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Board And Shareholder Approval Thresholds

📌 Board and Shareholder Approval Thresholds (India)

Corporate decisions are split between:

Board powers (management authority)

Shareholder powers (ownership control)

Governed by:

Companies Act, 2013

Articles of Association

SEBI LODR (for listed companies)

🧾 1. Board Powers – Section 179

The Board is responsible for day-to-day management. Certain powers must be exercised only by Board Resolution at a meeting:

Cannot be passed by circular resolution.

📌 2. Shareholder Approval – Ordinary vs Special Resolution

📌 3. Matters Requiring Shareholder Approval

(A) Ordinary Resolution

Declaration of dividend

Appointment of directors (in most cases)

Appointment of auditors

(B) Special Resolution

📌 4. Section 180 — Restriction on Board Powers

Board needs special resolution for:

Sale/lease of whole or substantially whole undertaking

Borrowing beyond paid-up capital + free reserves

Remission of debt due from director

📌 5. Principle Behind the Thresholds

⚖ Key Case Laws

1️⃣ Automatic Self-Cleansing Filter Syndicate v. Cuninghame (1906)

Shareholders cannot interfere with board decisions unless Articles allow.
👉 Board autonomy principle.

2️⃣ Shaw & Sons v. Shaw (1935)

Board manages company; shareholders cannot override management powers.
👉 Separation of powers doctrine.

3️⃣ Howard Smith Ltd v. Ampol Petroleum (1974 PC)

Board powers must be used for proper purpose.
👉 Even valid board approval can be invalid if purpose improper.

4️⃣ Needle Industries v. Needle Industries Newey (1981 SC)

Majority powers cannot be exercised oppressively.
👉 Shareholder approval must be bona fide.

5️⃣ Nanalal Zaver v. Bombay Life Assurance (1950 SC)

Directors are fiduciaries and must act in interest of company.
👉 Board approvals subject to fiduciary standards.

6️⃣ Dale & Carrington Investment v. P.K. Prathapan (2005 SC)

Corporate machinery cannot be used for personal control.
👉 Shareholder resolutions can be invalid if oppressive.

7️⃣ LIC v. Escorts Ltd (1986 SC)

Courts do not sit in appeal over commercial decisions of board unless illegal.
👉 Judicial deference to corporate approvals.

📌 6. When Approval Becomes Invalid

Even if formal approval exists, courts may intervene if:

Fraud on minority

Mala fide purpose

Conflict of interest

Violation of statute

Lack of quorum/notice

📌 7. Governance Safeguards

✔ Proper notice & explanatory statement
✔ Interested directors abstain
✔ Independent director review
✔ Recording dissent

🎯 Key Takeaway

Corporate law balances efficiency vs accountability:

Board → operational control

Shareholders → structural & ownership decisions

Approval thresholds ensure major changes cannot be made without owner consent, while management remains functional.

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