SECTION 188 OF COMPANIES ACT, 2013 Under the Companies Act, 2013, the whole concept of related party transactions has been capsulated in a single section, namely Section 188 which combines the erstwhile Sections 314 and 297 of the Companies Act, 1956 and also contains many new provisions within its scope. The section is deeply layered with many set of provisions and leaves the mind perplexed with its scope and coverage. In this article, we have made an attempt to the analyse the concept of related party transactions under the Companies Act, 2013 as contained in Section 188 read with relevant rules made thereunder :- Analysis of Section 188 of Companies Act, 2013 read with Rule 15 of Companies (Meetings of Board and its Powers) Rules, 2014 Section 188 is placed in “Chapter 12 – Meeting of Board and its Powers”. Section 188 requires a company to obtain approval of the Board and of the members, in certain situations, prior to entering of any transaction or agreement with a related party. An analysis of Section 188 requires understanding the following: · Applicability of the Section · Definition/Meaning of Related Party · Transactions which are deemed as related party transactions · Nature of approvals required · Disclosure norms · Exemptions/Non-applicability · Consequences of non-compliance We will proceed to understand the above provisions. ◊ Applicability of the Section Section 188 is applicable to both private as well as public companies and is applicable with effect from 01.04.2014 ◊ Definition/Meaning of Related Party Section 2(76), read with rule 3 of Companies (Specification of definitions details) Rules, 2014, defines a related party as under: “related party”, with reference to a company, means— · a director or his relative; · a key managerial personnel or his relative; · a firm, in which a director, manager or his relative is a partner; · a private company in which a director or manager is a member or director; · a public company in which a director or manager is a director or holds along with his relatives, more than 2% of its paid-up share capital; · any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager; · any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in professional capacity; · any company which is— (A) a holding, subsidiary or an associate company of such company; or (B) a subsidiary of a holding company to which it is also a subsidiary; · a director or key managerial personnel of the holding company or his relative
Posted on: Mon, 01 Sep 2014 12:40:56 +0000
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