My company in Tumkur 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 Tumkur must follow specific procedural requirements as mandated by the Companies Act, 2013, particularly under Section 188 and the rules therein.

The following steps outline the process for passing a board resolution for a related party transaction:

• Identify the Related Party: Determine the nature of the related party transaction according to Section 2(76) of the Companies Act, 2013. Related parties can include 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. This should be done in writing or at the board meeting itself as per Section 184 of the Companies Act, 2013.
• Prepare the Agenda: Draft an agenda for the board meeting that includes a detailed description of the related party transaction, including terms, monetary value, and purpose.
• Notice of Meeting: Send a notice of the board meeting to all directors, specifying the agenda item related to the related party transaction. Ensure that the notice complies with the timelines as per Section 173 of the Companies Act, 2013 (minimum 7 days' notice).
• Conduct the Board Meeting: Hold the board meeting where the transaction will be discussed. Ensure that the directors who are related parties do not participate in the voting process, as per Section 188(3).
• Pass the Resolution: The board should pass a resolution approving the transaction. The resolution must state the nature of the transaction, the material terms, and the interest of the related parties involved.
• Record the Minutes: Document the proceedings of the meeting and the resolution passed in the minutes book, as required under Section 118 of the Companies Act, 2013.
• File with Registrar (if applicable): If the transaction exceeds prescribed limits as per the Companies (Meeting of Board and its Powers) Rules, 2014, and the transaction requires shareholder approval, file the necessary forms with the Registrar of Companies (RoC) such as Form MGT-14.
• Compliance with Accounting Standards: Ensure that the transaction is recorded in the financial statements in accordance with the applicable accounting standards, particularly Ind AS 24 related to related party disclosures.

Adhering to these procedural requirements will help ensure that the related party transaction is compliant with the provisions of the Companies Act, 2013, and is legally valid.