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Disclosure of Interest by Director: Section 184 of the Companies Act

Narendra Kumar

| Updated: Aug 31, 2019 | Category: Company Registration

Section 184 of the Companies Act

Section 184 of the Companies Act, deals with the Disclosure of Interest by Directors. The main purpose of this section is to bring to the notice that the Director is having interest in other entity. If the Company entering into any contract or arrangement and any of the directors is interested in such contract or arrangement then it is required to submit the disclosure from the director.

How many types of Disclosures are there?

  • General Disclosure

As per Section 184(1) of the Companies Act, 2013 every Director of the Company is required to disclose his concern or interest having in any body Corporate, firms or association of individual which shall include the shareholding in the prescribed format prescribed by the Act at the end of every Financial year.

  • Specific Disclosure

As per section 184(2) of the Companies Act, 2013[1] every director of a Company who is any way directly or indirectly concerned or interested in a contract or arrangement or in proposed contract or arrangement entered with any body corporate or with firm or with any other entity, then such director is required to give the disclosure.

General Disclosure


Is there any specific format for submission of Disclosure of Interest by Director?

Yes, as per the Companies Act, 2013 there is form MBP-1 which need to be submitted by the Director for disclosing his interest.

Timeline for such disclosure needs to be given

  • First Meeting of the Board when he participates as a Director and
  • First meeting of the Board in every Financial year or
  • First Meeting of the Board held after there is any change made in any previous disclosure already made by the Director.

Notes:

  • All such Disclosure is required to keep at the registered office of the Company.
  • It is required to be preserved for 8 years from the end of the financial year to which it relates.

Specific Disclosure


When the specific Disclosure is required to be submitted?

As per section 184(2) of the Companies Act, 2013, a director of the Company who is any way directly or indirectly concerned or interested in a contract or arrangement entered into or to be entered into:

  1. With the body corporate in which such Director or such Director in association with any other Director holds 2% shareholding of that body corporate or is a promoter, manager, Chief Executive Officer of that Body corporate or
  2. With a firm or other entity in which such Director is a partner, owner or member as the case may be.

Then it shall be the duty of Director to disclose the notice of his interest.

Timeline for such disclosure to be given

Disclosure is required to be given by the Director under the following circumstances;

  • It is to be made by the Director at the meeting of the Board in which the contract or arrangement is discussed and entered or to enter into which the director has an interest.
  • In case the Director becomes interested or concern after the contract or arrangement is entered into, such disclosure is required to be submitted at the first meeting of the Board held after he becomes interested or concerned

Is there any format where the details are required to be maintained?

Yes, as per Section 189 of the Companies Act, 2013 relates to “Register of Contract or arrangement in which Directors are Interested”. Every Company is required to maintain the register separately and mentioned the details accordingly as prescribed in the Act.

What are the particulars required to be mentioned in the Register of Contract?

The particulars are required to mention under Register of Contract in which the Director is concerned or interested are as under:

  • Date of Contract/arrangement
  • Name of the party with which contract is entered into
  • Name of the interested Director
  • Relation with Director/Company /Nature of concern or interest.
  • Principal Terms and Conditions
  • Whether the transaction is at arm’s length basis
  • Date of approval of Board Meeting
  • Details of voting on such resolution
  • Date of the next meeting at which register was placed for the signature
  • Reference of the specific item (a) to (g) u/s 188
  • Amount of contract or arrangement
  • Signature/ Remarks if any

Also, Read All You Must Know About E Contracts.

What if the Company has entered into the Contract or arrangement without the Disclosure of Interest?

Contract or arrangement entered into by the Company without receiving the disclosure of interest by the Director who is concerned or interested directly or indirectly in the contract or arrangement, then it shall be voidable at the option of the Company.

Format of MBP-1

FORM MBP – 1

Notice of interest by director

[Pursuant to section 184 (1) and rule 9(1)]

To

The Board of Directors

XYZ PRIVATE LIMITED

Address:

Dear Sir(s),

I, __________________son/daughter/spouse of _________________, resident of ______________________________________________, being a director in the company hereby give notice of my interest or concern in the following company or companies, bodies corporate, firms or other association of individuals:-

Sr. No. Names of the /bodies corporate/ firms/ association of individuals Nature of interest or concern / Change in interest or concern Shareholding Date on which interest or concern arose / changed
         

Place:Signature:

Date:

Penalty

If a Director of the Company contravenes the provision, then the Director shall be punishable with the following:

  • imprisonment for a period which may extend to 1 year or
  • with fine  which may extend to Rs. 1 Lakh or
  • with both

Conclusion

It is the duty of every Director who is holding the Directorship at the end of the financial year in the Company required to submit in the Board Meeting of the Company the disclosure of interest having in any other entity. Further specific Disclosure will be required by the Director as and when applicable. If the Director contravenes the provision, then the penalty will be levied on the Director as prescribed in the Act.

See More: Gujarat HC Override MCA Notification on Disqualification of Directors Online.

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Narendra Kumar

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