Metal Ltd. created a mortgage over its heavy machineries in respect of a loan given by the sister of Krish, a director of the company. This fact was known to all the directors but the interested director neither disclose

Section 184 of the Companies Act, 2013 requires the disclosure of interest by a director and prohibits an interested director to participate or vote in respect of that particular transaction at the Board meeting subject to certain exceptions for private limited companies. Further, his presence will not be counted for quorum too. But where the whole body of directors is aware of the fact relating to interest of a director, formal disclosure is not necessary. (Ramakrishna Rao vs Bangalore Race Club). The mere voting by an interested director will not render the contract void or voidable unless in the absence of that vote, there would have been no quorum. The mere fact that voting in such situation the director shall be liable to a penalty of one lakh rupees under section 184 (4) of the Act does not ipso facto render the contract void or voidable. In this case, there is no allegation of earning secret profits. Under section 184 of the Act, there does not exist any ban on contract in which directors are interested. The only requirement is that interest should be disclosed. Even where the interest is not disclosed, the transaction is only voidable against the interested director and not void as decided in Narayan Das Shreeram Somani vs Sangli Bank. Under section 184(3) of the Act, a contract or arrangement entered into by the company without disclosure under sub-section (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.