DIRECTOR'S INTEREST-COMPANIES ACT-DECODED BY CS ROHIT KUMAR

Form MBP-1,







In this article I will discuss, when disclosure from a director is required under section 184 of the Companies Act, form MBP-1, and concept of interested director.



CONCEPT

Taking disclosure is quite logical because when the matter or any material contract is discussed at the board meeting then every director must be aware that who is interested in particular agenda item and must check the conflict of interest.

PROVISIONS OF SECTION 184:

Every director must disclose his interest in any contract or arrangement at the Board Meeting in which such contract/arrangement is being discussed. Such disclosure shall be given in Form MBP-1. 

If any director is interested in any such contract, then he shall be prohibited from participating in such meeting. [Private limited company is exempted from this , Notification dated 5th June 2015]

TRIGGER POINT TO DISCLOSE INTEREST?

  1. First meeting of board in which he participates as a director.
  2. Thereafter, at the first meeting of every financial year or if there is any change in disclosure.
  3. Contract is going to be entered into with [body corporate in which such director or such director in association with other director, holds more than 2 % shareholding of the body corporate, or such director is a promoter, manager, CEO of that corporate] or [wth firm or other entity in which, such a director is a partner, owner or member, as the case may be].

WHAT HAPPEN IF DISCLOSURE IS NOT GIVEN?

  1. If director fails to disclose such interest in contract then such contract shall be voidable at the option of the company.
  2. Such director shall be punishable with imprisonment for a term which may extend to one year or with fine which may extend to one lakh rupees or with both.
CONTENTIOUS ISSUES

  1. What is meaning of Interest? Nowhere is defined meaning of interest under section 184. If we see Form MBP-1 then director is required to give the name of all entities wherein he holds interest. There is one column where director is required to mention nature of interest. It means it is left with director to decide to disclose. This is very subjective  if we see the objective of the section because holding directorship in one company in professional capacity will not amount to interest for me but others it could be.
  2. Shareholding less than 2% required to be disclose in Form MBP-1? As per my opinion, there is no need to mention shareholding less than 2% because holding 2% shareholding is not something which creates an interest in any company. This is very negligible shareholding for forming any interest. Even section 184(2) says to disclose an interest only if you holds upto 2% or more of shareholdings in the body corporate  with which your company is entered into contract. But still if you want to mention then nobody stopping you to do so.


Comments

Post a Comment

Please do not enter any spam link in the comment box

RECENT POSTS

AYODHYA JUDGEMENT-SUMMARY

Image
Ayodhya judgement resolved the long pending tussle  between Hindus and Muslims. Resolving this religious fight was not an easy task for Hon'ble Supreme Court (" SC "). Drawing  evidences from the muted history were the most herculean task for the SC, though observations of High Court was very much helpful for the SC to end this religious fight which started from 1856-7 . Writing crux of this judgement was not any easy task for me as well because this judgement spreaded over 1045 pages   and discussed numerous issues  and when I was reading and making summary, the problem before me was what to include or what not? But to reduce this judgement into readable strength, I mainly focused on core question which was the bone of contention.  Further, for the sake of authenticity I have written page numbers of this judgement against paragraphs ( wherever required ) so that you can cross-verify or read in detail if you feel so. The bone of contention before the SC was  " Whethe
Read more

PROCEDURE UNDER COMPANIES ACT, 2013

COMPANY INCORPORATION REGISTRATION OF PRIVATE LIMITED COMPANY CHANGE OF NAME OF COMPANY FUNDS RAISING/ISSUE OF SECURITIES PRIVATE PLACEMENT OF SECURITIES AUDITOR APPOINTMENT OF AUDITORS LOAN & INVESTMENT LOAN & INVESTMENT BY COMPANY REMUNERATION MANAGERIAL REMUNERATION IN CASE OF INADEQUATE PROFIT OR LOSS
Read more

RED TAPISM CASES IN INDIA: IDEA-VODAFONE MERGER-LAWDECODED-CS ROHIT KUMAR

Image
Indian Government has very good track record of killing our own country growth by taking stupid decisions. Our bureaucrats have taken oath not to learn from their past bad decisions. In this article, we will discuss how our Indian bureaucracy efforts are anti-growth. HOW STORY OF RED TAPISM STARTED? Idea-Vodafone merger was quite famous and it was said that this would help to boost Vodafone earning which have been showing very dismal picture. To go through this merger process, this deal had to navigate various regulatory windows and Department of Telecommunication (DoT) was one them. Such kind of departmental approval is required in big transactions. Our government departments are well equipped to squeeze, and they did in this case as well. DoT approved the merger but put one rider that merged entity would pay $1.1 Billion to Government in the name of Spectrum charges which was the source of the dispute between government & Idea-Voda (merged entity) to meet their fiscal targets. A
Read more

DRAFT VALUERS BILL 2020- A NEW ERA OF VALUATION-LAW DECODED-BY CS ROHIT KUMAR

Image
WHY NEED ARISE OF NEW PROFESSIONAL, A VALUER? As of today, there is neither standardised formula for valuing assets of corporates nor proper regulatory framework  governing the valuation professionals which are very important to unlock the real value of assets. Currently, there is an ad-hoc framework for valuation professionals and they are basically governed under Companies Act, and IBBI is empowered to implement regime of registered valuers.  For long, such valuation services are provided by CA & Merchant Bankers under various legislations such as Companies Act, Income Tax Laws, SEBI, FEMA etc in a non-standardised manner involving high degree of subjectivity of valuer which most of the time resulted into mis-matching between reality & excel figures .  Moreover, a valuation can not be a part-time services for CS or CA. This requires altogether different set of skills which are beyond Accounting, Tax, and Excel Sheets. Therefore, the panel headed by IBBI Chairperson M S Sahoo,
Read more

CANCELLATION OF SALE DEED DUE TO NOT HOLDING BOARD MEETING -CASE LAW-DECODED-CS ROHIT KUMAR

Image
M ost people consider Boardroom  a picnic spot, and attending or holding board meeting is considered as a time-pass compliance process by most of the listed and unlisted companies. But, let me tell you board meeting minutes is one of the most important evidences of company's proper functioning, and the Courts also rely on papers of board meeting be it directors notice, attendance register, minutes etc. NOT HOLDING BOARD MEETING COULD RESULT INTO LAND DEAL CANCELLATION This case happened when NCLT declared the sale to be null and void in oppression & mismanagement case [ Elaine Info Solution Pvt. Ltd. v. Avenues India Pvt. Ltd. & others ] and the same uphold by NCLAT . FACTS OF THE CASE: Appellant : Elain Info Sol Pvt Ltd. ( A1 ) Respondents : J&A Avenues India Pvt Ltd ( R1 ) | Mrs. Vishnumolaka Govardhanamma ( R2 ) | Mr. V. Lakshmi Chenuchu Venkata ( R3 ) | Sub-registrar ( R4 ) R2 and R3 are the only directors of R1, and R2 is mother of R3. R3 held 50% shareholding of
Read more