My company in Kolhapur needs to pass a board resolution to approve a related party transaction; what are the procedural requirements?
CH Asked by Charu Singhal from India
Quick Answer
Under Section 188 of the Companies Act, 2013, related party transactions require approval by the Board of Directors, and in certain cases, by shareholders through a special resolution.
Detailed Legal Analysis
Under Section 188 of the Companies Act, 2013, related party transactions require approval by the Board of Directors, and in certain cases, by shareholders through a special resolution. The interested director must not vote on the resolution, and the transaction must be at arm's length price unless otherwise justified.
Form AOC-2 must be attached to the Board's report disclosing the particulars of the transaction. For contracts in the ordinary course of business at arm's length, only the Board's approval is required, but disclosure is mandatory.
The Bombay High Court may examine whether the transaction was conducted at arm's length. The Maharashtra Rent Control Act 1999 on stamp duty and registration of related agreements is also relevant.
Non-compliance attracts penalties under Section 188(5) on the company and officers in default.
Disclaimer: AI-generated for educational purposes only. Does not constitute legal advice. Consult a qualified practitioner.