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In furtherance of India’s first step to protect the small investor’s interest and build confidence in the business and commerce of the country, the Confederation of Indian Industry (CII) presented the “Desirable Corporate Governance: A Code”[1]. Subsequently, the Kumar Mangalam Birla Committee[2] was appointed by SEBI, which included CII’s Code, and in 2000 a significant step was taken to further corporate governance in India with the introduction of Clause 49[3]. Constituting both mandatory as well as non-mandatory provisions, this clause provides the specific ingredients, ranging from independent directors to regular disclosures, to facilitate utmost transparency in the corporate houses. While those provisions that can firstly, be defined under strict and clear terms, and secondly, do not require statutory amendments are “mandatory”, whereas those which the company may, or may not, implement and might also need legislative changes are termed are “non-mandatory”. Distinct from both the Commonwealth as well as the US model, India has taken up the hybrid version of the principle-based and the rule-based models, giving expansive and comprehensive directions on corporate governance.[4]

After the clause underwent its 2004 Amendment, on the basis of the suggestions made by the Narayana Murthy’s Committee, the listed companies are to necessarily provide all disclosures in a quarterly report, signed by the Chief Executive Officer (CEO), to the Stock Exchange Board, at the end of the quarter extending till a maximum of 15 days. The Annual Report of these Companies must have an allocated corporate governance section, along with compliance certificates of it from either its auditors or company secretaries. The main motive behind “corporate governance” or “good governance” is to make the corporate structure tighter and the interests of the investors safer. Hence, these reports and certificates are sent to all the shareholders, annually. In addition, the stock exchange, through a monitoring cell, also checks if Clause 49 requirements are being fulfilled, or not. Within 60 days, the Cell also submits to SEBI a consolidation of the quarterly reports it receives.[5]

Then, the 2009 Voluntary Guidelines[6] were brought in by the Ministry of Corporate Affairs, which were recommendatory in nature. Some of its most effective suggestions were the rotation-based appointment of auditors, disclosures during related-party transactions, and strengthening the whistleblowing policy. Because these guidelines were not mandatory, a large number of companies did not implement them. Hence, to bring a significant betterment to the corporate governance scenario, the Companies Act of 2013[7], with its series of provisions made corporate governance a mandate to be followed by the non-listed companies as well.

Related party transactions

The Indian Accounting Standards (AS-18), while defining the term “related parties” lays down that “parties are considered to be related if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and/or operating decisions”[8]. Transactions, including single or multiple business undertakings, between such affiliated parties are “related-party transactions” (RPTs). This connection is not limited to parent-subsidiary relations but also includes the company’s workforce, both the employees and the management, and the majority stakeholders; it extends to familial ties. Abusive RPTs are a problematic concern for most nations, including India. It is the influence/control that one party can show over the other, either through direct or indirect means, that makes deals of this nature dangerous to both the regulating authorities as well as the investors. The confidence of the public breaks and the economic growth of such companies, in the equity market, are hampered.[9]

To regulate the self-dealings various regulatory measures in the form of disclosures, approvals and bans have been brought into force by the Companies Act of 2013[10], the AS-18[11] and Clause 49[12]. Additionally, both legislative and regulatory directions have been provided by the Organisation for Economic Cooperation and Development (OECD) for the supervision and prevention of abusive RPTs[13].

The Companies Act also incorporated the concept of related parties, it includes[14]:

(i) directors of the company;

(ii) key managerial Personnel;

(iii) immediate relatives of the above; and

(iv) related companies.

Section 188 of the Act regulates the RPTs by the way of disclosures that are to be ratified by not only the Board Members but also by the other shareholders. These disclosures in the Board Report must include valid reasoning, supporting the transactions. The Companies (Meetings of Board and its Powers) Rules, 2014[15], later amended in 2019[16], lays down under Rule 15(3)[17], the attached threshold limit of the RPTs. In case this transaction amount supersedes this limit, the sanction of the shareholders is required. This sanction is in the form of a special resolution which is passed in the Company’s General Meeting and is given only when the material details, including the names of the parties related, the nature of such relationship, the details of the contract, are disclosed.

