What duties does section 166 impose?
Section 166 of the Companies Act, 2013 requires a director to follow the articles, avoid a conflict, and pay back any undue gain. A contravention is a fine of ₹1,00,000 to ₹5,00,000.
In this guide
Section 166 of the Companies Act, 2013 requires a director to follow the articles, act in good faith for the members as a whole, and use independent judgment with due care. A director must not take a conflicting interest, must not make an undue gain, and cannot assign the office. An undue gain has to be paid back to the company. A contravention is a fine of not less than ₹1,00,000 and not more than ₹5,00,000.
What does section 166 require?
Six duties, and they bind every director. Section 166 of the Companies Act, 2013 starts with the articles and then sets how a director must act, what he must not do, and what a breach costs.
| Subsection | Duty |
|---|---|
| 166(1) | Act in accordance with the articles |
| 166(2) | Act in good faith to promote the company's objects, for the benefit of the members as a whole, and in the best interests of the company, its employees, the shareholders, the community and the environment |
| 166(3) | Use due and reasonable care, skill and diligence, and exercise independent judgment |
| 166(4) | Do not enter a situation of conflicting interest |
| 166(5) | Do not make an undue gain; if guilty, pay that gain to the company |
| 166(6) | Do not assign the office; an assignment is void |
Subsection (1) is subject to the other provisions of the Act. The articles do not override a later section. A director who follows an article that contradicts the Act is not saved by subsection (1).
What is a section 166 conflict?
When he is in a situation where a direct or indirect interest conflicts, or possibly may conflict, with the interest of the company. Section 166(4) uses both "conflicts" and "possibly may conflict". The duty is not limited to a contract that has already been signed.
Disclosure is a different section. Section 184 requires a director to disclose an interest. The section 184 interest guide covers that notice. A disclosure under section 184 does not, by itself, satisfy section 166(4). One section says do not enter the conflict. The other says disclose the interest you have.
What if a director makes a gain?
He pays it back. Section 166(5) says a director shall not achieve, or attempt to achieve, any undue gain or advantage either to himself or to his relatives, partners or associates. If he is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
The amount is the gain, not a percentage of it. An attempt is also barred, even where the gain has not yet been received. Relatives, for this subsection, take their meaning from section 2(77): members of a Hindu undivided family, husband and wife, and a person related in the manner the rules prescribe.
Can a director assign the office?
No. Section 166(6) says a director shall not assign his office, and any assignment so made shall be void. A side letter that hands the office to another person does not put that person on the Board.
What is the section 166 fine?
Not less than ₹1,00,000, and not more than ₹5,00,000. Section 166(7) says if a director contravenes the section, he shall be punishable with a fine in that band. The published text uses a fine, not a fixed penalty of one amount.
The payback under subsection (5) is not a substitute for the fine. A director found guilty of an undue gain owes the company an amount equal to the gain. A contravention of the section can also draw the fine. State both when the facts support both. Do not collapse them into one number.
Where do section 166 duties sit?
In the Act, next to the disclosure duty in section 184 and the related party approval in section 188. Read section 166 before a board paper treats a disclosure as permission to keep a conflicting deal. Amendments show up on the MCA updates feed.
Practical checks
Common questions
Does disclosing an interest under section 184 cure a section 166 conflict?
No. Section 166(4) says a director shall not involve himself in a situation where he has a direct or indirect interest that conflicts, or may conflict, with the interest of the company. Section 184 is the separate duty to disclose an interest that does arise. A disclosure does not rewrite subsection (4).
The director made ₹8 lakh on a side deal. What does section 166(5) require?
The director pays the company an amount equal to that gain. Section 166(5) says a director shall not achieve, or attempt to achieve, any undue gain or advantage for himself, his relatives, partners or associates. If he is found guilty of making the gain, he is liable to pay an amount equal to that gain to the company. The ₹1,00,000 to ₹5,00,000 fine in subsection (7) is a separate consequence for contravening the section.
Who counts as a relative for the undue-gain duty?
Section 2(77) counts members of a Hindu undivided family, and a husband and wife. It also counts a person related in the manner prescribed in the rules. Do not treat every cousin as a relative unless that person is in the prescribed list. Read section 2(77) and the current rule before you name someone in a board note.
Can the board let a director assign his office to a colleague?
No. Section 166(6) says a director shall not assign his office, and any assignment so made shall be void. A board resolution does not make the assignment valid. The office stays with the director who holds it.
Is the section 166 consequence a penalty or a fine?
A fine. Section 166(7) says a director who contravenes the section shall be punishable with a fine of not less than ₹1,00,000, which may extend to ₹5,00,000. The published text does not convert that into a fixed Registrar penalty. Quote the fine band, not a single rupee figure.
Does section 166 apply only to executive directors?
No. Section 166 says 'a director of a company'. Section 2(34) defines a director as a director appointed to the Board. An independent director and a non-executive director are in that definition. The duties in subsections (1) to (6) are not limited to a managing director.
Publication method
How this guide was prepared
This guide is published by the Complied AI research desk. Its source list and stated position were checked against the official records shown below on 27 September 2026.
Automation, including AI, may assist research, drafting and structure. It does not replace the official record or amount to an independent professional review. Read our editorial standards and corrections policy.
Verification path
Official sources used
Keep reading
Related guides
- Law · MCAWhat is the board quorum under section 174?Section 174 of the Companies Act, 2013 sets board quorum at one-third of total strength or two directors, whichever is higher. Video participation counts. A fraction rounds up to one.
- Law · MCAHow long can a managing director serve?Section 196 of the Companies Act, 2013 caps a managing director's term at five years, bars appointment below 21 or at 70 without a special resolution, and requires Form MR-1 within 60 days.
- Law · MCAWho must get a secretarial audit?Who section 204 of the Companies Act, 2013 requires to annex a Form MR-3 secretarial audit report, the rule 9 thresholds of ₹50 crore, ₹250 crore and ₹100 crore, and the ₹2,00,000 penalty for default.