MCA has notified the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2019 vide notification dated 18th November, 2019 amended the criteria under which approval of shareholders are required for entering into related party transaction under Rule 15 of Companies (Meetings of Board and its Powers) Rules, 2014, namely:-

1. In sub-clauses (i) and (ii) of Rule 15(3)(a), the words “or rupees one hundred crore, whichever is lower”, shall be omitted.

After the amendments, the sub-clauses (i) and (ii) read as under:-

(i) sale, purchase or supply of any goods or material, directly or through appointment of agent, amounting to ten percent or more of the turnover of the company , as mentioned in clause (a) and clause (e) respectively of sub-section (1) of section 188;

(ii) selling or otherwise disposing of or buying property of any kind, directly or through appointment of agent, amounting to ten percent or more of net worth of the company, as mentioned in clause (b) and clause (e) respectively of sub-section (1) of section 188;

Effect of amendments:

Earlier Company had to take shareholders approval even if amount of 10% of turnover of the Company is more than Rs.100 crores because we considered lower amount of 10% of turnover or Rs. 100 Crores. But now company has to take shareholders approval only after amount of related party transaction is 10% or more of turnover of the Company.

2. In sub-clause (iii) Rule 15(3)(a), for the words “amounting to ten per cent or more of the net worth of the company or ten per cent or more of turnover of the company or rupees one hundred crore, whichever is lower”, the words “amounting to ten per cent or more of the turnover of the company” shall be substituted.

After the amendments, the sub-clauses (iii) read as under:-

(iii) leasing of property any kind amounting to ten per cent or more of the turnover of the company, as mentioned in clause (c) of sub-section (1) of section 188.

Effect of amendments:

Earlier Company had to take shareholders approval if amount of RPT are lower of 10% of net worth or 10% of turnover or Rs. 100 crores. But now company has to take shareholders approval only after amount of related party transaction is 10% or more of turnover of the Company.

3. In sub-clause (iv) Rule 15(3)(a), the words “or rupees fifty crore, whichever is lower”. shall be omitted.

After the amendments, the sub-clauses (iv) read as under:-

(iv) availing or rendering of any services, directly or through appointment of agent, amounting to ten percent or more of the turnover of the company as mentioned in clause (d) and clause (e) respectively of sub-section (1) of section 188:

Effect of amendments:

Earlier Company had to take shareholders approval even if amount of 10% of turnover of the Company is more than Rs.50 crores because we considered lower amount of 10% of turnover or Rs. 50 Crores. But now company has to take shareholders approval only after amount of related party transaction is 10% or more of turnover of the Company.

Source: https://taxguru.in/company-law/companies-meetings-board-powers-second-amendment-rules-2019.html

(Author – CS Brajesh Kumar and can be contacted at kumarbraj7@gmail.com)

DISCLAIMER: The information given in this document has been made on the basis of the provisions of the Companies Act, 2013 and Rules made thereunder. It is based on the analysis and interpretation of applicable laws as on date. The information in this document is for general informational purposes only and is not a legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this document. Under no circumstances whatsoever, we are not responsible for any loss, claim, liability, damage(s) resulting from the use, omission or inability to use the information provided in the document.

Don’t forget to check related party transactions.

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