The Two Disclosure Obligations
Section 184(1) requires every director to disclose his concern or interest in any company, body corporate, firm, or other association of individuals, including the nature of the concern or interest, at the first board meeting after his appointment and at the first board meeting of each financial year. Section 184(2) requires a director who is directly or indirectly concerned or interested in a contract or arrangement to disclose the nature of his concern at the board meeting at which the contract is considered.
The MBP-1 Mechanics
Form MBP-1 is the prescribed form for the general disclosure. It must be filed with the company and tabled at the board meeting. A director who files MBP-1 after the due date has still not complied with the timing requirement; the disclosure must precede or coincide with the board’s consideration of the transaction, not follow it. The company should maintain a register of MBP-1 filings with the date of receipt and the board meeting at which it was tabled.
The Abstention Rule
An interested director cannot participate in the discussion or vote on the transaction. The board minutes should record the disclosure, the director’s abstention, and the fact that the remaining directors considered the transaction without the interested director’s participation. Where the interested director is also the chairperson, the chair should be relinquished for that item.
The Penalty Architecture
Contravention of Section 184(1) or 184(2) attracts a penalty of ₹1,00,000 on the director personally. The penalty is adjudicated by the ROC under Section 454. The company is not vicariously liable for the director’s failure, but the company secretary’s failure to obtain the disclosure may attract separate penal consequences for the company and officers in default.
The Link to Section 188
A Section 188 resolution that was passed with the interested director participating, or without the director’s Section 184 disclosure on record, is vulnerable to challenge. The ROC may treat the approval as invalid and the transaction as one entered into without the required board approval. The Section 184 file is therefore the first document an adjudicating officer will examine in a Section 188 inquiry.
Practical Compliance Calendar
MBP-1 should be collected before the first board meeting of each financial year. For a new director, it should be collected before the first board meeting after appointment. A director who acquires an interest during the year must file a supplementary disclosure promptly, and the board should note it at the next meeting. The company secretary should maintain a tracker that maps each director’s MBP-1 date to the board meeting date.
Call to Action: For Section 184 compliance review or MBP-1 process design, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.