Concerns regarding abusive RPTs in India

Despite the extensive rules and regulations that India has laid down to prevent abusive RPTs, the country has failed to strike a balance between enough compliances to safeguard the small investors’ interests and facilitate “ease of doing business” by reducing the compliance burden of the companies. Dissatisfied with the current scenario, SEBI established the Working Group (WG) Committee to relook into the RPT regulations, and then provide feasible suggestions. The WG discovered that to evade the strict related laws, companies had started to enter into RPTs through their subsidiaries. For instance, Assam Co. India Ltd. (ACIL) while investing over 24 crores INR in Mexia Resources Ltd. failed to submit the requisite certificates and its proper accounts. The disclosure of investment in the compulsorily convertible preference shares was only done in Duncan Macneill Power India Ltd. which was a subsidiary of ACIL. This consequently resulted in misleading the investors by showing forged financial standing of the company.[18]

Another way in which RPTs have been operating with malice is via the usage of the funds of the shareholders in investing into promoter groups. Usually, the new projects of these Groups are funded with this money, sometimes through quasi-debt, rather than using it for comparatively safer and ethical investment purposes. In Financial Year (FY) 2017-2018, a massive loan of 6100 crore INR was taken by an Infra company, but it was repaid, in full, before the year’s end. Hence, this RPT was not disclosed in the closing balance sheet.

Despite the compulsion to disclose the substantial details of the RPTs, they are generally clubbed under vague and broad headings such as “Associates” or “Joint Ventures” and “Key Managerial Personnel’s Controlled Entities”. Furthermore, explanations related to these dubious transactions are not provided, reducing the trust and confidence of the smaller shareholders. Since enough information is not disclosed to them, through the annual report, these investors remain uninformed about the investments of the company. Due to the lack of comparable options, it becomes difficult to decide whether to approve such RPTs or not. The Audit Committees also contribute to this evasion of compliance. Usually, the risks of the RPTs are not disclosed, mainly because of ill-framed statements, thus, misleading the voting results. The main reason remains that there is no fixed format that has been provided for reporting such transactions.

Case studies

(i) Apollo Tyres: In 2018, two instances of abusive RPTs were brought to light. Firstly, the small investors (56% institutional and 49% retail shareholders) gunned down the special resolution for the reappointment of Neeraj Kanwar (MD) for 5 years and the fixation of his salary. Estimation of his salary would be a 25% increase from his current salary of 68.4 crores INR. Then, the Board was also compelled to curtail the promoter, Onkar Singh Kanwar’s compensation at 7.5% of profit before tax. Additionally, the salaries drawn by both were reduced by 30%; together, they were drawing 13% of the company’s net profits as remuneration.[19]

(ii) Eveready Industries: In FY 2020, the statutory auditor of Eveready Industries, Price Waterhouse & Co., resigned for the reason of “Basis of Disclaimer of Opinion”. The auditor disclosed that the company had provided inter-corporate deposits worth 230.8 crore INR and corporate guarantees estimated at 283.1 crore INR, along with a credit of 62 crore INR to another company of which neither were the details of the deed extended for disclosure nor were any claims made for the refund of the advanced amount. Not enough evidence to account for was given to the audit committee; thus, they were also unable to estimate the real financial standing of the company and its future impact. Evidence of RPTs was also discovered when the “notes to accounts” of the audited reports showed that the default in repayment of several loans had been guaranteed by the promoter directors.[20]


To strengthen the measures of corporate governance, there is a dire need for strict implementation of the rules for the maintenance of good governance. Some suggestions regarding the same are:

(i) The Board is responsible for identifying and approving the RPTs. However, there arise circumstances where the Board indulges in hasty approval, without due diligence. Additionally, “ordinary transactions” which are at an “arm’s length basis” do not require any approvals. It becomes extremely difficult to distinguish between such transactions with the related ones. It is necessary to establish checks and approvals, by the Audit Committee, for all transactions. As the Audit Committee is an independent wing, it is likely to secure the interests of the investors.

(ii) A criterion needs to be laid down, elaborating the definition of “arm’s length”, under Section 188 of the Act[21]. Specific parameters need to be incorporated to ascertain “unrelated transactions”.

