Just after the announcement from Nirmala Sithraman that the Companies Act, 2013 might be amended; the MCA has started issuing notifications. The most recent one aimed at issuing clarification with regards to Related Party Transactions. MCA vide Circular Number 30/2014 dated 17^th July, 2014 has issued clarifications with regards to Related Party Transactions. 

There had been huge degree of confusion among stakeholders pertaining to related party transactions. Government has received mounds of representations from the stakeholders seeking clarifications. These representations have been considered and the much needed clarifications are issued below:

1) Voting by related Parties in General Meeting:

As per second proviso to sub-section (1) of Section 188,            no member of the company shall vote on a Special Resolution to approve the contract or arrangement (referred to in the proviso), if such member is a related party. It is to be noted in this regard that “related party” referred above has to be construed with reference to the contract or arrangement for which the said resolution is to be passed ONLY.

However, there still remains a haze in cases where the directors and shareholders are common.

2) Non- applicability of Section 188 to Corporate Restructuring, amalgamations, etc.:

It is clarified that transactions arising out of Compromises, Arrangements & Amalgamations dealt with under specific provisions of the Companies Act, 2013 or 1956 will not attract the requirements of Section 188 of the Companies Act, 2013.

3) Requirement of fresh approvals for past contracts under Section 188:

A very common topic of discussion among businesses and professionals was the fate of Contracts entered into by companies, after making necessary compliances under Section 297 of the Companies Act, 1956, which already came into effect before the commencement of Section 188 of the Companies Act, 2013. The MCA clarified that these contracts will not require fresh approval under the said section 188 till the expiry of the original term of such contracts. But if any modification is made on or after the date of implementation of the New Act, i.e. 01^st April, 2014, then requirements under Section 188 will have to be complied with.

For requirements of Section 188, please visit: Related Party Transactions

Click here to download a copy of the notification: Circular No. 30_17072014

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