Mehr Fashions Ltd, is a public limited company, promoted by five founders. It manufactures textiles and is well known for its brand 'Flash'. As part of its expansion plans and also to raise funds from PE firms, the found

In terms of Section 184(2) of the Companies Act, 2013, every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into with a body corporate in which such director or such director in association with any other director, holds more than two per cent. shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate, shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting. Further, as per Section 166 of the Act, a director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. Mahik is one of the founders of Mehr Fashions Ltd. and holds 26% equity in Klothing Private Limited, with which it is being proposed to enter into an agreement for procurement of raw materials. Based on the assumption that Mahik is also a director in Mehr Fashions Ltd., compliance of Section 184(2) as stated above is to be ensured and therefore, it is mandatory to disclose Mahik's shareholding in Klothing Private Limited at the meeting of the Board in which the agreement shall be placed for approval since he holds more than two per cent. of shareholding. Further, being an interested Director, he cannot participate in the said Board Meeting to brief the Board Members on the transaction. In addition to above, as per Section 184 (3) of the Companies Act, 2013, a contract or arrangement entered into by the company without disclosure under section 184(2) or with participation by a director who is concerned or interested in any way, directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company. Mahik's shareholding of 26% in Klothing Private Limited creates a direct interest in the proposed contract. Accordingly, he must disclose his interest to the Board, abstain from participation in the Board Meeting and voting on the matter, and cannot seek to influence the decision-making process. Therefore, his contention that there is no need to inform the Board is not legally sustainable under Sections 184 and 166 of the Companies Act, 2013.