Director Disqualification

Disclosure of Director’s Interest: Section 184 Companies Act, 2013

calendar02 Mar, 2020
timeReading Time: 4 Minutes
Disclosure of Directors Interest

The Directors never compromise on the fiduciary position, which they occupy concerning a Company. Hence, the Directors exclude themselves from making a decision in such contracts and arrangements where personal interest is involved. Section 184 of the Companies Act, 2013, the main objective is to bring to the notice of the Directors the conflict of interest and duty of any of their employees on the Board. The main purpose of Section 184 of the Companies Act, 2013[1] , is that Director should make disclosure of any interest which he/she has in any other body corporate, company or firm. This article is a compilation and breakdown of the relevant provisions relating to the Disclosure of Directors Interest.

What are the Different Types of Disclosure of Directors Interest?

The different types of Disclosure of Directors Interest are as follows:

Types of Disclosure of Directors Interest

General Disclosure by Directors

Every Director of Company should disclose all of his concerns and interest in any company or companies or firms and all other associations which include shareholding. The disclosures which are made by the Director should be kept at the registered office of the Company.

Special Disclosure by Directors

This disclosure is specified under Section 184(2) of the Companies Act, 2013. This type of disclosures is transaction-specific Disclosures. A Director who is interested or concerned in a contract or arrangement, to be entered into:

  • With a body corporate in which the Director holds more than 2% of the shareholding of the Company, or is a promoter, manager or Chief Executive Officer (CEO) of that body corporate.
  • With a firm or any other entity in which the Director is the partner, owner or a member.   

What is the Time Limit Prescribed for the Disclosure of Directors Interest?

The time limit in which the Disclosure of Directors Interest should be done:

In the case of General Disclosure

The General Disclosure of Directors Interest should be made:

  • At the first meeting of Board when the Director participates as a Director.
  • At every financial year, in the first Board meeting which is held.
  • At the first Board Meeting after any alteration in any previous disclosure made by the Director.

In the case of Special Disclosure

The Special Disclosure of Directors Interest should be made:

  • At the Board Meeting, where the contract or arrangement in which the Director is interested, will be discussed.
  • In case if the Director is interested after the contract or arrangement is entered, then the Director has to submit the disclosure at the first Board meeting, which will be held after the Director becomes interested.

Read our article:An Insight into Section 164, Companies Act: Disqualification of Directors

What is the Manner Prescribed for the Disclosure of Directors Interest?

The manner of the Disclosure of Directors Interest has been specified under Rule 9(1) of companies (Meetings of Board and its Power) Rules, 2014. The manner of the disclosure of Directors Interest is prescribed is the Form MBP-1, in which the Disclosures will be written in the way as asked. The Sample of MBP-1 Form is as follows:

FORM_MBP-1

The link for the above Form: https://www.webtel.in/Image/FORM_MBP-1.pdf

The Disclosures filed in the Form should be kept at the registered Office of the Company and should be preserved for at least 8 years from the end of the financial year. The disclosures are to be kept in custody of Company Secretary of Company or any other person authorized by Board for this purpose.

What is the format in which the details of the Disclosure of Directors Interest should be maintained?

Section 189 of the Companies Act, 2013 is related to “Register of contracts or arrangements in which the Directors are Interested”. In this Register, the Company is required to maintain the Register and mentioned the details as prescribed. The particulars which are necessary to be mentioned in the Register are as follows:

  • Date of the contract
  • Name of the party with which agreement is entered
  • Name of interested Director
  • Relation with Director/ Company
  •  Nature of Interest
  • Important terms and Condition
  • Date of Approval at the meeting of Board
  • Amount of Contract
  • Signatures and Remarks
  • The date on which the interest arose
  • Name of Company
  • Details of voting on such Resolution
  • Date of next meeting where the Register will be placed for signature
  • The date on which the shareholders approved

The Register also requires mentioning every detail written in the MBP-1 Form which was filed with the Registrar for Disclosure of Directors Interest.

What is the penalty if Disclosure of Directors Interest is not done?

Director if contravenes the procedure prescribed for the disclosure then the Director shall be liable to:

  • Imprisonment which can be extended to 1 year, or;
  • A fine which can be extended up to 1 lakh rupees, or with both.

Conclusion

Director of Company is precluded from entering into engagements in which personal interest is conflicting with the interest of those with whom he is in a fiduciary duty to protect. Section 184 does not prohibit these types of engagements, but it requires the Director to make Disclosure of such Interest. If the Disclosure of Directors Interest is not done then, a penalty will be imposed on the Director who does this. Looking at the pitfalls, consult a firm which will help you with the process. We at Corpbiz, have experts who will guide you with the filing process of the Disclosure of Directors Interest Forms. Our experts will work ideally to ensure successful completion of the process.  

Read our article:Companies Act 2013 Provides a Procedure for Appointment and Resignation of the Directors

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