(iii) As per Regulation 23 of the Listing Regulations, “material” RPTs are only those which exceed 10% of the annual consolidated turnover, as per the last financial statement, of the listed companies. Similarly, the four categorised thresholds of the MCA are also considerably high[22]. For several RPTs get excluded out of the ambit of approval from the Board, there is a need to reduce this threshold limit to keep a stricter check.

(iv) As mentioned above, there exists a need for a fixed reporting format, reporting the RPTs. This would ensure that all the details are disclosed. Disclosures must also be made as to why certain high valued transactions could not be done with unrelated entities. A fair opinion from an independent financial advisor must also be taken before the approval, and the same must also be included in the annual report.

(v) The interests of the casual investors will be safeguarded with the establishment of proxy advisory firms that would duly monitor transactions, keeping the shareholders informed.

(vi) One of the most significant amendments to Clause 49 was the introduction of the Whistleblower Policy in 2003[23]. The objective of it is to report any improper practice to the Audit Committee by the Personnel. However, there is no statutory provision for unrelated third party acting as a whistleblower. Moreover, the Act does not allow for absolute anonymity; a “competent authority” assures identity confidentiality but whistleblowers are not trustful of this, and hence, abstain from reporting. Those involved in the illegal activities are not protected or granted immunity from prosecution if they choose to disclose. Unless leniency is showed, instances of whistleblowing would remain low. Proper guidance and counselling must be made readily available to the complainants to make the process easier for them. Wrong or misleading information results in imprisonment and fines; this makes the potential whistleblower vary. A proper definition of “victimisation” should be incorporated, along with the acts that amount to it.

(vii) Despite the strict rules, the implementation of corporate governance has not been up to the mark in India. It is the enforcement that must be bettered considerably before amending the laws.


India has made considerable efforts to protect shareholders, however, there still exists a considerable gap between the statutes and their implementation. Steps need to be taken to uplift the state of corporate governance, especially, with regards to abusive RPTs. Since these transactions are not only at the discretion of the Board but are also such entities that are sometimes related to the top management, special efforts are taken to conceal information and evade disclosures. Stringent measures must be taken to create a balance between needed RPTs and safeguarding the interests of innocent shareholders.

*3rd year student, BBA LLB (Hons.), Kirit P. Mehta School of Law, NMIMS, Mumbai.

**4th year student, BLS LLB, Rizvi Law College, Mumbai.

[1]Confederation of Indian Industry, Desirable Corporate Governance: A Code (April 1998). <http://iias.in/downloads/Corporate_governance_CII_1997.pdf>.

[2] Kumar Mangalam Birla Committee Report on Corporate Governance (2000).

[3]Equity Listing Agreement of SEBI, 2000, Cl. 49.

[4]Equity Listing Agreement of SEBI, 2000, Cl. 49.

[5] Aryan Sinha, Significance of Corporate Governance in the Present Context, 432 IJLMH, 434 (2021), <https://www.ijlmh.com/wp-content/uploads/Significance-of-Corporate-Governance-in-the-Present-Context.pdf>.

[6] MCA, Corporate Governance Voluntary Guidelines, 2009 (14-12-2009 to 21-12-2009).

[7]The Companies Act, 2013.

[8]Accounting Standard (AS 18), Definitions (10.1), Related Party Disclosures.

[9] Padmini Srinivasan, An Analysis of Related-Party Transactions in India, 1 IIMB 3 (2013), <https://www.iimb.ac.in/sites/default/files/2018-07/WP_No._402_0.pdf>.

[10]The Companies Act, 2013.

[11]Accounting  Standard (AS 18), Related Party Disclosures.

[12]Equity Listing Agreement of SEBI, 2000, Cl 49.

[13] OECD, Guide on Fighting Abusive Related Party Transactions in Asia (September 2009), <https://www.oecd.org/daf/ca/corporategovernanceprinciples/43626507.pdf>.

[14]The Companies Act, 2013, S. 188.

[15]Companies (Meetings of Board and its Powers) Rules, 2014.

