Disclosure of Interest by Director – Section 184 of Companies Act

Transparency and accountability are essential pillars of corporate governance. To uphold these principles, the Companies Act, 2013 mandates directors to disclose their interests in other entities. Section 184 of the Act ensures that directors provide full transparency regarding their connections with other businesses, thereby preventing conflicts of interest and promoting ethical business practices. This article explains specifics of these disclosure requirements under section 184, their implications and consequences of non-compliance.

Definition of Interest under Section 184 of the Companies Act, 2013

1. Interest means connection with some other entity either with some transactions or without any transactions.

2. It means director of this company may be connected with some other entities which may be in the nature of Proprietorship, Partnership, any Association of Individual or any Body Corporate.

3. All such interest must be disclosed to the Company whenever the director was appointed.

4. It does not matter whether this company is making any contract with such other entity, it is only for the purpose of information that this company should know complete profile of director.

Disclosure Requirement under Section 184 of the Companies Act, 2013

1. This disclosure is required to be done at the first board meeting after his appointment, in which he participates.

2. Thereafter, disclosures shall be made in the first Board Meeting of every next financial year.

3. This disclosure is also required whenever there is any change in the disclosured already done.

4. All such disclosures are done in Form MBP-1.

5. Disclosures discussed so far was about the profile of director but disclosure is also required when the company enters into transactions with some other entity in which director is interested.

Transaction Disclosure under Section 184 of the Companies Act, 2013

Disclosures are also required when the company engages in transactions with entities in which the director has an interest. This includes:

a.) Any body corporate in which director or group of directors holds more than 2%  shareholding.

b.) Any body corporate in which director is promoter, manager, chief executive officer.

c.) Any firm or other entity in which director is owner, member or partner.

Such disclosures about the transactions should be done at the meeting in which it is discussed.

Voting Restrictions on Interested director under Section 184 of Companies Act, 2013

Interested director will not participate and vote on such resolution but such restrictions does not apply on private company.

This section equally applies on charitable companies but only if the transactions exceeds Rs. 1,00,000/-.

Post – Transaction Interest Disclosure by director under Section 184 of Companies Act, 2013

If the director was not interested at the time of entering into transaction but later on becomes interested, he will disclose his interest in the immediate next Board Meeting.

Consequences of Non-Compliance with Section 184 of Companies Act, 2013

In case of non-compliance of Section 184, following punishment will apply-

a.) Transaction will become voidable at the option of Company.

b.) Concern director will vacate office u/s   167.

c.) Concern director will pay a penalty of one lakh rupees (Rs. 1,00,000/-).

Time period for Preservation of Disclosures 

All the disclosures done shall be preserved by Company for the period of 8 years in the custody of Company Secretary or any person authorized by Board of Directors.

Conclusion

The disclosure of interest by directors under Section 184 of the Companies Act, 2013, plays a critical role in promoting transparency and accountability in corporate governance. By mandating these disclosures, the Act ensures that all potential conflicts of interest are identified and managed appropriately. Directors must adhere to these requirements to maintain the integrity of their position and the company’s operations. Non-compliance not only undermines corporate governance but also attracts stringent penalties, emphasizing the importance of strict adherence to these provisions.

Format of MBP-1

                                                                                        FORM MBP-1

                                                                          Notice of interest by director

                               [Pursuant to section 184(1) of the Companies Act, 2013 and Rule 9(1) of The

                                                       Companies(Meetings of Board and its Powers) Rules, 2014]

The Board of Directors

…Name of the Company……

….Registered Address………..

Dear Sir(s)

I……………..(Name of the Director) son/daughter/spouse of …………………, resident of …………………………………………….,  hereby give notice of my interest or concern in the following company or companies, bodies corporate, firms or other association of individuals: –

Sr. No.	Name of the Companies/ 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

* I hold more than 2% of the paid-up share capital in the abovementioned Companies.

Signature 

Name of the Director

DIN

Date:
Place: