Directorial Disclosure Of Interest

INTRODUCTION

When the Section 184 of the Companies Act, 2013 is read with rule 9 of Companies (meeting of board and its power) rules 2014, it states that every director of the company has the right to disclose his interest by giving the notice in the writing in the form MBP-1.[1] Basically Section 184[2] of the Companies Act 2013 deals with the disclosure of interest by director. “It provides that 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 of 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”.[3]

DEFINITION OF INTERESTED DIRECTOR

The definition of interested director stated under Section 2 (49) of the Companies Act, 2013. It is defined as “interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company”.[4]

OBJECTIVE OF SECTION 184

In the case of Yashovardhan Saboo v Groz-Beckert Saboo Ltd. (Company Law Board)[5], it was the stated that if a director has to made contact with the company and does not discloses is interest and he has committed breach of trust.[6]

APPLICABILITY FOR DISCLOSURE

When Section 184 is read with Section 149[7], then the purpose of Section 184 (1) & (2) states that every director would not include an independent director.

ANALYSIS

 Director will be known as an interested director if

i)“The director, himself or; his,

(ii) Relatives;

(iii) Firm;

(iv) Body corporate;

(v) Other association of individuals;

(b)  is a Partner, director or a member,

(c)  Interested in the contract or arrangement entered into,

(d)  By or on behalf of the Company,

(e)  in which such an “interested director” is a director”.[8]

APPLICABILITY OF SECTION 184

 Section 184 of the Companies Act, 2013 applies to the contract or the arrangement between the two companies under which any of the director of one or both company or more of them together holds more than 2% of paid up share capital in other company. Section 184 is applicable to every director of a company whether he is directly or indirectly concerned in a contract.[9]

  1. In the case of body corporate
  2. If there director of association holds more than 2% shareholding of that body corporate.
  3. If such director is a promoter chief executive officer or a manager of that body corporate.

In case of a firm or other entity-

  1. If such director is a partner or a member

MANNER OF APPLICABILITY OF SECTION 184

Section 184 does not prohibited to enter into the contract for the arrangement but the precondition is the disclosure that has to be made as per rule 9.[10] If share holding does not exceed 2% then Section 184 disclosure requirements are not applicable.[11]

CONSEQUENCES OF NON DISCLOSURE

 A director can be liable with an imprisonment that may extended to 1 year or he has to be the minimum fine of Rs. 50000 which may exceed up to Rupees 1 lakh or both imprisonment and penalty.[12]

DUTY OF THE DIRECTOR

 It is the duty of director to give the notice of interest to cause it to be disclosed when the meeting is held immediately after the date of notice.[13]

 

[1] Disclosure of Interest by Directors under CA, 2013 , Disclosure of Interest by Directors under CA, 2013 (2015), http://www.caclubindia.com/forum/disclosure-of-interest-by-directors-under-ca-2013-291904.asp (last visited Apr 18, 2017).

[2] The Companies Act, 2013.

[3] Riya Dani, Section 184: Disclosure of Interest by Director, http://taxguru.in/company-law/section-184-disclosure-interest-director.html (last visited Apr 18, 2017).

[4] Companies Act, 2013, Complete Act – Bare Act, , https://www.legalcrystal.com/act/63265/companies-act-2013-complete-act (last visited Apr 18, 2017).

[5] Yashovardhan Saboo v Groz-Beckert Saboo Ltd. (Company Law Board) 1995 83 Comp Cas 371 CLB.

[6] Disclosure of Interest by the directors section 184 of the Companies Act 2013 , , http://www.caclubindia.com/articles/disclosure-of-interest-by-the-directors-section-184-of-the-companies-act-2013-27961.asp (last visited Apr 18, 2017).

[7] Section 149 of Companies Act, 2017-

(1) Every company shall have a Board of Directors consisting of individuals as directors and shall have—

(a) a minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company; and

(b) a maximum of fifteen directors:

Provided that a company may appoint more than fifteen directors after passing a special resolution.(……)

[8] Supra note 2.

[9] Board Resolution – Disclosure of Interest by Directors, (2015), http://lawmansection.com/2015/10/16/board-resolution-disclosure-of-interest-by-directors/ (last visited Apr 18, 2017).

[10] Id.

[11] Disclosure of Interest by Director Under Section-184 of Companies ACT,2013, , https://groups.google.com/forum/#!topic/csmysore/z42Z_8Nn_Ag (last visited Apr 18, 2017).

[12] DISCLOSURE OF INTEREST, (2015), https://aishmghrana.me/2014/04/26/disclosure-of-interest/ (last visited Apr 18, 2017).

[13] DIRECTOR’S INTEREST, , http://rna-cs.com/wp-content/pdf/DIRECTOR%20Interest.pdf (last visited Apr 18, 2017).v

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