[16]The Companies (Meetings of Board and its Powers) Second Amendment Rules, 2019.

[17]The Companies (Meetings of Board and its Powers) Second Amendment Rules, 2019, Rule 15(3).

[18]Assam Co. of India Ltd., In re, 2017 SCC OnLine SEBI 265.

[19] FE Bureau, Victory for Minority Shareholders in Apollo Tyres: Kanwars to take a 30% Salary Cut (14-11-2018), <https://www.financialexpress.com/industry/victory-for-minority-shareholders-in-apollo-tyres-kanwars-to-take-a-30-cut-in-salary/1381109/>.

[20] Sharad Dubey, PwC Resigns as Statutory Auditor for Eveready (30-4-2019),  https://www.bloombergquint.com/business/pwc-resigns-as-statutory-auditor-for-eveready.

[21]The Companies  Act, 2013, S. 188.

[22] The Companies  Act, 2013, S. 188(1).

[23]SEBI, PR No. 201/2003, Amendments to Clause 49 of the Listing Agreement, Corporation Finance Department, Division of Issues & Listing, 2003 Press Release (26-8-2003).  

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal (SAT): Coram of Justice Tarun Agarwala, (Presiding Officer), Justice M. T. Joshi (Judicial Member), and Dr. C. K. G. Nair (Member), dismissed an appeal filed by ITC Ltd. against the proposed sale transaction of the substantial assets of Hotel Leelaventures Ltd. (Leela) for which the impugned Postal Ballot Notice (PB Notice) was issued and allowed the appeal filed by JM Financial Asset Reconstruction Co. Ltd. (JMF ARC).

“Leela” under financial distress, had decided to restructure its debts under the Corporate Debt Restructuring (CDR) mechanism. The majority lender institutes agreed for the same. On 20-09-2012 the CDR package of Leela was approved. Thereafter, a Master Restructuring Agreement was executed on 25-09 2012 between Leela and State Bank of India (SBI) and other lenders on the other hand. Under the said Master Restructuring Agreement, Leela was to comply with certain terms and conditions, which it could not.

Thereafter, on 25-06-2014, a Trusteeship Agreement under the SARFAESI Act was executed between JMF ARC and the lenders under which a Trust was created named as JMF ARC-Hotels June 2014-Trust. This Trust had issued security receipts to these Joint Lenders and also offer documents were issued for the private placement of the said receipts. Eventually, the CDR package was declared as failed and on 30-06-2014, majority lenders had assigned Rs.4150.14 crore of debt to the Trust. JMF ARC paid Rs.865 crores upfront and issued security receipt worth Rs.3200 crores. It filed disclosures under Regulation 29(2) of the Takeover Regulations on 25-10-2017. JMF ARC later filed a corporate insolvency resolution process before the National Company Law Tribunal Mumbai Bench (NCLT), the proceedings for which are pending.

Due to initiative of JMF ARC, a proposal was received from Brookfield for the “Asset Sale Transaction” of the Company’s assets and the additional transactions between Brookfield and some of the promoters. On 18-03-2019, the Board of Directors of Leela approved the framework agreement comprising the Asset Sale Transaction and PB Notice was issued. On 22-04-2019, the appellant ITC filed a Company Petition before the NCLT complaining of oppression and mismanagement, which too is pending before the NCLT. ITC argued that they were not allowed to obtain a copy of the Framework Agreement but could only take notes.

ITC objected that all the transactions were related party transactions which could not be generally put for the vote including the Promoters, Directors being related parties as also JMF ARC. Further, JMF ARC acting as a Merchant Banker Leela was also to gain a remuneration of Rs 70 cores besides its resolution of debt assigned to it by the lenders. Further, JMF ARC had acquired 26% of the equity of Leela against the provisions of the Takeover Regulations, 2011 it should have been prohibited by SEBI from participating in the voting under the provisions of Regulation 32 of the Takeover Regulations.

SEBI had held that the transactions in question were not related party transactions. They stated that in acquiring 26% of the equity shares of the Leela by JMF ARC, only a technical breach has occurred which could be exempted.

Aggrieved by this order of not restraining Promoters/Directors of Leela and JMF ARC from voting, ITC filed an appeal before SAT.

