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Company Compliance

Director’s Report: Mandatory Contents, Format and Section 134 Requirements for FY 2025-26

By Tradeviser Editorial • Updated October 2026 • 9 min read

The Director’s Report is the document that stands between the financial statements and the shareholders. Every number in the balance sheet and P&L has a story, and the Director’s Report is where the Board tells it: what happened during the year, why key decisions were made, how the company managed risk, and what the Board promises about the integrity of the financial reporting. Section 134 of the Companies Act 2013 prescribes a long list of mandatory contents, and missing even one can expose the company to penalties of up to Rs. 3 lakh. Small Companies and OPCs have a shorter list, but they are not exempt from the core requirements.

This guide covers every mandatory disclosure in the Director’s Report for FY 2025-26, the exemptions available to Small Companies, the Directors’ Responsibility Statement, and common omissions that attract ROC scrutiny during the AOC-4 examination.

Key Takeaways

  • Director’s Report is prepared under Section 134 and is part of the Annual Report placed at the AGM
  • It must include a Directors’ Responsibility Statement (6-point declaration) every year
  • Related party transactions must be disclosed via AOC-2 (if transactions are not at arm’s length)
  • From FY 2020-21, the web link to MGT-7 replaces the MGT-9 extract
  • Small Companies and OPCs are exempt from energy/technology/FOREX disclosures and formal Board evaluation
  • Penalty for incomplete Director’s Report: up to Rs. 3,00,000 on the company and Rs. 50,000 per officer

Full list of mandatory disclosures under Section 134(3)

# Disclosure Required Small Co./OPC Exempt?
1 Web link to Annual Return (MGT-7) on MCA portal (replaced MGT-9 extract from FY 2020-21) No
2 Number of Board meetings held during the year No
3 Directors’ Responsibility Statement under Section 134(5) No
4 Statement of related party transactions (AOC-2, if applicable) No
5 Explanations or comments on every qualification, reservation, or adverse remark in the auditor’s report or secretarial audit report No
6 Conservation of energy, technology absorption, foreign exchange earnings and outgo (Rule 8 of Companies Accounts Rules) Yes – exempt
7 Statement on risk management policy (for companies with turnover above Rs. 500 crore or listed companies) Yes – exempt
8 CSR policy and annual CSR expenditure (for companies with CSR obligation under Section 135) No (if CSR applicable)
9 Details of loans, guarantees, or investments under Section 186 No
10 Statement of formal annual evaluation of Board performance, its committees, and individual directors Yes – exempt
11 Material changes and commitments affecting the company’s financial position between the close of the FY and the date of the report No
12 Details of subsidiaries, associates, or joint ventures with key financial highlights No (if applicable)
13 Remuneration policy and particulars of employees drawing above the prescribed threshold No

Directors’ Responsibility Statement: Section 134(5)

Section 134(5) requires the Board to include in the Director’s Report a statement confirming all of the following:

  1. In the preparation of the annual accounts, the applicable accounting standards (Ind AS or AS, as applicable) were followed, with no material departures
  2. Appropriate accounting policies were selected and applied consistently; judgements and estimates were reasonable and prudent so as to give a true and fair view of the state of affairs
  3. Proper and sufficient care was taken to maintain adequate accounting records for safeguarding assets and for preventing and detecting fraud and other irregularities
  4. The annual accounts were prepared on a going concern basis
  5. Internal financial controls were laid down by the Board and were operating effectively (this requirement applies to all companies including Private Limited)
  6. Proper systems to ensure compliance with all applicable laws were devised and were operating effectively

This statement must appear verbatim (or in substance) in every Director’s Report. It is the Board’s legal certification of the financial statements and internal controls, and its absence makes the Director’s Report defective under Section 134(3)(c).

Small Company and OPC exemptions

Small Companies (paid-up capital up to Rs. 4Cr AND turnover up to Rs. 40Cr) and One Person Companies are exempt from including the following in the Director’s Report:

  • Conservation of energy, technology absorption, and foreign exchange earnings and outgo statement
  • Statement on formal annual evaluation of the Board, its committees, and individual directors
  • Risk management policy statement (though voluntary disclosure is good practice)

Small Companies must still include all other disclosures: the Responsibility Statement, number of Board meetings, annual return web link, related party transactions, explanations on audit qualifications, loans/guarantees/investments under Section 186, and material changes. Even a company with no employees and no revenue must include these standard disclosures with appropriate nil statements where nothing is to be reported.

