My company in Gwalior 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 Gwalior must adhere to the procedural requirements outlined in the Companies Act, 2013, specifically under Section 188 and associated rules.

The following steps and requirements must be followed to pass a board resolution for a related party transaction:

• Identify Related Party Transactions: As per Section 2(76) of the Companies Act, 2013, a related party transaction is any contract or arrangement between a company and its related parties, including directors, their relatives, and other entities in which they have significant influence.
• Determine Materiality: Under Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, a transaction is considered material if it exceeds 10% of the annual consolidated turnover of the company as per the last audited financial statements.
• Disclosure of Interest: Directors involved in the related party transaction must disclose their interest in the transaction at the board meeting, as required under Section 184 of the Companies Act, 2013.
• Prepare Board Meeting Notice: A notice for the board meeting must be sent to all directors at least seven days prior to the meeting, specifying the agenda, which includes the related party transaction.
• Conduct Board Meeting: During the meeting, the board should discuss the proposed transaction, its rationale, and implications. A majority of the directors present must approve the resolution.
• Pass the Resolution: The board must pass a resolution approving the related party transaction. The resolution must be recorded in the minutes of the meeting.
• File Form MGT-14: If the transaction is material and requires shareholder approval, the company must file Form MGT-14 with the Registrar of Companies (RoC) within 30 days of passing the resolution, as mandated by Section 117 of the Companies Act, 2013.
• Shareholder Approval (if necessary): For certain related party transactions, approval from the shareholders is required via a special resolution in accordance with Section 188(1) of the Companies Act, 2013.

Compliance with these steps is crucial to ensure that the related party transaction is valid and does not contravene provisions of the Companies Act, 2013. It is advisable to consult with a legal professional for specific guidance related to your company’s circumstances.