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

Detailed Legal Analysis

To pass a board resolution approving a related party transaction in Bangalore, your company must follow specific procedural requirements as outlined in the Companies Act, 2013.

Here are the key steps and requirements to ensure compliance:

• Identification of Related Party: Determine if the transaction involves a related party as defined under Section 2(76) of the Companies Act, 2013. Related parties include directors, their relatives, and entities in which directors have significant influence.
• Disclosure of Interest: The director or key managerial personnel (KMP) involved in the related party transaction must disclose their interest in the transaction, as per Section 184 of the Companies Act. This disclosure should be made at the meeting where the transaction is discussed.
• Board Meeting Notice: A notice for the board meeting must be sent to all directors as per the provisions of Section 173. The notice should specify that the agenda includes the approval of a related party transaction.
• Quorum for Meeting: Ensure that the quorum for the board meeting is met as per the provisions outlined in Section 174. Typically, a quorum for a meeting of the Board of Directors is two directors personally present.
• Approval of Resolution: During the meeting, the board should discuss the related party transaction and pass a resolution. It is essential that the director(s) with a conflict of interest abstain from voting on the resolution as per Section 175.
• Recording of Minutes: The minutes of the meeting should reflect the discussion and resolution passed regarding the related party transaction. This is mandated under Section 118 of the Companies Act.
• Filing with ROC (if applicable): If the transaction exceeds the prescribed limits under Rule 15 of the Companies (Meeting of Board and its Powers) Rules, 2014, the company must also disclose the transaction in the financial statements and file Form AOC-2 with the Registrar of Companies (ROC).
• Compliance with Related Party Transaction Rules: Ensure adherence to the provisions of the Companies (Meeting of Board and its Powers) Rules, 2014, particularly Rule 15, which lays down the criteria for approval of such transactions.

By following these steps, your company can ensure that the board resolution for the related party transaction is legally compliant and effectively documented.