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As per companies act, 2013 does can the board of a company empower the md with powers to invest funds of the company?

Osborne (Associate) (26 Points)

25 April 2016

In a Venture Capital/Private Equity firm structured as a Private Limited Company, can the Board empower the Managing Director with powers to invest funds of the Company? Further can powers to sell/disinvest also be conferred on the MD? Would appreciate if you can give examples of companies where this happens. Thanks in advance.

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8 Replies

Jatin Bajaj (CS) (2928 Points)
Replied 25 April 2016

According to Companies Ammendment Act 2015, the Provisions of section 117(3) (g) shall not apply to a Private Limited Company which states Resolutions passed in pursuance of Section 179(3) which also includes to invest the funds of the Company, Read with Rule 8 of ( Meeting of Board and Powers Rules) which also prohibit to sale investments held by the Company Hence in short we can say that Board of Directors of Company canot invest in the funds nor they can sell the investments of the Company.

Pratik Shah (Practising Company Secretary) (4432 Points)
Replied 25 April 2016

I am sorry to say, but Jatin Bajaj has made incorrect interpretation of the exemption.

The notification has given exemption stating that Section 117(3)(g) is not applicable to Pvt Companies. That means that Private Companies are not requried to file Form MGT-14 for the matters mentioned in Section 179(3). However, Section 179(3) is applicable to all Companies.

An answer to your query is, Board of Directors can authorise MD for investing funds of the Company. However, you need to ensure that you also comply with Section 180, if applicable.

Osborne (Associate) (26 Points)
Replied 25 April 2016

Dear Patik, Jatin, appreciate your responses. However, Pratik, in your response, neither of the clauses specifically say that the Board can Authorise the MD to invest funds of the Company. Section 179(3) says that the Board of Directors can exercise its powers on behalf of the company to invest funds of the company.

Jatin, clearly as per Section 179(3) the Board can exercise its powers on behalf of the company to invest funds of the Company.

CS Arjun Rajagopal (B.com, ACS) (1056 Points)
Replied 25 April 2016

Originally posted by : Osborne
	In a Venture Capital/Private Equity firm structured as a Private Limited Company, can the Board empower the Managing Director with powers to invest funds of the Company? Further can powers to sell/disinvest also be conferred on the MD? Would appreciate if you can give examples of companies where this happens. Thanks in advance.

Answer to your query is Yes, the board may authorise MD to invest the funds of the Company.

Please refer first proviso to Section 179(3) which is reproduced below for your reference.

As per first proviso to Section 179(3) of the Companies Act, 2013 the Board may, by a resolution passed at a meeting, delegate to anycommittee of directors, the managing director, the manager or any other principal officer ofthe company or in the case of a branch office of the company, the principal officer of the branch office, the powers specified in clauses (d) to (f) on such conditions as it may specify:

Here Power to invest the funds of the company fall in clause (e) of Sub Section 3 of Section 179.

Regards,

Arjun Rajagopal

Pratik Shah (Practising Company Secretary) (4432 Points)
Replied 25 April 2016

So, practically, the Board of Directors can approve investing fund of Company upto certain limit and authorise a MD for investing such funds of Company . Then obviously, MD can invest funds upto this limit. This is very practical.