My company in Aizawl needs to pass a board resolution to approve a related party transaction; what are the procedural requirements?

Detailed Legal Analysis

To approve a related party transaction, your company in Aizawl must follow specific procedural requirements as outlined in the Companies Act, 2013.

The key steps to passing a board resolution for a related party transaction are as follows:

• Identify Related Party: Determine if the transaction involves a related party as defined under Section 2(76) of the Companies Act, 2013. This includes directors, their relatives, and entities in which directors or their relatives hold a substantial interest.
• Disclosure of Interest: The interested director must disclose their concern or interest in the proposed transaction at the meeting of the Board, as per Section 184(1) of the Companies Act, 2013.
• Quorum Requirements: Ensure that a quorum is present at the meeting. As per Section 174 of the Companies Act, 2013, the quorum for a board meeting must be at least two directors present in person, unless the company has only one director.
• Board Meeting: Convene a board meeting to discuss and approve the related party transaction. The notice for the meeting must be sent to all directors at least seven days in advance, as per Section 173(3).
• Approval of Transaction: The resolution must be passed by a majority of the directors present at the meeting, excluding the interested directors. This is mandated under Section 188(1) of the Companies Act, 2013.
• Recording of Minutes: Document the proceedings of the meeting and the approval in the minutes. The minutes should reflect the nature of the transaction, the rationale for approval, and the voting results.
• Compliance with Rule 15: If the transaction exceeds the prescribed limits as per Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, it may require approval by the shareholders in a general meeting.
• Register of Contracts: Maintain a register of contracts in which directors are interested, as required under Section 189 of the Companies Act, 2013.

Ensure compliance with the above steps and keep all documentation ready for future reference or scrutiny by regulatory authorities. Non-compliance can lead to penalties as stated under Section 188(3) of the Companies Act, 2013.