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1. In the case of a proposed contract or arrangement, the disclosure required to be made by a director shall be made at the meeting of the Board at which the question of entering into the contract or arrangement is first taken into consideration, or if the director was not, at the date of that meeting, concerned or interested in the proposed contract or arrangement, at the first meeting of the Board held after he comes so concerned or interested.

2. In the case of any other contract or arrangement, the required disclosure shall be made at the first meeting of the Board held after the director becomes concerned or interested in the contract or arrangement.

3. A general notice given to the Board by a director, to the effect that he is a director or a member of a specified body corporate or is a member of a specified firm and is to be regarded as concerned or interested in any contract or arrangement which may, after the date of the notice, be entered into with that body corporate or firm, shall be deemed to be a sufficient disclosure of concern or interest in relation to any contract or arrangement so made.

4. Any such general notice shall expire at the end of the financial year in which it is give, but may be renewed for further periods of one financial year at a time, by a fresh notice given in the last month of the financial year in which it would otherwise expire (Form 24 AA).

5. No such general notice, and no renewal thereof, shall be of effect unless either it is given at a meeting of the Board, or the director concerned takes reasonable steps to secure that it is brought up and read at the first meeting of the Board after it is given.

Every director who fails to comply with the aforesaid provisions shall be punishable with fine which may extend to five thousand rupees.

Nothing in these provisions shall be taken to prejudice or adversely affect the operation of any rule of law restricting a director of a company from having any concern or interest in any contracts or arrangements with the company.

Nothing in these provisions shall apply to any contract or arrangement entered into or to be entered into between two companies where any of the directors of one company or two or more of them together hold not more than 2 % of the paid up capital in the other company. 

Interested director not to participate or vote in Boards proceedings

Nor shall his presence count for the purpose of forming a quorum at the time of any such discussion or vote and if he does vote, his vote shall be void.

The above provision shall not apply to :-

1. a private company which is neither a subsidiary not a holding company of a public company

2. a private company which is a subsidiary of a public company, in respect of any contract or arrangement entered into, or to be entered into, by the private company with the holding company thereof

any contract of indemnity against any loss which the directors, or any one or more of them, may suffer by reason of becoming or being sureties or a surety for the company

any contract or arrangement entered into or to be entered into with a public company, or a private company which is a subsidiary of a public company, in which the interest of the director aforesaid consists solely :- 

1. in his being a director of such company and the holder of not more than the qualification shares

2. in his being a member holding not more than 2 % of its paid-up share capital

3. a public company, or a private company which is subsidiary of a public company, in respect of which a notification is issued, to the extent specified in the notification.

In the case of a public company or a private company which is a subsidiary of a public company, if the Central government is of opinion that having regard to the desirability of establishing or promoting any industry, business or trade, it would not be in the public interest to apply all or any or the prohibitions contained above to the company, the Central Government may, by notification in the Official Gazette, direct that the said provisions shall not apply to such company, or shall apply thereto subject to such exceptions, modifications and conditions as may be specified in the notification.

Every director who knowingly contravenes the provisions of this section shall be punishable with fine which may extend to five thousand rupees.

 Registrar of contracts, companies and firms in which directors are interested

1. the date of the contract or arrangement

2. the names of the parties thereto

3. the principal terms and conditions thereof

4. the date on which it was placed before the Board

5. the names of the directors voting for and against the contract or arrangement and the names of those remaining neutral. 

Particulars of every such contract or arrangement shall be entered in the register aforesaid within

7 days ( exclusive of public holidays ) of the meeting of the Board where approval of the board is required

7 days of the receipt of the particulars of such contract or arrangement at the registered office of the company or within 30 days of the date of such other contract or arrangement, whichever is later.

The register must be placed before the next meeting of the Board and must then be signed by all the directors present at that meeting.

The register must also specify in relation to each director of the company, the names of the bodies corporate and firms of which notice has been given by him wherein he has interest.

The above provisions do not apply to :-

any contract or arrangement for the sale, purchase or supply of any goods, materials or services if the value does not exceed Rs. 1000/- per annum

Any contract or arrangement by a banking company for the collection of bills in the ordinary course of its business or to any transaction with the director, , relative, firm, partner or private company as aforesaid in the ordinary course of its business.

If default is made in complying with the aforesaid provisions, the company, and every officer of the company who is in default, shall, in respect of each default, be punishable with fine which may extend to five hundred rupees.

The register aforesaid shall be kept at the registered office of the company, and it shall be open to inspection at such office, and extracts may be taken therefrom and copies thereof may, be required, by any member of the company to the same extent, in the same manner, and on payment of the same fee, as in the case of the register of members of the company. 

Disclosure to members of directors interest in contract appointing manager, managing director

enters into a contract for the appointment of a manager of the company, in which contract and director of the company is in any way, whether directly or indirectly, concerned or interested or

varies any such contract already in existence and in which a director is concerned or interested as aforesaid

the company shall, within twenty-one days from the date of entering into the contract or of the varying of the contract, as the case may be, send to every member of the company as abstract of the terms of the contract of variation, together with a memorandum clearly specifying the nature of the concern or interest of the director in such contract or variation.

Where a company enters into a contract for the appointment of a managing director of the company, or varies any such contract which is already in existence, the company shall send an abstract of the terms of the contract or variation to every member of the company within within twenty-one days from such date and if any other director of the company is concerned or interested in the contract or variation, a memorandum clearly specifying the nature of the concern or interest of such other director in the contract or variation shall also be sent to every member of the company with the abstract aforesaid.

Where a director becomes concerned or interested as aforesaid in any such contract as is referred to above after it is made, the abstract and the memorandum, if any, referred to above shall be sent to every member of the company within twenty-one days from the date on which the director becomes so concerned or interested.

If default is made in complying with the foregoing provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one thousand rupees.

All contracts entered into by a company for the appointment of a manager, or managing director, shall be kept at the registered office of the company; and shall be open to the inspection of any member of the company at such office; and extracts may be taken therefrom and copies thereof may be required by any such member, to the same extent, in the same manner and on payment of the same fee, as in the case of the registrar of members of the company.

The provisions of this section shall apply in relation to any resolution of the Board of directors of a company appointing a manager or a managing or whole-time director, or varying and previous contract or resolution of the company relating to the appointment of a manager or a managing or whole time director, as they apply in relation to any contract for the like purpose.


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