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Disclosure of interest by director

Disclosure of interest by director

The Companies Act, 2013 provides for the disclosure of interest by directors at the Board Meeting. This has been detailed in Section 184 of the Companies Act, 2013 and Rule 9 of the Companies (Meetings of Board and its Powers) Rules, 2014.

Guidelines relating to Disclosure of interest by directors –

1. Every director shall –

(i) at the first meeting of the Board in which he participates as a director and

(ii) thereafter at the first meeting of the Board in every financial year or

(iii) 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, 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. Section 184(2) states that every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into—

          (a)  with a body corporate in which such director or such director in association with any other director, holds more than two per cent shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or

          (b)  with a firm or other entity in which, such director is a partner, owner or member, as the case may be,

shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting:

4. If a director is not concerned or interested at the time of contract but, subsequently becomes concerned or interested, then he is required to disclose his interest or concern at the first meeting of the board.

Other Aspects of Disclosure of interest by a director –

Section 184 (2) shall apply to a Section 8 company only if the transaction with reference to section 188 on the basis of terms and conditions of the contract or arrangement exceeds one lakh rupees clarified vide Notification F. No. 1 /2/2014-CL.I dated 5th June 2015.

Section 184(2) shall apply to a private company; with the exception that the interested director may participate in such meeting after disclosure of his interest clarified vide Notification F No 1/ 1/2014- CL.V dated 5th June 2015.

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.

A contract or arrangement entered into by the company without disclosure under section 184 (2) or with participation by a director who is concerned or interested in any way, directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company.

Any contract or arrangement entered into or to be entered into between two companies, where any director of any company holds not more than two percent of the paid up capital in other company, the provisions of section 184 shall not apply.

Penalty for non-compliance of disclosure of interest by the director –

If a director of the company contravenes the provisions of Section 184 relating to disclosure of interest, such director shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees, or with both.

Disclosure of interest by director

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