Notes On Lending Of Money To Directors:

      The legal position of a company secretary may be discussed under the following heads:

      The powers of the Directors of the Company are normally set out in the Articles of Associations of the Company and those powers are delegated to the Board of Directors of the Company. So long as the Board acts within the scope of the powers entrusted to it, the shareholders cannot control the way in which these powers are exercised by the Board.

I General Powers of the Board of Directors:

      Section 291 empowered the Board of Directors of the Company to implement those powers and do all such acts for which it has been authorised to do so. This means that the powers of the Directors are within the provisions of the Act.

      This proposition is however subject to two conditions:

  1. The board must not do any such act which is not to be done by the company in general meetings.
  2. The Board must exercise its powers subject to the provisions of the Companies Act or the Memorandum of Associations.

II Powers to be exercised only at the Board Meeting:

      Section 292 of the Act advocates certain powers that can be exercised by means of a resolution passed at the Board Meeting and not by circulations. They are:

  1. Power to make calls on the shareholders
  2. Power to issue debentures
  3. Power to extend loans
  4. Power to borrow money other than from debentures
  5. Power to invest funds of the company.

      The Board may, by a resolution passed at the meeting, delegate the last three powers to any committee of Directors, the managing directors, managers or other principal officials of the company. But the Board must specify the limit of such delegations.

III Specific Powers: The Directors of the company are specifically empowered to:
  1. Supervise, direct and control the affairs of the company.
  2. Dispose of the shares which are ready for issue
  3. Appoint auditor within one month of its registration.
  4. Fill up the vacancies in the office
  5. If authorised by the article, appoint additional directors
IV Additional Powers:

      The following are the additional powers of the Director of the Company:

  1. To appoint a person as manager, if he is already a manager of another company.
  2. To declare the solvency of the company in case of winding up.
  3. Receive notice of discloser of Directors interest.
  4. Receive notice of discloser of Directors share holdings
  5. Make investment in companies in the same group
Loan to Directors:

      Since the Directors of a Company have a direct control over the management of the company, they are apparently in a gainful position to obtain benefits by way of loan. They can misuse the Company's funds for their vested interest.

      In order to impose restriction to this aspect, the Companies Act strictly regulated the lending of money to Directors.

      Section 295 of the companies Act provides that except with prior approval of the Central Government, a company must not directly or indirectly loan to:

  1. Any director of the Company or to any partner or relative of any director
  2. Any firm in which any director or his relative is a member
  3. Any private company of which any director is a member
  4. Anybody corporate at whose general meeting any such director control 25% of voting power.