A CASE STUDY ON DISCLOSURE OF INTEREST
BY DIRECTORS UNDER THE NEW COMPANIES ACT, 2013
INTRODUCTION
As
per Section 184 of the Companies Act, 2013, every director is mandated to
provide disclosure of interest by way of a notice in writing in the prescribed
form i.e MBP-1 to every company in which he/she is a director.
A
brief study on the provisions of section 184 is replicated herein for your
ready reference:
DISCLOSURE OF INTEREST BY DIRECTOR
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Particulars
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Time
Limit
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Content
of Disclosure
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Every Director has to disclose
his/her interest to each company in which he/she acts as a Director
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At the First Meeting of the
Board in which he/she participates as a Director.
&
Every Financial Year thereafter
at the first meeting of the Board.
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The Disclosure shall also cover
his/her interest or concern in any company, bodies corporate, firms or
association of individuals, which shall also include his/her shareholding in
either of the above.
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Every Director has to disclose,
if there is any Change in his/her Directorship or Shareholding Details in any
company, bodies corporate, firms or association of individuals from his
previous disclosure.
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At the First Board Meeting held
after such change.
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The Disclosure shall also cover
his interest or concern in any company, bodies corporate, firms or
association of individuals which shall also include his/her shareholding in
either of the above.
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DUTY OF DIRECTOR TO GIVE DISCLOSURE OF INTEREST (DOI) & DOI SHALL BE
IN THE PRESCRIBED FORMAT
Rule
9(1) of Chapter XII - Meeting of Board and its
Powers states that “Every Director has to disclose his/her interest or concern
by way of a notice in writing in the prescribed format in Form MBP - 1”.
Rules
9(2) of Chapter XII - Meeting of Board and its
Powers states that “It shall be the duty of every director to give his/her
notice of interest to cause it to be disclosed at the Board Meeting held after
the date of notice”.
MAINTENANCE, PRESERVATION & CUSTODY OF NOTICE OF DISCLOSURE OF
INTEREST
All such notice of
disclosure shall be kept at the registered
office of the company and such notices shall be preserved for a period of eight years from the end of the
financial year to which it relates and shall be kept in the custody of the
company secretary of the company or any other person authorised by the Board
for the purpose.
DISCLOSURE OF INTEREST BY A DIRECTOR IN TERMS OF A CONTRACT OR AN
ARRANGEMENT:
As prescribed under
the provisions of Section 184(2 )(a) & (b) every director of a company who
is in any way either directly or indirectly, concerned or interested in a
contract or arrangement or proposed contract or arrangement entered into or to
be entered into:
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CRITERIA AS
PRESCRIBED UNDER SECTION 184 OF CA, 2013
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a) With a body
corporate in which such director or such director in association with any
other director holds more than 2% of
the paid up capital of the company
Or
He/she is a promoter, manager,
CEO of that body corporate.
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b) With
a firm or other entity in which such director is a partner, owner or member
as the case may be.
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The
Director shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and he shall not
participate in such meeting.
In
case if a director becomes concerned or interested after the contract or
arrangement is entered into, then he shall for with disclose his concern or
interest at the first meeting of the Board held after he becomes so concerned
or interested.
PENAL
PROVISIONS FOR NON-COMPLIANCE
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Particulars
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Penalty
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Any
Director who contravenes the provisions of section 184(2)(a)&(b) of CA,
2013
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Such contract or arrangement
shall be voidable at the option of the company.
He shall be punishable with
imprisonment for a term up to one year or with fine which shall not be less
than Rs. 50,000/- and may extend to
Rs. 100,000/- or both.
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If
the director contravenes the provisions of section 184(1) or (2)
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He shall be punishable with
imprisonment for a term up to one year or with fine which shall not be less
than Rs. 50,000/- and may extend to
Rs. 100,000/- or both.
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PRACTICAL
CASE STUDIES
Case 1:
A
is a Director of Company X, Y & Z. He had resigned from the Board of
company Z, however he had failed to disclose the change in his disclosure
submitted to the company X & Y at the first board meeting of those
companies held after such change. What are the consequence and the remedy
available for the director?
Ans:-
A the director is
liable to be prosecuted as per the penal provisions laid down under the
provisions of Section 184(4) of CA, 2013 as referred above.
However in terms of
remedy, the director can go for a voluntary compounding of offences as
prescribed under the provisions of Section 184(4) of CA, 2013 and he may be
liable to pay the penalty of Rs. 50,000/- which may be extended up to Rs.
100,000/-.
Case 2:
A
is a Chief Executive Officer (KMP), B is a Chief Financial Officer (KMP) and C
is a Company Secretary (KMP) of Company X. And all the three are also Directors
of Company Z. Whether it is mandatory on the part of KMP to intimate his
concern or interest to the company in which they act as a KMP?
Ans:-
As per section 184
of CA, 2013 there are no specific provision with regard to disclosing or
intimation by a KMP with regard to his interest or concern. However as per the
provisions of Section 203(3) of the Companies Act, 2013 and rules framed there
under, a KMP is under an obligation to get prior
approval of the Board in which he/she is a KMP before giving his/her
consent to act as a Director in any other company. This provision shall apply only
to a Chief Executive Officer, Chief Financial Officer and Company Secretary.
Case 3:
B
is a Company Secretary of the Company X and he is also a Director of the
Company Y and the Company X has proposed to enter into a contract or
arrangement with the Company Y, where B is a Director. Whether B is entitled to
participate in the Board Meeting where the items of business are transacted?
Ans:-
Yes, B is entitled
to attend the meeting and there is no prohibition is provided under section 184
of the Companies Act, 2013 and B is also entitled to attend the Board of
Meeting of Company Y in which the item is discussed. The same stand can be
taken for CFO.
Case 3:
A
is a foreign national who acts as a Director of Company X. B is the alternate
Director to A. Whether it is mandatory to give disclosure of interest by an
Alternate Director?
Ans:-
Yes, as per the
provisions of Section 184 of CA, 2013, Disclosure of Interest shall be made by
every Director of the Company including the alternate director.
Case 4:
B
is an Additional Director of the Company X, at the AGM held during the year,
the shareholders have not considered his appointment as a Director and he has
not been regularized as director as per the provisions of CA, 13. Whether it is
mandatory on the part of the Director to intimate the status of holding office
in Company X to other companies in which he acts as a Director?
Ans:-
Yes, as per the
provisions of Section 184 of CA, 13, “Every
Director has to disclose, if there is any Change in his/her Directorship, or
Shareholding Details in any company, bodies corporate, firms or association of
individuals from his previous disclosure.”
B being a
additional director, could have disclosed his/her interest or concern to the
other companies when he/she got appointed as a additional director in Company X,
and it shall be the duty of Director B to intimate the change after non regularization
of him/her as a Director at the AGM of the Company X to the other companies in
which B is a Director.
*****
BY
FCS D HEM SENTHIL RAJ
ACS K VINOTH
Blog: csthenewera.blogspot.in
