Companies Act Section 184 — Disclosure of interest by director
CHAPTER XII MEETINGS OF BOARD AND ITS POWERS
Commercial / Corporate
Summary
Every director must disclose their interest or concern in any company, firm, body corporate, or other association of individuals, including their shareholding, at the first Board meeting they attend as a director. They must also make this disclosure at the first Board meeting of every financial year, and if there is any change in the details already disclosed, they must disclose the change at the first Board meeting held after the change occurs. The manner of this disclosure is as prescribed.
Sub-section (2) covers directors who are directly or indirectly interested in a contract or arrangement, whether existing or proposed, that the company enters into or plans to enter into. Under clause (a), this applies when the contract is with a body corporate in which the director, either alone or together with another director, holds more than two per cent of the shareholding, or where the director is a promoter, manager, or Chief Executive Officer of that body corporate. Under clause (b), this applies when the contract is with a firm or other entity in which the director is a partner, owner, or member. In such cases, the director must disclose the nature of their interest at the Board meeting where the contract is discussed, and must not participate in that meeting. The proviso states that if a director was not interested when the contract was entered into but later becomes interested, they must disclose their interest immediately upon becoming interested, or at the first Board meeting held after they become so interested.
Sub-section (3) states that if a contract or arrangement is entered into by the company without the required disclosure under sub-section (2), or with the participation of a director who is interested in it, the contract or arrangement becomes voidable at the option of the company.
Sub-section (4) provides that if a director contravenes the provisions of sub-section (1) or sub-section (2), the director is liable to a penalty of one lakh rupees.
Sub-section (5) has two clauses. Under clause (a), nothing in this section is to be taken as prejudicing the operation of any rule of law that restricts a director from having any concern or interest in a contract or arrangement with the company. Under clause (b), this section does not 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 one company or body corporate, or two or more of them together, hold not more than two per cent of the paid-up share capital in the other company or body corporate.
Official Text
(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.
(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 sub-section (2), such director shall be 1[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; 2[
(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.]