All the respondents submitted that the appellant was a rival company which was trying to scuttle the transaction only to compel Leela to undergo the debt resolution under the Insolvency and Bankruptcy Code. The appellant, on the other hand, submitted that the Directors and the Promoters of Respondent Leela were pushing ahead with their personal agenda of pocketing an amount of Rs 300 crores through the additional transaction.

The Tribunal answered the following issues:

  • Whether the disputed transactions were related party transactions limiting the voting rights of the directors, promoters of the Leela and of JMF ARC?
  • Whether JMF ARC could be completely prevented from voting in view of the Takeover Regulations?

The Tribunal was of the view that it was not required of them to asses the proposed transaction to find as to whether it is in the interest of the investors. In view of objection to the voting rights or limitations on the voting rights of the directors/promoters of the respondents, the reliefs can be modified in terms of the relevant regulations. The appeal filed by ITC Ltd. was dismissed by the Tribunal citing the following regulations:

Takeover Regulations:

  1. In view of the Takeover Regulations of 2011 an acquirer acquiring 25% or more shares, voting rights or control in a listed Company has to adopt the route as provided by the Takeover Regulations subject to certain exemptions. JMF ARC acquired 26% of the shares of the Company by claiming exemption as provided by Regulation 10 of the Takeover Regulations. SEBI in the impugned order held that the said acquisition was only a technical breach of the Regulations fit for exemption and did not exercise its power to issue directions as provided by Regulation 32 of the Takeover Regulations.
  2. Corporate debt restructuring scheme was announced by the Reserve Bank of India through various circulars from time to time for the purpose of restructuring the debt of financially distressed companies in an attempt to revive such Companies. The circulars provided a basic framework. Specific plans were to be worked out for a Company inter alia regarding interest moratorium, plans of payment, etc. to be worked out in the agreement which would be approved by the Empowered Group of CDR scheme. In the event of default, the agreement can provide for certain contingencies. Clause 7.2 of the Master Restructuring Agreement provided for remedy upon default. Therefore, the covenant regarding conversion right would come into picture only when the CDR scheme fails i.e. default is made by the borrower in pursuance of the CDR scheme.

LODR Regulations: Related Party Transactions:

  1. The appellant had objected the exercise of PB Notice asking all the shareholders including the respondents who are the promoters/directors of the in view of the fact that the proposed Asset Sale Transaction of the Company with Brookfield was a composite transaction to be consummated only when additional transactions with the promoters personally are also agreed. It was submitted that as the nature of the transaction was, the same would be a related party transaction attracting the provisions of Regulation 23 of the LODR Regulations.
  2. Therefore, the entire transaction was held to be a composite transaction. Further, the additional transaction between Brookfield and ITC cannot also be termed as related party transactions and, therefore, the provisions of Regulation 23 of the LODR Regulations would not be attracted.[ITC Ltd. v. SEBI, 2019 SCC OnLine SAT 185, decided on 26-09-2019]
OP. ED.Practical Lawyer Archives

The provision relating to “related party transactions” have been incorporated for the first time in the Indian Company Law. The provisions are prescribed in Section 188 of the Companies Act, 2013 (Act). Under the Companies Act, 1956, there was no explicit provision as “related party transaction”, however, it can be said that Section 297 of the Companies Act, 1956 slightly corresponds to Section 188 of the Act. The scope and nature of transactions, number of related parties involved, compliances and disclosure requirements contemplated have significantly been enhanced under the provisions of Section 188 of the Act.

This article is a compilation and analysis of the relevant provisions relating to related party transactions. The article also contains the checklist on ensuring compliance of relevant provisions relating to related party transactions.

Following is the basic checklist for identifying the applicability of Section 188 of the Act:

(1) Transactions with company— It is necessary that a company is a party to the said transactions. The company can either provide or avail the necessary services or the company can sell or purchase or supply of any goods or materials.

