CS Divesh Goyal

Applicability:

  • This is applicable for Private Company and Public Company.

Approval:the Transaction of a company with Related Parties which are Not in the Ordinary Course of Business and which is Not on Arm Length Price require following approval for Entering into Such Transactions with Related Party:-

1- Board Approval

  • For enter into transactions mention under this section Consent of Board of Directors is Require by Passing of Resolution in the Meeting of Board of Directors.

     Note:Such resolution can’t be pass by circulation of resolution to the Board of Directors.

2- General Meeting

For entering Transactions with related parties mention below SR is required to be passed in GM.      

BUT THRESHOLD LIMITS HAS BEEN CHANGED AS PER CHANGE IN RULE -3, FROM RULES 14TH AUGUST, 2014 BY RULES COMPANIES (MEETINGS OF BOARD AND ITS POWER) SECOND AMENDMENT RULES, 2014: Comparative Table Given Below:

NATURE OF RELATED PARTY TRANSACTION THRESHOLD LIMIT EARLIER FROM-14TH AUGUST, 2014
For Every Transaction When paid Share Capital of Company is 10 Crore or More. REMOVED FROM RULE
Sale, purchase or supply of any goods or materials directly or through appointment of agents (or) Exceeding 25% of Annual Turnover Exceeding 10% if Turnover of Company or Rupees 100 Crore Whichever is Lower
Selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents (or) Exceeding 10% of Net worth Exceeding 10% of Net worth or Rupees 100 Crore Whichever is Lower
Leasing of property of any kind (or) Exceeding 10% of Annual Turnover                          ORExceeding 10% of Net worth Exceeding 10% of the Net worth of company or 10% of Turnover of Company of Rupees 100 Crore, Whichever is lower
Availing or rendering of any services directly or through appointment of agents (or) Exceeding 10% of Net worth Exceeding 10 % of Turnover of company or Rupees   50 Crore, Whichever is lower.
Appointment to any office or place of profit in the company, its subsidiary company or associate company (or) Monthly Remuneration Exceeding Rs. 2.5 lakhs NO CHANGE
Remuneration for underwriting the subscription of any securities or derivative Exceeding 1% of Net worth NO CHANGE 

Note:

  • Turnover and Net worth as per Audited Financial Statement of Preceding Financial Year.
  • If any member is interested in any transaction, than such member shall not cast vote in meeting regarding such resolution.
  • It is here by clarified that the limits specified in sub-clause (i) to (iv)shall apply for Transaction and Transactions to be entered into either individually or taken together with previous transactions during a financial year.
  • Every Transaction enter into section 188 shall be enter into Director Report along with Justification.
  • Exemption:No resolution is required to be passed by WOS, when Special Resolution is passed by holding company to enter into transaction with Wholly Own Subsidiary Company.

FOUND CIRCULAR ON  – http://taxguru.in/company-law/mca-revises-monetary-limit-special-resolution-transactions-related-parties.html

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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Tags : Companies Act (1816) Companies Act 2013 (1590) Divesh Goyal (247)

2 responses to “Section 188 Related Party Transaction after Rules Dated 14.08.2014”

  1. Himanshi says:

    Kindly change the word lover to lower in point no. 3 of the amended threshold limits.

  2. B.Chackrapani Warrier says:

    Read. Tabular presentation is good.

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