Practically there has been different practice for disclosure of interest in MBP-1 due to interpretation issue w.r.t, disclosure of concern and interest of Directors in Section 184. For detail of shareholding in MBP-1 concerned different professionals taking different views and adopting different practices. I have tried of discuss the above issue. This write-up is only for academic discussion. It requires further analysis and discussion by the professionals. Suggestions are welcomed.
Section 184 (1) of the Companies Act, 2013 requires that every director to make disclosure of his interest or concern in any company or firm or body corporate or any association of individuals at the first Board meeting or when there is any change in the interest of Directors.
Legal text of Section 184(1)
Every director shall at the first meeting of the Board in which he participates 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, 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.
(1) Every director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1.
(2) It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice.
(3) All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose.
From the above it can be summarised that –
> It is the statutory obligation of every director to disclose to the Board of Directors of his company any concern or interest as he have in any company or companies or bodies corporate, firms or other association of individuals.
> Disclosure shall be in Form MBP 1.
> Disclosure must be given at first BM in which he participates, first BM of every financial year and whenever there is any change in the disclosure already made.
> It is to be noted that term “interest or concern” is nowhere is defined in the Act.
What is required to be disclosed? Answer is simple, interest or concern of director in other entities. Now the question again arises, what is the nature of interest or concern? Sub- section (1) of Section 184 uses the words “shall include the shareholding”……… How to interpret this line?
If a director is partner in partnership, his details depicts in MBP 1. Now the question arises that whether having shareholding in other entities be treated as interest or concern.
Example: Mr Ramesh is a director in ABC Ltd. So he will give MBP 1 to the Board of ABC Ltd. He is having shares in other entities, whether MBP 1 will depict those details also?
As we discussed above it is the statutory obligation of every director to disclose to the Board of Directors of his company any concern or interest as he have in any company or companies or bodies corporate, firms or other association of individuals. But practically, secretarial team prepares MBP-1 on behalf of the directors and fill information subject to their confirmation because it is required to be signed by the respective director/KMP.
One view among professionals is that if the director is having only shares in other companies without having directorship, then details of such companies shall not come in MBP 1.
One class of professionals is of view that sub-section (1) of Section 184 clearly provides that interest or concern in other entities shall include the shareholding in other entities also whether having directorship or not.
The words “shall include the shareholding” appearing in sub-section (1) of section 184 of the Companies Act, 2013 indicates that a director can be said to be interested in any company or body corporate or firm or other association of individuals, the director concerned must have a stake in that entity and having shareholding can be considered as a stake in that entity. So having shares or partnership in or any ownership or other such interest would certainly attract the disclosure requirement under this provision.
Accordingly, view II seems to be in line with literal interpretation of the provisions. Practically, secretarial team fills details of directorship and partnership in LLP in MBP 1 from the signatory detail of MCA. For rest of information like shareholdings, partnership and membership or ownership of companies, firms or other association of individuals are not captured by the signatory detail of MCA, it solely depends on directors.
It is to be noted that new interest acquired or disposed must be construed as constituting changes to the particulars already disclosed.
Is it means that if a director holds even a single share in other entities, such details shall also form part of MBP-1?
Entry in Register under Section 189 of of Companies Act, 2013:
The details to be entered into the register of contracts u/s 189 is divided into two parts viz. Part A which pertains to details of contracts or arrangements with any related parties u/s 188 or in which any director is interested u/s 184 (2) and Part B which pertains to names of bodies corporate, forms or other association of individuals in which any director is having any concern and accordingly has given disclosure u/s 184(1).
Proviso to Rule 16 (1) of the Companies (Meetings of Board and its Power) Rules, 2014 states that the particulars of the Company or companies or bodies corporate in which a director himself or together with any other director holds less than or equal to 2% of the paid up share capital would not be required to be entered in the register.
Contravention of Section 184(1) of Companies Act, 2013:
|Existing Provision||Proposed Amendment by the Companies (Amendment) Act, 2020|
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 may extend to one lakh rupees, or with both.
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 may extend to one lakh rupees, or with both liable to a penalty of one lakh rupees.
|Comment: Punishment under Section 184(4) of the 2013 Act, are also subject to vacation of office under Section 167 (1) (d) for the same non-compliance. Accordingly, criminal offence is substituted with civil penalties administered under the In-house Adjudication Mechanism (IAM) system. In IAM framework, offences become from criminal to civil, in other words from the jurisdiction of special court to Adjudication officers as mentioned in Section 454 of the Companies Act, 2013.|
Self-Check Question for Directors:
As we discussed above, it is the statutory obligation of every director to disclose in Form MBP 1 to the Board of Directors of his company any concern or interest as he have in any company or companies or bodies corporate, firms or other association of individuals and it required to be signed by the respective director. So, it will be self-check question for the directors that whether information in MBP 1 depicts all the particulars as required by the law or not.
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