Companies Act Section 189

Companies Act, Section 189: Maintenance of Register of Contracts or Arrangements in Which Directors Are Interested

Section 189 of the Companies Act, 2013 mandates that every company must maintain a register of all contracts or arrangements in which directors or key managerial personnel (KMP) have an interest. This provision ensures corporate transparency, prevents conflicts of interest, and enables stakeholders to monitor the involvement of directors or KMPs in potentially related party transactions or dealings where personal interest may exist.

1. Obligation to Maintain a Register of Interested Contracts or Arrangements

As per Section 189(1):

Every company is required to keep one or more registers, maintained in the prescribed format, that record separately the particulars of all contracts or arrangements covered under:

Section 184(2): Disclosure of interest by a director in any company, firm, or other entity with which the company enters into a contract or arrangement.
Section 188: Related party transactions requiring board and/or shareholder approval.
These registers must include specific details as prescribed in the Companies (Meetings of Board and its Powers) Rules, 2014.

Board Oversight Requirement:

Once the particulars are recorded in the register, it must be placed before the next Board meeting, and
All directors present at that meeting must sign the register to acknowledge and validate its contents.
This ensures that the Board is fully aware of, and takes collective responsibility for, transactions where director or KMP interests are involved.

2. Disclosure Requirement by Directors and KMPs

Under Section 189(2):

Every director or key managerial personnel must disclose to the company the required information:

Within 30 days of either taking office or relinquishing office, as applicable.
The disclosure should include particulars as per Section 184(1):
Concern or interest in other companies, bodies corporate, firms, or association of individuals, whether as a director, partner, owner, or shareholder.
Any other prescribed personal information relevant to the register must also be provided.
This facilitates accurate and up-to-date entries in the register, reflecting the changing interests or positions of key individuals.

3. Location and Inspection Rights of the Register

In accordance with Section 189(3):

The register shall be maintained at the company’s registered office.
It must be open for inspection during business hours at the registered office.
Rights of Members:

Any member of the company is entitled to:
Inspect the register, and
Take extracts or request copies of the entries.
The company must provide such extracts or copies upon request, subject to:
Prescribed procedures,
Reasonable fees, and
Timelines set out in applicable rules.
This promotes shareholder oversight and helps prevent abuse of power or conflict of interest by directors or executives.

4. Presentation at Annual General Meeting (AGM)

Per Section 189(4):

The register must be produced at the beginning of every Annual General Meeting.
It must remain accessible throughout the duration of the AGM to any person who has the right to attend the meeting.
This requirement ensures that the register is publicly available for scrutiny by shareholders, reinforcing the company’s commitment to transparency and accountability.

5. Exemptions from Maintenance of Register under Section 189(1)

Section 189(5) clarifies that certain low-value or routine transactions are excluded from the obligation to be recorded in the register. These are:

(a) Contracts or arrangements for the sale, purchase, or supply of goods, materials, or services where:

The aggregate value of the goods or services involved does not exceed ?5,00,000 in a financial year.
(b) Transactions entered into by a banking company in the ordinary course of its business, such as:

Collection of bills, which is a standard banking operation.
These exclusions are designed to avoid unnecessary administrative burden for immaterial or customary transactions.

6. Penalty for Non-Compliance

Under Section 189(6):

If a director fails to comply with any of the provisions of this section or with the associated rules, they shall be liable to a penalty of ?25,000.

This penalty applies in cases such as:

Failure to disclose interest under Section 184,
Non-submission of required information,
Errors or omissions in the register,
Delayed updates to the register, or
Non-production of the register during Board or general meetings.
The penalty is imposed on a per-offence basis, serving as a deterrent against on-disclosure or concealment of interest in company transactions.