Section 184: disclosure of interest by director

Introduction

General disclosure under subsection (1) is made at the first Board meeting the director participates in, at the first Board meeting of every financial year, and at the first Board meeting after any change. It covers the director's concern or interest in companies, bodies corporate, firms or other associations of individuals, including shareholdings, in the prescribed manner.

Under subsection (2), specific disclosure applies to contracts or arrangements with a body corporate or with a firm or other entity. For a body corporate, it applies where the director, alone or with another director, holds more than two per cent of its shares, or is its promoter, manager or Chief Executive Officer. For a firm or other entity, it applies where the director is a partner, owner or member. A contract made without disclosure, or with the interested director participating, is voidable at the company's option.

Key takeaways

Make the general disclosure

At the first Board meeting in which the director participates, the first Board meeting of every financial year, and the first Board meeting after any change, the director discloses their concern or interest in any company, body corporate, firm or other association of individuals, including shareholdings, in the prescribed manner.

• India Code — consolidated Companies Act, 2013, section 184
• eGazette — Companies (Amendment) Act, 2017 (No. 1 of 2018)
• eGazette — MCA notification S.O. 630(E), 9 February 2018 (commencement of Act 1 of 2018 provisions)
• eGazette — Companies (Amendment) Act, 2020 (No. 29 of 2020)
• eGazette — MCA notification S.O. 4646(E), 21 December 2020 (commencement of Act 29 of 2020 provisions)
• eGazette — MCA notification S.O. 902(E), 26 March 2014 (commencement from 1 April 2014)

Disclose and abstain on specific contracts

If a director is directly or indirectly concerned or interested in a proposed or existing contract or arrangement, they must disclose the nature of the interest at the Board meeting where it is discussed and must not participate. This applies to a body corporate in which the director, alone or with another director, holds more than two per cent of the shares, or is a promoter, manager or Chief Executive Officer. It also applies to a firm or other entity in which the director is a partner, owner or member. A director who becomes interested later must disclose forthwith or at the first Board meeting held after that.

A contract or arrangement entered into without the required disclosure, or with the interested director participating, is voidable at the option of the company.

Know the penalty and the exclusions

The penalty in subsection (4) was first eased by section 60 of the Companies (Amendment) Act, 2017 from 9 February 2018. Section 37 of the Companies (Amendment) Act, 2020 then made it a civil penalty from 21 December 2020: a director who contravenes subsection (1) or (2) is liable to a penalty of one lakh rupees.

Subsection (5)(b), as substituted from 9 February 2018, excludes certain contracts from section 184. These are contracts between two companies, or between companies and bodies corporate, where the directors of one, alone or together, hold not more than two per cent of the paid-up share capital of the other. Subsection (5)(a) preserves any rule of law that restricts a director's interest in contracts with the company.

Check class-specific exemptions

The MCA e-book for the Act lists exemption or modification notifications under this section for private companies, Section 8 companies and Specified IFSC public companies. Read the current notification before applying the general rule to those companies.

• MCA e-book — Companies Act, 2013 (exceptions, modifications and adaptations)

Practical preparation

Collect general disclosures at the required meetings; update them when anything changes; screen each agenda item for interested directors; minute the disclosure and the director's non-participation; apply the two per cent exclusion in subsection (5)(b) only on documented shareholding data.

Practical checklist

Glossary

Concern or interest

A director's direct or indirect stake that triggers disclosure under section 184.

Voidable

Valid unless the company chooses to avoid it. Section 184(3) applies this to undisclosed or tainted contracts.

Frequently asked questions