Disclosure of Interest by Director
Notified Date of Section: 01/04/2014
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.
1,2&3[(2) 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:
Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board held after he becomes so concerned or interested.]
(3) A contract or arrangement entered into by the company without disclosure under sub-section (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.
(4) If a director of the company contravenes the provisions of sub-section (1) or subsection (2), such director shall be 6[liable to a penalty of one lakh rupees.]
(5) Nothing in this section—
(a) shall be taken to prejudice the operation of any rule of law restricting a director of a company from having any concern or interest in any contract or arrangement with the company;
5[(b) shall apply to any contract or arrangement entered into or to be entered into between two companies or between one or more companies and one or more bodies corporate where any of the directors of the one company or body corporate or two or more of them together holds or hold not more than two per cent. of the paid-up share capital in the other company or the body corporate.]
Exceptions/ Modifications/ Adaptations
1. In case of private company – Section 184 (2) shall apply; with the exception that the interested director may participate in such meeting after disclosure of his interest. – Notification dated 5th june, 2015.
2. In case of Section 8 company – Section 184 (2) shall apply, 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. – Notification dated 5th june, 2015.
3. In case of Specified IFSC Public Company – Sub-section (2) of section 184 shall apply with the exception that interested director may participate in such meeting provided the disclosure of his interest is made by the concerned director either prior or at the meeting. – Notification Dated 4th January 2017.
Amendments
- Ommited by The Companies (Amendment) Act, 2017:- Amendment effective from 9th february 2018
- Substituted by the Companies Amendment Act 2017:- Amendment effective from 9th february 2018
In section 184, in sub-section (5), for clause (b),
“(b) shall apply to any contract or arrangement entered into or to be entered into between two companies where any of the directors of the one company or two or more of them together holds or hold not more than two per cent. of the paid-up share capital in the other company.”
the following clause shall be substituted, namely :-
“(b) shall apply to any contract or arrangement entered into or to be entered into between two companies or between one or more companies and one or more bodies corporate where any of the directors of the one company or body corporate or two or more of them together holds or hold not more than two per cent. of the paid-up share capital in the other company or the body corporate.”
- Substitutedby the Companies (Amendment) Act, 2020. Notification dated 28th September, 2020. Amendment Effective from 21st December 2020
In sub-section (4), for the words:-
punishable with imprisonment for a term which may extend to one year or with fine which 4[shall not be less than fifty thousand rupees but which] may extend to one lakh rupees, or with both
The Following sall be substituted-
“liable to a penalty of one lakh rupees”
