the
resolution, as on becoming a member, the shareholder agrees to submit to the will of the
majority of the members. Thus, if a wrong is done to the company, it is the company which is
legal entity having its own personality, which can institute a suit against the wrongdoer; and
shareholders do not have a right to do so. This rule was laid down in the leading case of Foss v.
Harbottle the facts of this case were as follows:

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