Section 184 Companies Act: Disclosure of interest by director

Section 184 of Companies Act: Disclosure of interest by director

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

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 subsection (2 ), such director shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees, or with both.

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;

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.

Statutory Defined Terms in this Section: (Click any term for official legal definition)

Company Sec 2(20) Director Sec 2(34) Tribunal Sec 2(90)

Legal Commentary & Landmark Judgments: Section 184

Section 184 mandates that every director must disclose his concern or interest in any company, firm, or entity, prohibiting interested directors from participating or voting in board meetings on conflicted contracts.

Core Legal Standard: Section 184(1) mandates every director to disclose his concern or interest in any other companies, bodies corporate, firms, or other association of individuals (including shareholding) by giving a notice in writing in Form MBP-1 at the first board meeting in which he participates as a director, and at the first board meeting in every financial year, or whenever there is any change in disclosures.
Director Disclosure & Quorum Rules: Sub-section (2) mandates that every director who is in any way, directly or indirectly, concerned or interested in a contract or arrangement entered into or proposed with a body corporate or entity must disclose the nature of their concern or interest at the first Board meeting where the matter is considered.
Sub-Section (3) Provision: Sub-section (3) provides that any contract entered into in violation is voidable at the option of the company.

This statutory framework establishes clear operational guidelines, balancing legal compliance with procedural safeguards.

Key Landmark Precedents:

Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd. (2021) 9 SCC 449: The Supreme Court underscored that disclosure of interest under Section 184 is a fundamental fiduciary duty; interested directors are statutorily barred from voting, and contracts infected by non-disclosure violate corporate trust.
Walchandnagar Industries Ltd. v. Ratanchand Khimchand AIR 1953 Bom 285: The High Court affirmed that the statutory disclosure must be full, frank, and timely, enabling fellow board members to assess the transaction with knowledge of the interested director's conflict.

Legal Commentary:

Section 184 is an uncompromising statutory conflict-of-interest rule. Failure to file Form MBP-1 or participating/voting in a board meeting on an interested contract automatically triggers the lethal consequence of Section 167(1)(c)—vacation of directorship. Secretarial teams must ensure interested directors are marked as 'present but not voting' on related agenda items and excluded from the quorum.

Section 184: Disclosure of interest by director

Section 184 of Companies Act: Disclosure of interest by director

Legal Commentary & Landmark Judgments: Section 184