Section 184 of the Companies Act 2013 | Disclosure of interest by director



Quick Summary
Section 184 of the Companies Act 2013 mandates that directors must disclose their interests in other companies or arrangements. This disclosure is required at the first board meeting they attend, at the start of each financial year, or whenever their interests change. Directors must also declare any interest in contracts or arrangements with entities where they hold a significant shareholding or position, and refrain from participating in related discussions.

Disclosure of interest by director

Every single director shall at the first meeting of the Board of Directors in which he participates as a director and subsequently at the first meeting of the Board in every financial year or on every occasion there is slightly change in the disclosures previously 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.

Every single director of a corporation 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 -

  • 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
  • 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.

Companies Act 2013: Director Interest Disclosure

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.

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.

 

Nothing in this section -

  1. 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;
  2. 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.
 

The author can be reached at vinayak.vharu@gmail.com

References
Companies Act 2013

FAQ :

A director must disclose their interests at the first board meeting they participate in, the first meeting of each financial year, or upon any change in previously made disclosures.

An interest includes direct or indirect concern or shareholding in companies, firms, or other associations, particularly if the director is a promoter, manager, or CEO, or holds more than two per cent shareholding.

A contract or arrangement entered into by the company without the required disclosure, or with the participation of an interested director, can be voided at the company's option.

Directors contravening the provisions can face imprisonment up to one year, a fine of fifty thousand to one lakh rupees, or both.

Yes, the section does not apply to contracts between two companies where directors collectively hold no more than two per cent of the paid-up share capital in the other company.


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About the Author

PROP AT AMIT VINAYAK & ASSOCIATES

Charu Vinayak is a post-graduate and fellow member of the Institute of Company Secretaries of India. She worked as a practicing company secretary for a period of about 10years since 2009, having hand in all type of corporate-legal-matters inter alia having professional excellence in matters of company incorporation ... Read more

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