Related party transactions disclosure: AOC-2

When the company has related party transactions that are not at arm’s length or require Section 188 Board approval, Form AOC-2 must be annexed to the Director’s Report. When all RPTs were at arm’s length, the Director’s Report must still contain a statement to that effect:

“All contracts or arrangements or transactions entered into by the company with related parties during the financial year 2025-26 were on an arm’s length basis and in the ordinary course of business. There were no material related party transactions requiring disclosure in Form AOC-2.”

This statement prevents any inference that the company ignored the RPT disclosure requirement. If AOC-2 is required but omitted, the Director’s Report is defective, and the company risks penalty and ROC queries when AOC-4 is examined.

CSR reporting obligation

Section 135 of the Companies Act 2013 mandates Corporate Social Responsibility spending and reporting for companies with:

  • Net worth of Rs. 500 crore or more, OR
  • Turnover of Rs. 1,000 crore or more, OR
  • Net profit of Rs. 5 crore or more during any of the immediately preceding 3 financial years

Companies meeting any of these thresholds must: (a) constitute a CSR Committee; (b) spend at least 2% of the average net profit of the preceding 3 years on CSR activities; and (c) include a CSR Annual Report (in the prescribed format) as Annexure to the Director’s Report. If the CSR amount is not spent, the reason must be disclosed and the unspent amount transferred to a specified fund. Most Private Limited Companies with turnover below Rs. 1,000 crore are not subject to CSR obligations.

Common omissions that attract ROC scrutiny

Common Omission Consequence
No Directors’ Responsibility Statement Director’s Report is defective; penalty under Section 134(8)
No RPT disclosure when related party transactions existed Penalty and ROC query; transactions may be challenged by minority shareholders
No explanation of auditor’s qualifications ROC may initiate inquiry; auditor qualifications without Board explanation raise governance concerns
Using an outdated template that still references MGT-9 MGT-9 was discontinued from FY 2020-21; the web link to MGT-7 must replace it
Missing material changes section when changes occurred Failure to disclose a significant event (key management change, major order, litigation) is a material omission

Director’s Report Drafting Support

Tradeviser drafts fully compliant Director’s Reports including the Responsibility Statement, RPT disclosures, Board meeting details, and all Section 134 annexures for Private Limited Companies.

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Frequently Asked Questions

What is the Director’s Report and when must it be prepared?

The Director’s Report is prepared by the Board of Directors under Section 134 and placed before shareholders at the AGM along with audited financial statements. It is then filed with the ROC as an attachment to Form AOC-4. For FY 2025-26, it must be ready before the AGM, which must be held by 30 September 2026.

Are Small Companies exempt from any Director’s Report requirements?

Yes. Small Companies and OPCs are exempt from the energy/technology/FOREX statement, formal Board performance evaluation, and risk management policy statement. All other disclosures including the Responsibility Statement, Board meeting count, RPT disclosures, and audit qualification explanations are mandatory.

What is the Directors’ Responsibility Statement?

A 6-point declaration by the Board under Section 134(5) confirming: accounting standards followed, consistent policies applied, adequate accounting records maintained, going concern basis used, internal financial controls in place and effective, and compliance systems devised and operating. This statement must appear in every Director’s Report.

Is MGT-9 still required in the Director’s Report?

No. Form MGT-9 (extract of Annual Return) was discontinued from FY 2020-21. Companies now include the web link to the MGT-7 on the MCA portal once it is filed. Templates that still reference MGT-9 are outdated and need to be updated.

What happens if the Director’s Report is incomplete?

The company faces a penalty of up to Rs. 3,00,000 and each officer in default faces up to Rs. 50,000 under Section 134(8). Specific omissions such as missing RPT disclosures or unexplained audit qualifications can lead to ROC inquiries and shareholder challenges.