DIRECTOR’S OBLIGATIONS

If you are a director in any company, it is a legal requirement for you to make specific disclosures. Whether your company is in a loss-making position, is not yet operational, or has recently been incorporated, compliance with the law is mandatory once you assume the role of a director. Failure to adhere to these legal obligations can result in penalties imposed by the Registrar of Companies (“ROC”) for non-compliance.

Yet another enlightening case has emerged wherein the ROC has fined each director of Pearce Services Global Private Limited Rs. 1,00,000 for failing to disclose their interests in Form MBP-1 in the first board meeting of the Company. ROC further directed that the penalty amount shall be paid from the directors' personal sources/income. The ROC imposed this penalty on the directors under Section 184(4) of the Companies Act, 2013 (“Act”) for the violation of Section 184(1), which deals with the disclosure of interest by directors.

The aforementioned case highlights the significance of the legal obligations and responsibilities that directors must uphold. Directors are required to adhere to the disclosure obligations outlined in Section 184, 164 and 149 of the Act.

• As per the provisions of section 184 (1) of the Act, 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. As per rule 9 of Companies (Meetings of Board and its Powers) Rules, 2014, every director shall disclose his interest, by giving a notice in writing in Form MBP 1. It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice.

• Apart from providing disclosure in form MBP-1, as per the provisions of Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014, every director shall also inform to the company concerned about his disqualification under sub-section (1) or sub-section (2) of section 164, if any, in Form DIR-8 before he is appointed or re-appointed. Form DIR-8 shall be submitted by the director of the Company to the Board at the time of his appointment and re-appointment, in which he shall intimate about the Companies in which he is or has been a director during the last three years disclosing whether he has incurred any disqualification or not under section 164 of the Act.
• Further, as per provisions of section 149(7) of the Act, every independent director of the Company should give a declaration that he/she meets the criteria of independence 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 when a situation arises which affects his status of independence.

The Board of directors shall? take note of the disclosures made by the directors in form MBP-1, DIR-8 and by independent directors at the first meeting of the Board held in every financial year. Nonetheless, it remains the responsibility of directors to furnish timely disclosures in the specified format as mandated by the Act to the company in which they act as director. Failure to adhere to this disclosure requirement could lead to directors facing penalties imposed by the ROC.

Disclaimer: The contents of this write up is based on the relevant provisions and as per the information existing at the time of preparation. In no event I shall be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the above information. Kindly verify the correctness of contents from your own sources.

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