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.