Related Party Transaction
According to
Section 188(1), No company shall enter into any contract or arrangement with a
related party with respect to –
Section 188(1), No company shall enter into any contract or arrangement with a
related party with respect to –
(a)
sale, purchase
or supply of any goods or materials;
sale, purchase
or supply of any goods or materials;
(b)
selling or otherwise disposing of, or buying,
property of any kind;
selling or otherwise disposing of, or buying,
property of any kind;
(c)
leasing
of property of any kind;
leasing
of property of any kind;
(d)
availing
or rendering of any services;
availing
or rendering of any services;
(e) appointment of any agent for purchase
or sale of goods, materials, services or property;
or sale of goods, materials, services or property;
(f) such related
party’s appointment to any office
or place of profit in the company, its subsidiary company
or associate company; and
party’s appointment to any office
or place of profit in the company, its subsidiary company
or associate company; and
(g) Underwriting
the subscription of any securities or derivatives thereof, of the company.
the subscription of any securities or derivatives thereof, of the company.
Section 2(76)
define related party and Section
2(77) define relatives, which are also a related
party.
define related party and Section
2(77) define relatives, which are also a related
party.
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These contracts
may be contract with (a) consent of board (b) given by way of resolution (c) ata meetig of the Board and (d)
subject to prescribed conditions. No related
party contract or arrangement, in the case
of a company having a paid-up
share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed in Rule 15 of the Companies
(Meetings of Board and its Powers) Rules, 2014, shall be entered into except with the prior approval of the company
by a special resolution. No member of the company
shall vote on such special resolution, to approve
any contract or arrangement which may be entered into by the company, if such member is a related party.
may be contract with (a) consent of board (b) given by way of resolution (c) ata meetig of the Board and (d)
subject to prescribed conditions. No related
party contract or arrangement, in the case
of a company having a paid-up
share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed in Rule 15 of the Companies
(Meetings of Board and its Powers) Rules, 2014, shall be entered into except with the prior approval of the company
by a special resolution. No member of the company
shall vote on such special resolution, to approve
any contract or arrangement which may be entered into by the company, if such member is a related party.
This sub-section shall apply to any transactions entered into by the company in its ordinary course of
business other than transactions which are not on an arm’s length basis.
business other than transactions which are not on an arm’s length basis.
Procedure For Entering Into Related Party
Transaction
1. A notice
of Board meeting
as per section 173 with additional requirement of Section 188(1).
The notice of the
meeting shall disclose the following agenda
:
of Board meeting
as per section 173 with additional requirement of Section 188(1).
The notice of the
meeting shall disclose the following agenda
:
(i) Name of related party and nature
of relationship;
of relationship;
(ii) Nature, duration
and particular of the contract
or arrangement;
and particular of the contract
or arrangement;
(iii) Material terms of the contract or arrangement including value;
(iv) Any advance
paid or received, if any;
paid or received, if any;
(v) Any other
relevant information;
relevant information;
2. Information that any directors who are interested in the related
party transactions shall
not be present at the meeting during the discussion;
party transactions shall
not be present at the meeting during the discussion;
3. Where any transaction/paid up capital is under the
threshold limits, the board shall pass a resolution to approve the related party transaction;
threshold limits, the board shall pass a resolution to approve the related party transaction;
4. Where any transaction/paid up capital
is above the following threshold
limits, the board shall issue a notice for convening a general
meeting as per Section 101 and 102 of the Act;
is above the following threshold
limits, the board shall issue a notice for convening a general
meeting as per Section 101 and 102 of the Act;
(i) Where company has paid up share capital
of one crore rupees or more
of one crore rupees or more
(ii) Where transactions is with the related party
with all previous
transactions during the financial year exceed
5% of annual turnover or 20% of networth whichever is higher;
with all previous
transactions during the financial year exceed
5% of annual turnover or 20% of networth whichever is higher;
(iii) Where transaction is to appoint a related
party to any place
of profit in the company, wholly owned subsidiary,
associate company at a monthly
remuneration exceeding one lakh rupees;
party to any place
of profit in the company, wholly owned subsidiary,
associate company at a monthly
remuneration exceeding one lakh rupees;
(iv) Where transaction for underwriting the
subscription of any security or derivative of the company
exceeding ten lakh rupees
subscription of any security or derivative of the company
exceeding ten lakh rupees
5. All related
party transaction to be discussed in the general
meeting shall be passed as special resolution, the notice for general
meeting under section
101 shall contain
following particulars:
party transaction to be discussed in the general
meeting shall be passed as special resolution, the notice for general
meeting under section
101 shall contain
following particulars:
(i) Name of related party;
(ii) Name of the director
or key managerial personnel who is related;
or key managerial personnel who is related;
(iii) Nature of relationship;
(iv) Nature, material
terms, monetary value and particulars of the contract
or arrangement;
terms, monetary value and particulars of the contract
or arrangement;
(v) Any other
relevant information
relevant information
6.
Form MGT – 14 for passing
of special resolution shall be filled
with the Registrar.
Form MGT – 14 for passing
of special resolution shall be filled
with the Registrar.
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