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How pvt cos. will clear related party transactions now??

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)

15 March 2014

How private limited companies will clear related party transactions under CA 2013?

Sec.174: Interested directors cannot participate in discussions and vote even in private company. Hence in most of the cases Board will not be able to approve.
Alternative: Get it approved by members by special resolution u/s 188(1).
...
But here again as per second Proviso to Sec.188(1), related party members cannot vote in members' meeting also in any company (private or public)!!

There is no provision for central government approval also!

Solution: Transfer shares to non-related parties???

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1 Replies

CA Saroj Kumar (Keen to learn something new every moments) (2588 Points)
Replied 16 March 2014

Related Parties

“related party”, with reference to a company, means—
(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager is a member or
director;
(v) a public company in which a director or manager is a director or holds
along with his relatives, more than two per cent. of its paid-up share capital;
(vi) 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;
(vii) 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 a professional capacity;
(viii) 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;
(ix) such other person as may be prescribed;
(77) ‘‘relative’’, with reference to any person, means any one who is related to
another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed;

Meaning of Inetrested Director

“interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company;

If a company is making related party transaction and that transaction required approval either from Member in Genral mettings or In Board Metting then

This section come into play and accordingly The related Director and Memeber shall not vote in the resoultion so are being passed. But the remaing director and member are not restricted to do So. hence the Related Party trasaction is still open but having with certain restriction.