My company in Rohini 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 Rohini must follow specific procedural requirements as outlined in the Companies Act, 2013, particularly under Section 188 and the rules prescribed therein.

Here are the key steps and requirements to pass a board resolution for a related party transaction:

• Identify Related Party: Determine whether the transaction involves a related party as defined under Section 2(76) of the Companies Act, 2013. A related party includes directors, relatives of directors, and other entities in which directors have significant influence.
• Obtain Approval: According to Section 188(1), any related party transaction must be approved by the board of directors. If the transaction exceeds the prescribed limits, it may also require approval from the shareholders.
• Notice of Board Meeting: Provide a minimum of 7 days’ notice to all directors regarding the board meeting. The notice should include the agenda of the meeting, specifying the related party transaction to be discussed.
• Disclosure of Interest: Directors must disclose their interest in the related party transaction at the meeting, as per Section 184 of the Companies Act, 2013. A director with a potential conflict of interest should abstain from voting on the resolution.
• Discussion and Voting: The board should discuss the merits and implications of the transaction. A board resolution must be passed by a majority of the directors present at the meeting. Ensure that the minutes of the meeting reflect the discussion and the outcome of the vote.
• Documentation: Maintain proper documentation of the resolution passed, including the minutes of the meeting and any related agreements or contracts. This is essential for compliance and future reference.
• Disclosure in Financial Statements: Ensure that the related party transaction is disclosed in the company’s financial statements as mandated under Ind AS 24 and Section 134 of the Companies Act, 2013.
• Filing with Registrar: If required, file Form MGT-14 with the Registrar of Companies within 30 days of the passing of the resolution, especially if the transaction requires shareholder approval.

By adhering to these steps, your company can ensure compliance with the legal requirements for approving a related party transaction in India.