My company in Jalandhar 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 Jalandhar must follow specific procedural requirements as outlined in the Companies Act, 2013.

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

• Identify the 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 they hold significant influence.
• Disclosure of Interest: The concerned director or related party must disclose their interest in the transaction to the Board as per Section 184(1) of the Companies Act, 2013.
• Board Meeting Notice: Issue a notice for the board meeting at least 7 days in advance, as per Section 173 of the Companies Act, 2013. The notice should specify that the agenda includes the discussion of the related party transaction.
• Quorum for Meeting: Ensure that the quorum for the board meeting is met. According to Section 174, the quorum for a board meeting is generally two directors unless the company has more than 1,000 shareholders, in which case it may be three.
• Conducting the Meeting: At the board meeting, present the details of the related party transaction, including its nature, terms, and the rationale behind it. The board must discuss and evaluate whether the transaction is in the interest of the company.
• Voting on the Resolution: The board must vote on the resolution to approve the related party transaction. As per Section 188(1) of the Companies Act, 2013, the transaction must be approved by a majority of the directors present at the meeting, excluding those who are interested in the transaction.
• Recording the Resolution: Once the resolution is passed, it must be recorded in the minutes of the meeting as per Section 118 of the Companies Act, 2013.
• Filing with the Registrar: If the transaction is beyond the prescribed limits under Rule 15 of the Companies (Meeting of Board and its Powers) Rules, 2014, you may need to obtain prior approval from the shareholders in a general meeting and file the necessary forms with the Registrar of Companies.

By following these procedural requirements, your company can ensure compliance with the Companies Act, 2013, while approving the related party transaction.