All about Related Party Transactions – Part 3 (Voting and Approval))

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Voting (Sec 188, Sec 184)

The basic question anyone can raise now is that “Can a Related party vote?”

If yes, in what circumstances?

Listed Companies –

RPs can’t vote (whether party to transaction or not)

All Material RPTs shall require approval of the shareholders through a resolution (Regulation 23)

Unlisted Public Companies –

If Promoters (incl. their relatives) holds >90%, then RPs can vote on the resolution

In other cases, RPs can only vote if they are not parties to the transaction proposed in the resolution

Private Companies –

Exempted i.e. any RP can vote on any Resolution (vide MCA notification dated 5th June,2015)

The above exemption is subject to compliance of Sec 137 (Filing of Financial Statements) and Sec 92 (Annual Return) with RoC.

Exceptions (Proviso) –

  • Transaction between Holding and its WOS

           Placed before shareholders at the general meeting for approval (subject to consolidation of accounts)

  • Government Company

           Exempted. Subject to compliance of Sec 137 (Filing of Financial Statements) and Sec 92 (Annual Return) with RoC.

  • Unlisted public company

          Licensed by RBI or SEBI or IRDAI to operate from IFSC located in an approved multi-services SEZ

Note:

Interested Directors should not present in the meeting during the discussions

Corporate Governance Points –

  • As the RPTs between 2 Govt. companies will not be reaching to members for approval, it’s a good practice to place such items before the Audit Committee and the Board for Noting.
  • Directors should also make a disclosure regarding Interest (Section 184) in the respective transactions proposed in the resolution so that it would be easy to track.

Ratification –

  • As per LODR, ratification is not possible (no such option provided). So, a listed company should compulsorily obtain the approval.
  • But the Companies Act has provided the ratification option –

             Upto 1 crore – Audit Committee (within 3 months)            

             Other cases – Board or Shareholders (as the case may be) (within 3 months)

CA Prabhath Sharma Ganti

Working as Audit Senior Assistant @Deloitte USI. Enthusiastic and Innovative writer. Writes about Taxation and Stock market aspects.

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