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What is Section 189 of the Companies Act 2013?

MANSHI BAID 
Updated on 25 August 2020

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Section 189 of Companies Act 2013 read with section 184, section 188 of the Companies Act 2013 and Rule 16 of the Companies(Meeting of Board and its power) Rules 2014

Register of Contracts or Arrangements in which Directors are interested 

Applicability: This section applies to every company including banking and insurance company

Explanation:  This section provides that every company is required to maintain a register in FORM NO. MBP -4.

This register is in respect of the transactions entered into with the persons and manner as specified u/s 184 and 189 of the Companies Act,2013. The following things are required to be recorded in this MBP-4 register:-

1. Particulars of every company or company or body corporate, firms, or association of individuals in which any director of the company has any concern or interest. This interest or concern in other companies, firms, BOI, or association of individuals is disclosed by directors himself in FORM MBP-1 as required under section 184 of the Companies Act 2013.

This interest of directors may be in the form of shareholding interest in other companies. However, if the shareholding of all the directors of the company together in another company does not exceed 2% of the paid-up share capital of the company, then such interest is not required to be mentioned in the register maintained in FORM MBP-4.

2. Contract or arrangement with a body corporate in which the director or such other director in association with other directors of the company holds more than 2% of the shareholding of that company or with a body corporate in which the director of the company is a promoter, manager, CEO or firm or any other entity in which the director or any other director of the company is a partner, owner or member as the case may be.

3. Contracts or arrangements with the related parties with respect to which Section 188 applies.

However, the following contracts or arrangements are not required to be included in MBP-4 Register as provided in sub Section (5) of Section 189:-

i. The contracts or arrangements for supply of goods, materials, or services if its value does not exceed Rs. 500000.00 in the aggregate in any year

ii. Contracts or arrangements by a banking company for the collection of bills in the ordinary course of its business.

Every director within 30 days of the appointment or relinquishment as the case shall disclose to the company the details of concern or interest in other associations that are required to be included in MBP-4. In case the director fails to comply with the provisions of these sections and rules made thereunder then such director shall be liable to a penalty of Rs. 25000.00.

Form MBP4

This register is required to be maintained by every company and after entering the particulars mentioned above shall be placed in the next board meeting and shall be signed by all the directors present at the meeting. Entry in this register shall be made in chronological order and every entry shall be authenticated by the company secretary or by such other person authorized by the Board.

This register shall be kept at the registered office of the company and shall be kept in the custody of the company secretary of the company or such other persons authorized by the board and shall be open for inspection during the business hours and extracts can be taken therefrom.

This extracts shall be provided by the company to the members within 7 days of the receipt of the request on receipt of such fees as may be prescribed in the articles of the company but this should not exceed Rs. 10 per page. This register shall be kept open at every AGM and shall be accessible to every person who has the right to attend the meeting.

Relevant Notifications:

As per Notification No. 466 & 584, Section 189 shall be applicable to a Section 8, Not for Profit Company, only if the transactions u/s 188 of the Companies Act, 2013 exceeds Rs. 100,000. Also, this exception shall be applicable to the Section 8 Company which has not committed a default in filing its financial statements u/s 137 of the Companies Act, 2013 or Annual Return u/s 92 of the Companies Act, 2013 with the Registrar.

Also, in the case of “V.G. Balasundaram and Others vs New Theatres Carnatic Talkies dated 12 December 1991”, it was held that the notice must specify the resolution as a special resolution to be passed. Article 27 of the AOA of the company contemplates an increase in the number of directors by special resolution in general meetings.

If such an increase is contemplated with reference to a general meeting then, a special resolution should have been passed for the appointment of directors. Therefore, Section 189 of the Companies Act, 2013 is mandatory and should be complied with in case of an increase in the number of directors.

Republished with latest notifications till July 2018


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