Disclosure requirement by directors under Companies Act, 2013

CA Praveen Mittal

Disclosure of interest by Director –Section 184 of Companies Act, 2013

General Disclosure [section 184(1)]

1. Before the first board meeting in which he participates as director and thereafter at the first board meeting in every financial year

2. Disclosure in “form MBP – 1” by every director of his CONCERN, INTEREST¹, SHAREHOLDING in any company, firm or association of individuals

In case if there is any change in above said disclosure then such change is required to be disclosed in the first board meeting after such change.

Specific Disclosure [Section 184(2)]

1. Before the board meeting disclosure of nature of concern or interest,  by every director who is any way, directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement: –

a. With a body corporate in which such director individually or in association with any other director holds more than 2% shareholding of that body corporate; or

b. With a body corporate in which such director is a promoter, manager, chief executive officer of that body corporate; or

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

2. Such director shall not participate in such board meeting

In case if any director is not so concerned or interested at the time when the contract or arrangement is entered into but becomes so afterword, such director shall disclose his concern or interest at the first meeting of the board after he becomes so concerned or interested.

Such contract or arrangement shall be voidable at the option of the company if no such disclosure is made or such director participated in the meeting [Section 184(3)].

Non compliance [Section 184(4)]

Non compliance of General or Specific disclosure may attract imprisonment up to one year or with fine between Rs.50,000/- to Rs.1,00,000/- or with both imprisonment as well as fine.

Contradiction within section / clarification required

Sub section (5) rules out applicability of the section in case if shareholding of interested director/(s) of one company in other company is not more than 2%, however, sub section (2) confirms the applicability of section even if interested director/(s) does not hold more than 2% shareholding in other company but is a promoter, manager or chief executive officer of the other company.

Secretarial issues involved

1. Filing with Registrar the board resolution in Form MGT – 14 taking note of the disclosure of director’s interest and shareholding within 30 days [Section 117, 179 read with Rule 8(5) of Companies (Meetings of Board and its Powers) Rules, 2014];
2. Maintenance of Register of contracts or arrangements in which directors are interested in form MBP – 4 [Rule 16(1) of Companies (Meetings of Board and its Powers) Rules, 2014];

 _____________________

Note

1. As per clarification issued by the Department of Company Affairs and also as held in the case of Mukkattukara Catholic Co. Ltd. Vs M V Thomas (1995) 6 SCL 135 / (1999) Comp. Cas, 864 (Ker),  the word Interest as occurring in section 299 of the 1956 Act [corresponding to section 184 of the 2013Act] means personal interest and not official interest.  It is also not related to financial interest only and may include interest arising out of fiduciary duties or closeness of relationship.