2. In the exercise of their powers, the directors are subject to the provisions of the Act, Memorandum and Articles and other regulations made by the company in the general meeting.
Powers of a company are distributed between the Board of Directors and the shareholders. Powers vested in the Board of Directors can be exercised by it alone. The shareholders cannot interfere with the decision of the directors, unless they are acting contrary to the provisions of the Act or the Articles.
However, the inherent residuary and ultimate powers of a company lie with the general meeting of the shareholders, and therefore, the general meeting i.e., the shareholders can act even in a matter delegated to the Board in the following exceptional cases:
1. Where the directors’ actions are found to be mala fide:
Where the actions of directors are mala fide and against the interests of the company, e.g. clash of directors’ personal interest with the duties towards the company.
2. Where the Board becomes incompetent to act:
Where the Board of Directors has for some valid reasons become incompetent to act, e.g. all the directors are interested in a particular transaction.
3. Deadlock in the Board:
Where directors are unable to act because of a deadlock in the meeting of the Board of Directors. They are equally divided and, therefore, cannot come to any decision.