Section 184 of the Companies Act 2013 - Disclosure of interest by Director

184 (1) Every director shall at the first Board 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 disclosure 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 the individuals which shall include the shareholding, in such manner as may be prescribed.

(2) Every director of the 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 percent 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 interested or at the first board meeting of the board held after he becomes so concerned or interest.

(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 provision of the sub section (1)  or sub section (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 (50,000) but which may extend to one lakh rupees, or with both.

Exemption/modification to a Private Company: Section 184 deals with disclosure of interest by the directors of the Companies. Section 184(2) provides that the directors of a private company must refrain from participating in a board meeting where a matter in which they are interested is to be discussed. This created practical problem in case of private Companies which did not have any disinterested director on a matter under consideration. Accordingly, private companies have been exempted from the provision of section 184(2) implying thereby that the interested director of the private companies can take part in the meeting of the Board after disclosing their interest. 

However there is an anomaly. Though such an interested director may participate in a Board meeting of a private company, he cannot be counted for the purposes of quorum under section 174(3) which provides that directors who are not interested and present at the meeting shall be the quorum (Notification dated 5^th June, 2015)

Companies (Meeting of Board and its Powers) Rules, 2014

Disclosure by a director of his interest: Every director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, 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. All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose. (rule 9)

Judicial Pronouncement

Where director is sub partner with the other party to the contract, he is deemed to have an interest in the contract which he is bound to disclose – Pydah Venkatachalapathi v Guntur, Jute & Pare Mills Co Ltd AIR 1929 Mad 353

A relationship of friendliness with directors who are ‘interested’ in contract or arrangement will not make a person an interested director. The interest or concern cannot be merely a sentimental interest or ideological concern – Needle Industries (india) Ltd v Needle Industries Newey (India) Holding Ltd (1981) 51 Comp Cas 743 (SC)

Offences & Penalty

If a director fails to disclose his interst in contract at a Board meeting or participates in the meeting of the Board where he has disclosed his interest shall be punishable with imprisonment or with fine or with both (sub section 4)

References 
Companies Act, 2013