Sections 184 and 185 of Companies Act 2013: Disclosure of Director Interest and Loans to Directors

Sections 184 and 185 of the Companies Act, 2013 regulate two important areas of corporate governance: disclosure of a director's concern or interest in other entities and transactions, and loans, guarantees or security involving directors and persons connected with directors.

At a glance: Section 184 requires prescribed disclosures of interest and transaction-specific disclosure by an interested director. Section 185 restricts loans, guarantees and security to directors and specified connected persons, while permitting certain transactions subject to statutory conditions and providing specified exceptions.

Section 184: Disclosure of interest by director

Section 184 is intended to ensure transparency where a director has a concern or interest that may be relevant to the affairs or contracts of the company. It operates through a general disclosure requirement and a separate transaction-specific disclosure requirement.

General disclosure under Section 184(1)

Every director must disclose his or her concern or interest, including shareholding, in companies, bodies corporate, firms or other associations of individuals in the prescribed manner. The disclosure is required:

at the first Board meeting in which the person participates as a director;
at the first Board meeting of every financial year; and
at the first Board meeting held after any change in a disclosure already made.

Transaction-specific disclosure under Section 184(2)

A director who is directly or indirectly concerned or interested in a contract or arrangement, or a proposed contract or arrangement, must disclose the nature of that concern or interest at the Board meeting in which the matter is discussed and must not participate in that meeting where the statutory conditions are attracted.

The provision covers, among other cases, a body corporate in which the director alone or together with another director holds more than two per cent shareholding, or in which the director is a promoter, manager or Chief Executive Officer. It also covers a firm or other entity in which the director is a partner, owner or member.

Interest arising after the contract

If a director was not concerned or interested when the contract or arrangement was entered into but later becomes concerned or interested, the interest must be disclosed forthwith or at the first Board meeting held after the director becomes so concerned or interested.

Effect of non-disclosure

Under Section 184(3), a contract or arrangement entered into without the disclosure required by Section 184(2), or with participation by a director who is concerned or interested, is voidable at the option of the company.

Limited exclusion under Section 184(5)

Section 184 does not prejudice any other rule of law restricting a director from having an interest in a contract or arrangement with the company. Section 184(5)(b) also contains a limited exclusion for specified inter-company or company-body-corporate arrangements where the relevant director or directors together hold not more than two per cent of the paid-up share capital in the other company or body corporate.

Form MBP-1 and Rule 9

Rule 9 of the Companies (Meetings of Board and its Powers) Rules, 2014 prescribes the notice of interest for Section 184(1). The disclosure is made in Form MBP-1. Companies should preserve the disclosure and ensure that changes are placed before the Board in accordance with the Act and the applicable rules.

Related compliance: Section 189 separately requires the company to maintain the prescribed register of contracts or arrangements in which directors are interested. Section 184 should therefore be read with Section 189 and the applicable rules when maintaining corporate records.

Section 185: Loans to directors, etc.

Section 185 regulates direct and indirect loans, including loans represented by book debts, as well as guarantees and security connected with loans involving directors and persons in whom directors are interested. The present structure of Section 185 was substituted with effect from 7 May 2018.

Transactions prohibited by Section 185(1)

A company cannot directly or indirectly advance a loan, including a loan represented by a book debt, or give a guarantee or provide security in connection with a loan taken by:

a director of the company;
a director of its holding company;
a partner or relative of such director; or
a firm in which such director or relative is a partner.

Transactions permitted subject to conditions under Section 185(2)

A company may advance a loan, or give a guarantee or provide security in connection with a loan, to a person in whom a director of the company is interested if the statutory conditions are satisfied. These include:

a special resolution passed by the company in general meeting;
an explanatory statement giving full particulars of the loan, guarantee or security, its proposed purpose and other relevant facts; and
use of the loan by the borrowing company for its principal business activities.

Meaning of a person in whom a director is interested

For Section 185(2), this expression includes:

a private company of which such director is a director or member;
a body corporate in which at least twenty-five per cent of the total voting power at a general meeting may be exercised or controlled by such director, or by two or more such directors together; and
a body corporate whose Board, managing director or manager is accustomed to act in accordance with the directions or instructions of the Board or of any director or directors of the lending company.

Exceptions under Section 185(3)

The restrictions in Section 185(1) and 185(2) do not apply to the following transactions when the statutory conditions are met:

Transaction	Key statutory condition
Loan to a managing director or whole-time director	It forms part of service conditions extended by the company to all employees, or is made under a scheme approved by members by special resolution.
Loan, guarantee or security in ordinary course of lending business	Interest on the loan must not be lower than the prevailing yield of the Government security of the prescribed comparable tenor stated in Section 185(3)(b).
Loan by a holding company to its wholly owned subsidiary	The statutory exception applies, subject to use for the subsidiary's principal business activities.
Guarantee or security by a holding company for a loan to its wholly owned subsidiary	The statutory exception applies, subject to use for the subsidiary's principal business activities.
Guarantee or security by a holding company for a bank or financial institution loan to its subsidiary	The loan must be utilised by the subsidiary for its principal business activities.

Important: A transaction involving directors may also attract other provisions of the Companies Act, 2013, including Sections 184, 186, 188 and 189, depending on its nature. Compliance with Section 185 alone does not dispense with other independently applicable approvals, disclosures, registers or limits.

Penalties and consequences

Penalty under Section 184

A director who contravenes Section 184(1) or Section 184(2) is liable to a penalty of Rs. 1 lakh. This reflects the amendment that took effect on 21 December 2020.

Punishment under Section 185

If a loan is advanced, or a guarantee or security is given, provided or utilised in contravention of Section 185:

the company is punishable with a fine of not less than Rs. 5 lakh and up to Rs. 25 lakh;
every officer of the company who is in default may face imprisonment up to six months or a fine of not less than Rs. 5 lakh and up to Rs. 25 lakh; and
the director or other recipient covered by Section 185(4) may face imprisonment up to six months, or a fine of not less than Rs. 5 lakh and up to Rs. 25 lakh, or both.

Practical compliance checklist

Obtain and update each director's disclosure of interest in Form MBP-1 at the times required by Section 184(1).
Before placing a contract or arrangement before the Board, identify whether any director has an interest covered by Section 184(2).
Record the required disclosure in the Board process and ensure the interested director does not participate where Section 184(2) applies.
Before granting a loan or providing a guarantee or security, identify the proposed recipient and test the transaction under each limb of Section 185.
Where Section 185(2) applies, obtain the special resolution and make the required disclosures in the explanatory statement before proceeding.
Verify and document the principal-business-activity condition wherever Section 185 makes it relevant.
Check Sections 186, 188 and 189 and the applicable rules for any additional approval, limit, disclosure or register requirement.
Check current MCA notifications for class-specific exemptions or modifications before relying on a general rule.

Official legal resources

For the current statutory text and notifications, refer to the official India Code portal and the Ministry of Corporate Affairs. The MCA rules also contain Form MBP-1 prescribed for disclosure under Section 184(1).

Updated: 17 September 2026. This article is a general legal information resource. Company-specific facts, exemptions, notifications and later amendments should be checked before acting on a transaction.