Meeting of Board and its Members (Part 2)
Section 189. Register of contracts or arrangements in which directors are interested
189(1).
Every company must maintain one or more registers that record details of all contracts or arrangements in which directors are interested, as covered under Section 184(2) or Section 188.
After the particulars are entered, the register must be placed before the next meeting of the Board and signed by all directors present at that meeting.
189(2).
Every director or key managerial personnel must, within 30 days of appointment or resignation, disclose to the company their interests or connections in other associations as required under Section 184(1).
The company must include these details in the register.
189(3).
The register must be kept at the registered office of the company and be open for inspection during business hours.
Any member of the company may inspect it and obtain copies by paying the prescribed fees.
189(4).
The register must be produced at the beginning of every annual general meeting and remain open for inspection during the meeting for all persons entitled to attend.
189(5).
The requirement to record details in the register does not apply to:
(a) Contracts for sale, purchase, or supply of goods, materials, or services where the value does not exceed ₹5,00,000 in any year.
(b) Contracts entered into by a banking company for collection of bills in the ordinary course of business.
189(6).
Any director who fails to comply with the provisions of this section is liable to a penalty of ₹25,000.
Section 190. Contract of employment with managing or whole-time directors
190(1).
Every company must keep a record of the employment contract made with its managing director or whole-time director at its registered office.
If the contract is in writing, a copy of it must be kept.
If the contract is not in writing, the company must prepare and keep a written memorandum describing the terms and conditions of employment.
190(2).
These documents, that is, the copy of the contract or memorandum, must be open for inspection by any member of the company at the registered office, without charging any fee.
190(3).
If the company fails to comply, it is liable to a penalty of ₹25,000, and every officer in default will also be liable to a penalty of ₹5,000 for each default.
190(4).
This section does not apply to private companies, meaning they are exempt from maintaining or disclosing such contracts in this manner.
Section 191. Payment to the director for loss of office, etc., in connection with the transfer of the undertaking, property or shares
191(1).
A director of a company cannot receive any payment as compensation for loss of office or retirement if it is connected with:
(a) the transfer of the whole or part of the company’s undertaking or property, or
(b) the transfer of shares in the company, such as
(i) an offer made to all shareholders.
(ii) an offer by another company to make this company its subsidiary,
(iii) an offer by an individual to gain one-third or more of voting power, or
(iv) any other conditional offer.
In all such cases, the director can receive payment only if:
Full particulars of the payment, including the amount and details, are disclosed to members, and
The company approves it in a general meeting.
191(2).
This restriction does not affect payments made by the company itself to its managing director, whole-time director, or manager as compensation for loss of office or retirement, provided such payments are within the prescribed limits.
191(3).
If the proposal for payment is placed before the general meeting but cannot be approved due to lack of quorum, it is considered unapproved.
191(4)
If any director receives payment without approval or before approval, such amount is deemed to be held in trust for the company and must be returned.
191(5)
A director who violates this section is liable to a penalty of ₹1,00,000.
191(6)
This section does not override any other law that requires disclosure of payments made to directors for loss of office.
Section 192. Restriction on non-cash transactions involving directors
192(1).
Directors cannot misuse their position to benefit personally through non-cash deals with the company.
A company cannot make an arrangement where:
(a) A director of the company, its holding company, subsidiary, or associate company, or any person connected to that director, acquires assets from the
company in exchange for something other than cash (for example, by giving property, goods, or shares in return).(b) The company acquires assets from such a director or connected person in exchange for something other than cash, unless this arrangement is first
approved through a resolution passed in a general meeting of the company.
If the director involved is also a director of the holding company, then the holding company’s general meeting must also approve the transaction.
192(2).
The notice sent to members before the meeting must clearly mention:
The full details of the transaction.
The value of the assets involved, which must be determined by a registered valuer to ensure transparency and fairness.
192(3).
If any such non-cash transaction takes place without following these rules, the arrangement is considered voidable, meaning the company can cancel it, unless”
(a) it is not possible to return the assets or money involved, but the company has already been compensated or indemnified for its loss.
(b) any third party has gained rights from the transaction in good faith, without knowing that the law was violated.
Section 193. Contract by One Person Company
193(1).
When a One Person Company (OPC) enters into a contract with its sole member, and that member is also the director, the company must ensure proper record-keeping and transparency.
If the contract is in writing, it is valid as it stands.
If the contract is not in writing, then its terms or offer must be either:
Written down in a memorandum, or
Recorded in the minutes of the first Board meeting held after the contract is made.
Exception.
This rule does not apply to contracts made in the ordinary course of business, such as routine transactions involving daily operations.
193(2).
Once such a contract has been approved by the Board of Directors, the company must inform the Registrar of Companies (ROC) within 15 days of that Board approval, providing full details of the contract that were recorded in the minutes.
194. [Omitted]
195. [Omitted]
