My company in Durgapur 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 in Durgapur, your company must follow specific procedural requirements as mandated by the Companies Act, 2013 and the rules thereunder.

According to Section 188 of the Companies Act, 2013, a related party transaction requires the approval of the Board of Directors and, in certain cases, the approval of the shareholders. Below are the essential steps and requirements that your company must adhere to:

• Identify Related Parties: Determine whether the parties involved in the transaction qualify as related parties as defined under Section 2(76) of the Companies Act, 2013. This includes directors, key managerial personnel, their relatives, and entities in which they have a significant interest.
• Prepare a Draft Resolution: Draft a resolution that clearly outlines the nature of the transaction, the terms and conditions, and the rationale for entering into such a transaction. This should include details such as the value of the transaction and any other relevant information.
• Notice of Board Meeting: Send a notice for the board meeting to all directors, along with the agenda and any relevant documents. The notice should comply with the provisions of Section 173 of the Companies Act, which requires at least 7 days' notice for a meeting.
• Conduct the Board Meeting: Hold the meeting and ensure that a quorum is present. During the meeting, present the related party transaction to the board and discuss it thoroughly.
• Approval: The board must pass a resolution approving the related party transaction. Ensure that any directors who are interested in the transaction abstain from voting as mandated by Section 188(2).
• Disclosure in Board Meeting Minutes: Record the details of the transaction and the board's resolution in the minutes of the meeting, as per Section 118 of the Companies Act.
• Filing Requirements: If the transaction exceeds the prescribed limits, obtain shareholders' approval through a general meeting or postal ballot, as per Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014.
• Disclosure in Financial Statements: Ensure that the related party transactions are disclosed in the company's financial statements and annual report as required by Accounting Standard (AS) 18 and the Companies Act, 2013.

By adhering to these procedural requirements, your company will ensure compliance with the legal framework governing related party transactions in India.