This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our PRIVACY POLICY for more information on the cookies we use and how to delete or block them.
Alerts:

Regulatory Alert: Amendments to the Companies (Meeting of Board and its Powers) Rules, 2014

21 November 2019

The Ministry of Corporate Affairs (MCA) on 18 November 2019 has notified amendments in the Companies (Meeting of Board and its Powers) Rules, 2014 (“the Existing Rules”) through the Companies (Meeting of Board and its Powers) Second Amendment Rules, 2019 (“the Amended Rules”). The amendment pertains to the revision in threshold limits for entering into Related Party Transactions (RPTs) by a Company, beyond which RPTs would require approval of shareholders by way of a resolution.

The key highlights of the notification[1] are summarised below.

Section 188 of the Companies Act, 2013 requires approval of the Board of Directors for entering into certain RPTs. The first proviso to Section 188 requires prior approval of the shareholders by way of a resolution for RPTs prescribed u/s 188(1) if the transaction value is beyond the set limits. To this effect, Rule 15 of the Existing Rules prescribes the threshold for each kind of transaction and this notification seeks to amend the said limits.

The synopsis of amendments in existing threshold and comparison of the Amended Rules vis a vis Existing Rules are tabulated hereunder: 

Rule

Prescribed transactions

As per Existing Rules

As per Amended Rules

15(3)(a)(i)

Sale, purchase or supply of any goods or material (directly or through an agent)

10% or more of the turnover of the Company or INR 100 Crores, whichever is lower

10% or more of the turnover of the Company

15(3)(a)(ii)

Selling or disposing or buying property of any kind (directly or through an agent)

10% or more of net worth of the Company or INR 100 Crores, whichever is lower

10% or more of the net worth of the Company

15(3)(a)(iii)

Leasing of property of any kind

10% or more of the net worth of the Company or 10% or more of turnover of the Company or INR 100 Crores, whichever is lower

10% or more of turnover of the Company

15(3)(a)(iv)

Availing or rendering of any services (directly or through an agent)

10% or more of turnover of the Company or INR 50 Crores, whichever is lower

10% or more of turnover of the Company

 

BDO Comments

The Existing Rules specified minimum values (INR 100 crores or INR 50 crores), irrespective of the size of the company, beyond which shareholder’s approval was required. Thus, more RPTs were covered within the scanner of members . The Amended Rules seek to ease the compliance burden on large companies since the threshold now is only linked to the turnover of such company.