Section 184: Disclosure Of Interest By Director- Registerkaro
Updated: Oct 7, 2022
As per Section 184 of the Companies Act 2013, deals with the Disclosure of Interest by Directors. General Disclosure and Specific Disclosure.
Section 184 of the Companies Act of 2013 governs the disclosure of a director's conflict of interest. It states that every director must disclose his concern of interest in any company or companies or firms, or other association of persons at the first meeting of the Board in which he engages 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, at the first Board meeting held after such change.
TYPES OF DISCLOSURE:
There are two types of disclosure of interest by the director, they are as follows:
General Disclosure of Interest
Specific Disclosure of interest
DISCLOSURE OF INTEREST BY DIRECTOR:
The Director must state his concern/interest (including investment) in:
any Company or Companies;
Association of Individuals.
In such a way that may be prescribed: -Rule 9 of the 2014 Companies (Meetings of the Board and its Powers) Rules
Every Director shall give written notice in Form MBP-1 of his concern or interest in any company or companies or bodies corporate (with shareholding interest), firms, or other association of individuals.
It is the responsibility of the director who gives notice of interest to ensure that it is revealed at the meeting convened immediately following the date of the notice.
All notices must be kept at the registered office for a period of 8 years from the end of the fiscal year to which they pertain and must be held in the custody of the company secretary, or any other person approved by the Board for this purpose.
Applicability of disclosure:
A combined reading of Sections 184 and 149 demonstrates that the term "Every Director" does not include an Independent Director for the purposes of Sections 184(1) and (2).
Specific Disclosure of interest or concern:
As per Section 184(2) of the Companies Act,2013 every director of a company must reveal the nature of his concern or interest if he is in any way, whether directly or indirectly, concerned or interested in a contractual obligation or proposed contract or arrangement or entered into:
a) With a body corporate in which such director, alone or in conjunction with any other director, owns more than 2% of that body corporate or is a promoter, manager, or Chief Executive Officer of that body corporate; or
b) With a company or other entity in which the director is a partner, owner, or member, as the case may be;
It is important to remember that MD, WTD, CFO, COO, and CS are not covered in clause (a) above.
The date on which the contract is entered into is the point in time with reference to which the fact whether or not such holding > 2 percent is determined. [Company News & Notes, July 1, 1963]
Other entity in clause (b) would refer to LLP, Trust, Society, Partnership Firm, etc.
This disclosure must be made at the Board meeting where the contract or agreement is addressed, and the affected director must not attend. The terms "in any manner, whether directly or indirectly, concerned or engaged in a contractual obligation" emphasise how broad this rule is. A director's interest can be expressed in any form, whether directly or indirectly, and it is not only interest, but also worry, and not only in a contract, but also in an arrangement, that would necessitate disclosure.
The necessary disclosure is a specified disclosure during a board meeting. This provision imposes a duty on a director to disclose, but it also imposes a duty on company management to bring every contract or arrangement that would entice the provision before the board, and it would not be justified to claim that a contract or arrangement was not brought before the board (because it was not required to be placed under the law, the company's articles of association, or its policy). If any director is in any way, whether directly or indirectly, involved or interested in such contract or agreement, the company's management must bring it to the board for approval.
Manner of applicability of disclosure:
Section 184 of the Companies Act,2013 does not restrict in entering into a contractual obligation, but the disclosure required by Rule 9 [Section 184(5)] is a prerequisite.
Section 184 of the Companies Act,2013 disclosure requirements are not applied if shareholding is less than 2%. [Section 184(5)]
Consequences of Non-Disclosure:
The Director shall be subject to the following penalties:
Imprisonment for up to one year, or
A minimum fine of Rs. 50,000/-, which may be increased to Rs. 1,00,000/-, or
Both imprisonment and penalty. It is important to remember that the preceding is a Compoundable Offense.