Quick answer
Section 184 of the Companies Act, 2013 requires every director to disclose their interests in other entities and in any contract the company is considering, and an interested director must not take part in that discussion. For employees, SEBI’s LODR Regulation 26 expects senior management of listed companies to disclose personal interest in material transactions. A once-a-year form alone rarely surfaces real conflicts.
Key takeaways
- Section 184 of the Companies Act, 2013 covers directors: disclosure of interests, disclosure in contracts and arrangements, and recusal from the relevant board discussion.
- For listed companies, LODR Regulation 26(5) requires senior management to disclose personal interest in material financial and commercial transactions to the board.
- The conflicts that hurt most are relatives at vendors, side businesses and outside roles, and most of them are never written on an annual form.
- Declarations only work when they are refreshed when circumstances change, checked against vendor and employee data, and followed by a visible management decision.
- Training should make disclosure feel safe: a declared conflict is a managed risk, while a hidden one is a policy breach.
Most Indian companies run a conflict of interest process: a form, an annual cycle, a compliance sign-off. And yet conflicts still surface through whistle-blower complaints, audit queries and vendor disputes rather than through the declarations themselves. The gap is not paperwork. It is timing, clarity and trust.
What does the Companies Act require on conflicts of interest?
The Companies Act, 2013 puts the primary duty on directors. Under section 184, a director must disclose the nature of their concern or interest in other bodies corporate, firms or associations of individuals, and keep that disclosure current when it changes. Separately, a director who is directly or indirectly interested in a contract or arrangement must disclose it at the board meeting where it is discussed and, subject to the exceptions in the section, must not participate.
Contravention of section 184 carries penalties under the Act. Check the current text of the section with your company secretary or counsel for the exact consequences, because they differ depending on the sub-section breached.
What about employees and senior management?
The Companies Act does not set a statutory conflict form for every employee, so most of the discipline for staff comes from your code of conduct and employment terms. For listed companies, SEBI’s LODR Regulations go further: Regulation 26(5) requires senior management to disclose to the board all material financial and commercial transactions in which they have, or may be deemed to have, a personal interest that could conflict with the interests of the company.
| Source | Who it covers | What it expects |
|---|---|---|
| Companies Act, 2013, section 184 | Directors | Disclose interests in other entities and in contracts or arrangements; recuse from the relevant discussion |
| SEBI LODR, Regulation 26(5) | Senior management of listed companies | Disclose personal interest in material financial and commercial transactions to the board |
| Code of conduct and employment terms | All employees | Disclose and manage outside roles, relatives at vendors, gifts and investments as the policy defines |
Why do annual conflict of interest forms miss the real conflicts?
Because a conflict is an event, not a calendar entry. Annual forms capture what the employee remembered, understood and chose to write on one day. Conflicts appear later: a spouse changes jobs, a relative starts a business, a friend becomes a vendor, a manager is offered a board seat elsewhere.
Why Forms Fail
- Filled once a year and then forgotten
- Staff are unsure what counts as a conflict
- Fear that disclosure will hurt their career
- No link to vendor onboarding or hiring decisions
- Nobody reviews or acts on what is declared
- “Nil” returns are accepted without a check
What Works Better
- Declare at joining, annually and whenever things change
- Plain examples: relatives, side work, investments
- A visible outcome: most declarations are simply approved with conditions
- Prompts built into vendor onboarding and hiring workflows
- A named reviewer and a written decision for each case
- Sample checks of declarations against vendor and employee data
Which conflicts do employees most often fail to disclose?
The same patterns recur, and they are rarely dramatic. Employees do not set out to hide them. They simply do not recognise them.
Relatives and close contacts in the supply chain
A relative who owns or works for a supplier is the classic case. The risk is not that the relationship exists, but that the employee influences selection, pricing or payment without anyone else knowing. Our guide to how a vendor kickback scheme survived three internal audits shows how this plays out in practice.
Side businesses and outside roles
Consulting, freelance work, a family business or a directorship elsewhere can compete with, or depend on, the employer. Even where the work is legitimate, the time, information and customer overlap needs approval.
Investments and gifts
Holdings in a competitor, vendor or customer, and gifts or hospitality from them, can quietly influence decisions. Link your gifts register to your conflict process so patterns become visible. The questions staff hesitate to ask are answered in our article on eight conflict of interest questions employees are afraid to ask.
How do you build a conflict of interest process people actually use?
Treat disclosure as a service to employees, not a trap for them. Five practices make the difference.
Define a conflict in plain language, with examples
Replace legal definitions with ten realistic examples drawn from your own functions: procurement, hiring, sales, finance and IT.
Disclose at the moment of decision
Add a one-line conflict check to vendor onboarding, tender evaluation, hiring panels and approvals. A short prompt at the right moment catches more than a long form at the wrong one.
Make the outcome visible
Most disclosures need nothing more than a recusal, an additional approver or a periodic review. When employees see that disclosure leads to a sensible, proportionate decision, they disclose more. When it leads to silence or suspicion, they stop.
Verify, lightly and consistently
Sample declarations against vendor master data, address and ownership details, and hiring records. The aim is not to catch people out but to show that declarations are read.
Train for judgment, not memorisation
Scenario-based learning helps staff recognise the grey areas. Our Conflict of Interest course uses realistic situations, and the conflict of interest training hub collects related guides and courses. It pairs naturally with your Code of Conduct training.
What should you do this quarter?
Pick one high-risk process, such as vendor onboarding, and add a conflict prompt to it. Then sample twenty “nil” declarations from the people who influence spend, and compare them with the vendor list. What you find will tell you whether your process is working or merely being completed.
Frequently asked questions
Does section 184 of the Companies Act apply to employees?
No. Section 184 applies to directors. Employees are governed by the company’s code of conduct and employment terms, and for listed companies, senior management also has disclosure duties under SEBI LODR Regulation 26(5).
When must a director disclose an interest?
Section 184 requires disclosure of interests in other entities and requires updates when they change. A director interested in a contract or arrangement must disclose it at the board meeting where it is discussed. Confirm the exact timing and forms with your company secretary.
Can an interested director take part in the board discussion?
Under section 184, an interested director should not participate in the discussion on the contract or arrangement, subject to the exceptions in the section. Record the disclosure and recusal in the minutes.
Is having a relative at a vendor always prohibited?
Not necessarily. Most policies require disclosure and management, for example recusing the employee from vendor selection and adding an independent approver, rather than an automatic ban. Follow your own policy.
How often should employees declare conflicts?
Good practice is at joining, annually and whenever circumstances change, with prompts built into vendor onboarding, hiring and approval workflows so that new conflicts are caught when they arise.
Sources
Turn conflict of interest declarations into early warnings.
See how scenario-based conflict of interest training helps your procurement, hiring and finance teams recognise grey areas and disclose them early. Book a walk-through with our team.
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