Rules 16 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 16 requires a register in Form MBP 4 of the companies in which a director is interested, of contracts in which a director is interested, and of related party contracts under section 188. Rule 17 sets the particulars and the members' approval needed before a director receives compensation in connection with a transfer of an undertaking, property or shares, and bars loss-of-office payments to a managing or whole-time director or manager when the company is in default in the situations listed. This article follows the rules as amended up to G.S.R. 811(E) dated 3 November 2025 per the MCA e-book. Later amendments should be checked.
Every company keeps one or more registers in Form MBP 4 of (a) entities in which a director has a concern or interest under section 184(1), (b) contracts with such entities under section 184(2), and (c) related party contracts to which section 188 applies (rule 16(1)). Entries are made at once, in chronological order, and the register is preserved permanently. A director may not receive compensation in connection with the event covered by rule 17 unless nine listed particulars are disclosed to the members and they approve it by a resolution at a general meeting.
Rule 16: the MBP-4 register
16(1): what goes in. The company keeps one or more registers in Form MBP 4 and enters:
| Part | Particulars |
|---|---|
| (a) | The company or companies, bodies corporate, firms or other associations of individuals in which any director has a concern or interest as mentioned in section 184(1). Proviso: particulars of a company in which a director, together with any other director, holds two per cent or less of the paid-up share capital need not be entered |
| (b) | Contracts or arrangements with a body corporate, firm or other entity, as mentioned in section 184(2), in which any director is directly or indirectly concerned or interested |
| (c) | Contracts or arrangements with a related party in respect of transactions to which section 188 applies |
16(2). Entries are made at once, whenever there is cause to make an entry, in chronological order, and are authenticated by the company secretary or any other person authorised by the Board.
16(3). The register is kept at the registered office, preserved permanently, and held in the custody of the company secretary or any other person authorised by the Board.
16(4). The company provides extracts from the register to a member on request within seven days from the date of the request, on payment of the fee specified in the articles, not exceeding ten rupees per page.
The director's disclosure that feeds part (a) is given in Form MBP 1 under Rule 9. The registers are explained in Section 189: Register of Contracts, and related party approvals in Rule 15. Our legal consultation service can help where a director's interest is complex.
Rule 17: payment to a director for loss of office
Rule 17(1) applies to a payment by way of compensation to a director in connection with an event mentioned in the sub-section it refers to (the transfer of an undertaking, property or shares; see Sections 190 and 191: Contract With Director). No director may receive it unless the following particulars are disclosed to the members and they pass a resolution at a general meeting approving the payment:
- (a) name of the director;
- (b) amount proposed to be paid;
- (c) event due to which compensation becomes payable;
- (d) date of the Board meeting recommending the payment;
- (e) basis for the amount determined;
- (f) reason or justification for the payment;
- (g) manner of payment, whether in cash or otherwise, and how;
- (h) sources of payment; and
- (i) any other relevant particulars as the Board may think fit.
Rule 17(2). Any payment by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement, to a managing director, whole-time director or manager must not exceed the limit in section 202.
Rule 17(3). No such payment may be made to a managing director, whole-time director or manager (other than notice pay and statutory payments in accordance with the terms of appointment, as applicable) if:
| Clause | The company is in default |
|---|---|
| (a) | In repayment of public deposits or payment of interest on them |
| (b) | In redemption of debentures or payment of interest on them |
| (c) | In repayment of any liability, secured or unsecured, payable to any bank, public financial institution or other financial institution |
| (d) | In payment of any dues towards income tax, VAT, excise duty, service tax or any other tax or duty payable to the Central Government, a State Government, a statutory authority or a local authority (other than where the company disputes the liability) |
| (e) | There are outstanding statutory dues to employees or workmen which have not been paid (other than where the company disputes the liability) |
| (f) | The company has not paid dividend on preference shares or has not redeemed preference shares on the due date |
For the tax references, see our income-tax guides; the rule's list of taxes is quoted as printed and should be read with the current tax laws, since some of the levies named have since been subsumed in other laws.
Explanation. Pending notification of section 247(1) of the Act and finalisation of qualifications and experience of valuers, valuation of stocks, shares, debentures, securities and similar items is conducted by an independent merchant banker registered with the Securities and Exchange Board of India or an independent chartered accountant in practice with a minimum experience of ten years. This is quoted as printed; check the present position on registered valuers before relying on it. The limits on remuneration and compensation in the Act are explained in Sections 192 to 194: Director Restrictions and the director-related provisions generally in Section 197: Remuneration.
A worked example
Teal Ventures Limited (invented) sells its manufacturing undertaking. The Board recommends a compensation payment to one of its directors, Mr Kapoor, for the loss of his office. Before any payment, the company discloses to the members his name, the amount, the event, the date of the recommending Board meeting, the basis for the amount, the justification, the manner (cash or otherwise), the sources of payment and any other relevant particulars, and the members approve it by resolution at a general meeting. Had Mr Kapoor been a managing director and the company in default on repayment of a bank loan, rule 17(3)(c) would have barred any payment beyond notice pay and statutory payments under the terms of his appointment. Separately, Teal's company secretary enters each of Mr Kapoor's other directorships and the related party contracts in MBP-4 as they arise.
Practical points
- Keep a standing "interested director" list, so MBP-4 part (a) is filled the moment a notice of interest arrives.
- Apply the two per cent proviso carefully: it concerns a director together with any other director holding two per cent or less of the paid-up share capital.
- Before approving any loss-of-office payment, run the six-item default check in rule 17(3).
- Disclose to members all items (a) to (h) listed above; "any other particulars" is for additional information.
Need help with registers and director payments?
Directors' interests change frequently, and an incomplete MBP-4 is easy to spot at inspection. We can draft the register, the disclosure to members and the approving resolution through our legal consultation service, and review whether a proposed payment passes the default check.
Key takeaways
- MBP-4 covers director interests, section 184(2) contracts and section 188 related party contracts.
- Entries are made at once, chronologically, authenticated, and kept permanently at the registered office.
- Members get extracts within seven days at up to ten rupees a page.
- Loss-of-office compensation to a director needs nine disclosures and a general meeting resolution.
- A managing or whole-time director or manager cannot be paid such compensation while the company is in any of the listed defaults, other than notice pay and statutory payments.
Read next
- Section 189: Register of Contracts
- Sections 190 and 191: Contract With Director
- Rule 15: related party transactions and thresholds
- Rules 12 and 14: MBP-2 and MBP-3 registers
Disclaimer: Based on the Companies Act, 2013 rules (and the Companies (Auditor's Report) Order, 2020) named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.