[Opinion] Consequences of failing to maintain the register of contracts with director’s interest

Prof R Balakrishnan – [2023] 148 taxmann.com 347 (Article)

1. Statutory Registers and the need

As per the provisions of the Companies Act 2013, statutory registers are the registers containing a specific record of the company’s shareholders, directors, contract and agreement in which directors are interested, and deposits, loans & guarantees etc. and these are maintained at the registered office of the company. The requirement/need to maintain the statutory registers is due to the various applicable provisions of the Companies Act 2013 read with the relevant rules framed thereunder. Since the maintenance of the statutory register is mandated by the Companies Act 2013, any non-compliance with these sections and rules attracts severe penalties on the companies and also on the defaulting officers of the company. To avoid such penalties and also in the interest of good corporate governance, it is always preferred to maintain the required statutory registers.

2. Contracts or Arrangements in which Directors are interested

As per the provisions section 189 of the Companies Act 2013, read with section 184, section 188 of the Companies Act 2013 and Rule 16 of the Companies (Meeting of Board and its power) Rules 2014, every company is required to maintain, from the date of its registration, one or more registers, and enter therein the particulars of firms and bodies corporate of which notice of interest has been given by directors and the particulars of all contracts or arrangements in which directors are interested. The register of contracts should be maintained in respect of all contracts with bodies corporate or firms of which a general notice of interest has been given by a director, whether or not such contracts require the sanction of the board.

2.1 Prescribed form of the register

The prescribed form of the register is as per form MBP-4 and this register is in respect of the transactions entered into with the persons and manner as specified under sections 184 and 189 of the Companies Act 2013.

2.2 Entries in the register

Entries in the register are required to be made within seven days of the date of the board meeting at which approval of the contract or arrangement was obtained or, if no approval of the board is required, within seven days of the receipt at the registered office of the company of particulars of such contract or arrangement, or within thirty days of the date of the contract or arrangement, whichever is later.

2.3 Placing the register and singing

The register is required to be placed at the board meeting held next after the meeting in which the contracts or arrangements were considered and should be signed by all the directors present at the meeting.

2.4 Authentication of entries

Entries in the register are required to be authenticated by the secretary of the company or by any other person authorized by the board for the purpose, of appending his signature to each entry.

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