Procedure For Entering Into Related Party Transaction


Related Party Transaction

According 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;
(b)     selling or otherwise disposing of, or buying, property of any kind;
(c)     leasing of property of any kind;
(d)     availing or rendering of any services;
(e)  appointment of any agent for purchase 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
(g) Underwriting 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.

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.
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.

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 :
(i)     Name of related party and nature of relationship;
(ii)     Nature, duration 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;
(v)     Any other 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;
3.  Where any transaction/paid up capital is under the 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;
(i)     Where company has paid up share capital 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;
(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;
(iv)   Where transaction for underwriting the 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:
(i)     Name of related party;
(ii)     Name of the director or key managerial personnel who is related;
(iii)     Nature of relationship;
(iv)     Nature, material terms, monetary value and particulars of the contract or arrangement;
(v)     Any other relevant information
6.     Form MGT 14 for passing of special resolution shall be filled with the Registrar.

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