Section 184: Disclosure of interest by director
This section requires company directors to disclose their interests in other companies or contracts to prevent conflicts of interest and ensure transparency.
Penalty
(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].
The section, clause by clause
What the section says
In plain terms
(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.
Every director must disclose their interest in any company or firm at the first board meeting they attend and at the first meeting of every financial year, or whenever their interests change, and this disclosure must be made in a prescribed manner.
(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 director who has an interest in a contract with the company must disclose this interest at the board meeting where the contract is discussed and cannot participate in that meeting, unless they weren't interested at the time of the contract but become interested later, in which case they must disclose their interest as soon as possible.
(2)(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
(2)(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:
provisoProvided 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.
A contract entered into without proper disclosure or with participation from an interested director can be cancelled by 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].
A director who fails to disclose their interest as required will be liable to a penalty of one lakh rupees.
(5)Nothing in this section—
This section does not affect other laws that restrict directors from having interests in contracts with their company, and does not apply to contracts between companies where the directors own not more than two per cent of the paid-up share capital.
(5)(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.]
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. Subs. by Act 29 of 2020, s. 37, for certain words (w.e.f. 21-12-2020).
- 2. Subs. by Act 1 of 2018, s. 60, for clause (b) (w.e.f. 9-2-2018).
- 3. Subs. by s. 61, ibid., for section 185 (w.e.f. 7-5-2018).
Referred to by
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.