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Disclosure of Interest by the directors section 184 of the Companies Act 2013

CS Mallika Gupta 
on 04 October 2016

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Section 184 - Disclosure of Interest by Director

(1) Every director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding, in such manner as may be prescribed.

The Section could be divided into segments for better interpretation i.e. Every Director shall disclose their interest or Concern.

Events or timeline when such disclosure needs to be given:-

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

The Director is required to disclose his Concern/ Interest (which includes shareholding) in :-

  • Any Company or Companies;
  • Bodies Corporate
  • Firms
  • Association of Individuals.

In such manner as may be prescribed:-Rule 9 of Companies (Meetings of Board and its Powers) Rules, 2014

1. Every Director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving notice in writing in Form MBP-1

2. It shall be duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice.

3. All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for this purpose.

**Section 184 continued**

(2) Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into�

(a) With a body corporate in which such director or such director in association with any other director, holds more than two per cent. shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or

(b) With a firm or other entity in which, such director is a partner, owner or member, as the case may be,

shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting:

Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board held after he becomes so concerned or interested.

The second proviso to Section 184 deals with the interest of the director in the Contracts/ Arrangement/ Proposed Contract/ Arrangement to be entered into with the Body Corporates or Firms; wherein the said director is concerned whether directly or indirectly.

** As per the Notification given by Ministry of Corporate Affairs dated 05th day of June, 2015 the Private Companies have been provided a relaxation under sub section (2) of section 184 of the Companies Act, 2013. The said notification states that the provisions "shall apply with the exception that the interested director may participate in such meeting after disclosure of his interest."

(3) A contract or arrangement entered into by the company without disclosure under sub-section (2) or with participation by a director who is concerned or interested in any way, directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company.

(4) If a director of the company contravenes the provisions of sub-section (1) or subsection (2), such director shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees, or with both.

(5) Nothing in this section -

(a) shall be taken to prejudice the operation of any rule of law restricting a director of a company from having any concern or interest in any contract or arrangement with the company;

(b) shall apply to any contract or arrangement entered into or to be entered into between two companies where any of the directors of the one company or two or more of them together holds or hold not more than two per cent. of the paid-up share capital in the other company.

** As per Notification given by Ministry of Corporate Affairs dated 18th day of March, 2015, the filing of Form MBP-1 in form MGT-14 with the Registrar of Companies have been specifically omitted under Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014:-

"(5) to take note of disclosure of director's interest and shareholding:"

Draft resolution for Disclosure of Interest by Director under section 184 of the Companies Act, 2013:

The Chairman informed the board that pursuant to section 184 (1) of the Companies Act, 2013, it is necessary for the board members to disclose their concern or interest, in any company or companies or body corporate, firms, or other association of individuals which shall include the shareholding, in Form MBP-1 at the first board meeting in every financial year or whenever there is any change in the disclosures already made.

The notice of disclosure of interest in prescribed form MBP-1 as received from directors was placed before the meeting. Following resolution was passed unanimously after due deliberation:

"RESOLVED THAT pursuant to the provisions of Section 184 (1) of the Companies Act 2013, read with Rule 9 (1) of the Companies (Meeting of Board and its Power) Rules, 2014, the disclosure of interest received from all the Directors  of the Company as placed before the Board be and is hereby taken on record."

Format of MBP-1 pursuant to Rule 9 of Companies (Meeting of Board and its Power) Rules, 2014

FORM MBP - 1
Notice of interest by director
[Pursuant to section 184 (1) and rule 9 of
Companies (Meetings of Board and its Powers) rules, 2014
THE COMPANIES ACT, 2013

To,
The Board of Directors,

_____________,
___________.

Sub: Disclosure of Interest for the financial year 2016-17

I, ____________(Name of Director) , S/o _______________, Resident of __________________(Address of the Director ), holding _____ equity shares of Rs _____ each i.e. ______ % of the paid up capital in the company in my name hereby give notice that I am interested directly/ through my relative(s) in the following Companies:-

I.  List of Bodies corporate / firms of which I am a director/ partner/ proprietor

Sr. No.

Name of the Companies/firms    

Nature of Interest                   

Number of shares held

Percentage of holding%

  1.  

 

 Director                                         

   

II. List of Bodies corporate / firms of which I am interested through the relative

Sr. No.

Name of the Companies/firms   

Nature of Interest                   

Number of shares held

Percentage of holding%

  1.  

 

 

   
  1.  
   

 

 

Place: Kanpur

__________________

Date:

                                   (Director)

                                                                                                                                       DIN-_________

Disclaimer : The article so written is based on the author's interpretation and should not be taken as a professional advice.


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