Section 189 of CA 2013 : Section 189: Register Of Contracts Or Arrangements In Which Directors Are Interested

Explanation using Example

Imagine a company called "Tech Innovations Ltd." which is in the business of software development. The company's Board of Directors includes Mr. A, Mrs. B, and Mr. C. Mrs. B also runs a marketing firm, "B-Marketers," which provides services to various tech companies.

One day, Tech Innovations Ltd. decides to outsource its marketing to an external firm and Mrs. B's firm, B-Marketers, is considered for the contract. Since this could potentially be a related party transaction, falling under Section 188 of the Companies Act, it needs to be disclosed and recorded.

As per Section 189(1), Tech Innovations Ltd. must maintain a register of such contracts. The company records the contract details with B-Marketers in the register, including the nature and terms of the contract. In the next Board meeting, this register is presented and signed by all directors present, including Mr. A and Mr. C.

Under Section 189(2), Mrs. B must disclose her interest in B-Marketers within thirty days of the contract being finalized. She provides all the necessary details, which are then included in the register.

According to Section 189(3), this register is kept at the company's registered office and is available for inspection by any company member during business hours.

When the annual general meeting (AGM) comes around, as mandated by Section 189(4), the register is produced at the commencement of the meeting. It is made accessible to all attendees, ensuring transparency.

However, if the services procured from B-Marketers were less than five lakh rupees annually, as per Section 189(5)(a), the company wouldn't need to include this contract in the register.

If Mrs. B failed to disclose her interest or if the company failed to maintain or present the register as required, under Section 189(6), each director responsible would be liable to a penalty of twenty-five thousand rupees.