[Opinion] Consequences of not recording director’s disclosure of interest on Form MBP-1

[2023] 148 taxmann.com 291 (Article)

1. Disclosure of Interest by a director of the company

Every director of a company, at the time of joining the company is required to make the disclosure of his concern or interest in any other company or companies or bodies corporate (including shareholding interest), firms or other association of individuals by giving a notice in writing in the prescribed form MBP-1 at the first meeting of the board in which he participates as a director. 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, is required to make the disclosure of his concern or interest.

2. The framework of the Companies Act on this matter

The framework of the Companies Act 2013 as per its section 184(1) spells out this requirement stating that every director to make disclosure of his interest or concern in any company or firm or body corporate or any association of individuals at the first board meeting or when there is any change in the interest of directors. The manner of disclosure is also prescribed in Rule 9 of Companies (Meeting of Board and its Powers) Rules 2014 by giving a notice in writing and the particular form prescribed for this purpose is MBP-1. Whenever, such disclosures are made, the board takes note of the same and it gets recorded in the minutes of the board meeting prepared by the company.

2.1 Provision in secretarial statard-1

As per secretarial standard, this is a mandatory requirement as para 7.3.1 of secretarial standard-1 says that the minutes shall contain a fair and correct summary of the proceedings of the meeting. The company secretary and in the absence of the company secretary any other authorised person record the details as in form MBP-1 in the register maintained under section 189 (register of contracts or arrangement in which directors are interested) of the Companies Act 2013.

3. Recording of the disclosure made by the directors

Whenever, the disclosure is received from a director pursuant to section 184 of the Companies Act 2013, the same is required to be informed to the board by presenting the form MBP-1 at the meeting and the board take note of the same and authorizes the company secretary to record the details as in form MBP-1 in the register maintained under section 189 of the Companies Act 2013. The company secretary is required to record the noting of this in the minutes when prepared and it goes into the record.

In practice, it has been seen, in some of the companies, the same is taken on record and the minutes prepared to that effect. Some of the companies might pass a resolution on this matter stating that

“resolved that pursuant to the provisions of section 184(1) of the Companies Act 2013 read with Rule 9 (1) of the Companies (Meetings of Board and its Powers) Rules 2014, the notices of disclosure of concern of interest in form MBP-1 as received from (a)……….(b)………and (c)……..of the company and as laid down before the meeting, be and are hereby noted and taken on record by the board. Further resolved that the company secretary be and hereby authorized to do all such acts, deeds and things as may be necessary in this regard.”

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