REGISTER OF CONTRACT OR ARRANGEMENTS IN WHICH DIRECTOR IS INTERESTED [SECTION 189]
Section 189 of the Act contains provisions for maintenance of Register of contracts or arrangements in which directors are interested. According to this section:
(i) Maintenance of register of contracts or arrangements [Section 189(1)]: It is mandatory for all companies to keep one or more registers giving separately the particulars of all contracts or arrangements as required under:
(a) Section 184(2) [Disclosure of Interest by Directors]; or
(b) Section 188 [Related Party Transactions].
(ii) Manner of preparation of register: Such register shall be prepared in the prescribed manner and shall contain prescribed particulars. [Section 189(1)]
As regards prescribed manner and particulars, we may refer Rule 16 of the Companies (Meetings of Board and its Powers) Rules, 2014 which states that the Register of contracts or arrangements shall be maintained in Form No. MBP 4. The company concerned shall enter therein:
the particulars of company or companies or bodies corporate, firms or other association of individuals, in which any director has any concern or interest, as mentioned under Section 184 (1). As an exception, the particulars of the company or companies or bodies corporate in which a director himself together with any other director holds two percent or less of the paid-up share capital would not be required to be entered in the register.
the particulars of contracts or arrangements with a body corporate or firm or other entity as mentioned under Section 184 (2), in which any director is, directly or indirectly, concerned or interested; and
the particulars of contracts or arrangements with a related party with respect to transactions to which Section 188 applies.
(iii) When to make entries in the Register: As per Rule 16, the entries in the Register shall be made at once and in the chronological order. They shall be authenticated by the Company secretary, or any other person authorized by the Board.
(iv) Register to be signed [Section 189(1)]: The register, after being duly filled and updated, shall be placed before the next meeting of the Board and signed by all the directors present at the meeting.
(v) Disclosure to be made by a director or KMP [Section 189(2)]: Every director or key managerial personnel (KMP) shall, within a period of 30 days of his appointment, or relinquishment of his office, as the case may be, disclose the particulars specified in Section 184(1) relating to his concern or interest in the other associations which are required to be included in the register or such other information relating to himself as may be prescribed.
(vi) Register to be kept at registered office [Section 189(3)]: The register shall be kept at the registered office of the company, and it shall remain open for inspection at such office during business hours.
(vii) Preservation and custody: According to Rule 16 (3), the register shall be preserved permanently and shall be kept in the custody of the Company Secretary, or any other person authorized by the Board for the purpose.
(viii) Extracts from register [Section 189(3) and Rule 16 (4)]: The company shall provide extracts from such register to a member of the company on his request, within seven days from the date on which such request is made upon the payment of such fee as may be specified in the articles of the company, subject to a maximum of Rs. 10 per page.
(ix) Register to be produced at AGM [Section 189(4)]: The register shall be produced at the commencement of every annual general meeting (AGM). It shall remain open and accessible during the continuance of the meeting to any person having the right to attend the meeting. Thus, even a proxy has a right to inspect the Register.
(x) Exceptions [Section 189(5)]: Section 189(1) shall not apply to any contract or arrangement i.e. the particulars of a contract or arrangement shall not be entered in the Register-
(a) if it is for the sale, purchase or supply of any goods, materials or services and the value of such goods and materials or the cost of such services does not exceed Rs. 5,00,000 in the aggregate in any year; or
(b) if it is entered into by a banking company for the collection of bills in the ordinary course of its business.
(xi) Penalty for contravention [Section 189(6)]: Every director who fails to comply with the provisions of Section 189 regarding maintenance of ‘Register of contracts or arrangements in which directors are interested’ and the Rules made there under shall be liable to a penalty of Rs. 25,000.
In respect of a Section 8 company which has not committed a default in filing its financial statements under Section 137 or Annual Return under Section 92 with the Registrar, the provisions of Section 189 shall apply only if the transaction with reference to Section 188 on the basis of terms and conditions of the contract or arrangement exceeds one lakh rupees. [Notification No. G.S.R. 466(E), dated 5” June 2015 as amended by Notification No. G.S.R. 584 (E). dated 13 June 2015.)
