Question
Consider the following statements regarding conflict of
interest and related party transactions under Sections 184-188 of the Companies Act, 2013: Statement 1: A director must disclose their interest in any contract with the company as soon as possible after becoming aware of it. Statement 2: A director can participate in discussions and voting on matters where they have a material interest. Statement 3: A company can enter into a contract with a director only if it is for the benefit of the company and has been approved by the Board. Statement 4: Related party transactions require prior Audit Committee approval or Shareholder approval depending on the transaction value. Which statements are correct?Solution
Sections 184-188 regulate conflicts of interest. Statement 1 is correct—Section 184 mandates disclosure of director interest. Statement 3 is correct—such contracts must be in company's interest and board-approved. Statement 4 is correct—Section 188 requires approval from Audit Committee or shareholders depending on transaction size. Statement 2 is incorrect because interested directors must not participate in discussions or voting on related matters; they must recuse themselves as per Section 184(2) and common law fiduciary duty. Statements 1, 3, and 4 are correct.
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