(2) Identification of prescribed transaction— It is necessary that the company enters into a prescribed transaction [as provided in sub-section (1) of Section 188 of the Act], which includes: (i) sale, purchase or supply of any goods or materials; (ii) selling or otherwise disposing of, or buying, property of any kind; (iii) leasing of property of any kind; (iv) availing or rendering of any services; (v) appointment of any agent for purchase or sale of goods, materials, services  or property; (vi) such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company; and (vii) underwriting the subscription of any securities or derivatives thereof, of the company.

(3) Identification of prescribed “related party”— It is necessary that the company enters into a prescribed transaction with a “related party” [as provided in sub-section (76) of Section 2 of the Act]. Some of the related parties are: director, relative of director, key managerial personnel, relative of key managerial personnel, firm in which director or director’s relative is a partner, private company or public company in which director or manager is interested [as prescribed in Section 2(76) of the Act], subsidiary company, holding company, associate company, investing company, venturer company (as defined).

If all the three conditions are satisfied, then it is necessary to proceed with the approvals, compliances and disclosures under the provisions of Section 188 of the Act. The checklist for the identified related party transactions is as follows:

(1) Approval of Audit Committee (under Section 177 of the Act)— The Audit Committee shall approve the related party transactions or approve any modification to the related party transactions. The Audit Committee can also give an omnibus approval to certain related party transactions. The Committee shall consider two factors while specifying the criteria for making omnibus approval, namely, (i) repetitiveness of the transactions (in part or in future); and (ii) justification for the need of omnibus approval. Such omnibus approval for the related party transactions shall be obtained on annual basis [Rule 6-A of the Companies (Meetings of Board and its Powers) Rules, 2014]. Such omnibus approval shall be valid for a period not exceeding 1 financial year and shall require fresh approval after expiry of such financial year. Omnibus approval shall not be made for transactions in respect of selling or disposing of the undertaking of the company.

(2) Approval of the Board of Directors (under Section 188 of the Act)— The Board of Directors shall give consent to the related party transactions at its meeting only. Such meeting can be held in person or through video conferencing or other audio-visual means as may be prescribed. Such consent of the Board of Directors cannot be obtained by passing a circular resolution or by any other mode (as prescribed in Section 175 of the Act). Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides for the requisite disclosures to the Board of Directors in agenda of the meeting at which the resolution is proposed to be moved. The director interested in any contract or arrangement shall not be present at the meeting during discussion on such subject- matter of the resolution relating to such contract or arrangement.

(3) Approval of the shareholders (under Section 188 of the Act)— Prior approval of the shareholders by ordinary resolution shall be required if the company is entering into a contract or arrangement with a related party if the transaction(s) exceeds the prescribed limits [i.e. as prescribed in Rule 15(3) of the Companies (Meetings of Board and its Powers) Rules, 2014]. The said rule has prescribed monetary threshold for each type of prescribed transaction. The limits specified shall apply for transaction(s) to be entered into either individually or taken together with the previous transactions during a financial year. The said rule provides for the disclosures in the explanatory statement to be annexed to the notice of general meeting. Following are some important points relating to approval of shareholders:

  (i) Member of the company shall not vote on the ordinary resolution approving related party transaction if such member is a related party (this provision is not applicable to private companies. MCA Notification dated 5-6-2015).

  (ii) Approval of the shareholder is not applicable in the cases where 90% or more members (in number) are the relatives of promoters or are related parties (applicable to private company and public company, both).

  (iii) In case of wholly-owned subsidiary company, the ordinary resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between the wholly-owned subsidiary company and the holding company, subject to the condition that the accounts of the subsidiary company are consolidated with holding company and placed before shareholders at the general meeting for its approval.

  (iv) Certain exemptions are applicable to government company (MCA Notification dated 5-6-2015).

(4)Exemption from the compliances of Section 188 of the Act— Consent of the Board of Directors and prior approval of the shareholders is not required when such related party transaction is in the ordinary course of its business and on arm’s length basis. The Act has not defined “ordinary course of its business”. For this purpose the Board of Directors is required to exercise their judgment. However, the Act has defined transaction on arm’s length basis. It means a transaction between two related parties that is conducted as if they were unrelated so that there is no conflict of interest. There is no exemption for obtaining the approval of the Audit Committee.

(5)Disclosures in Board’s report— Every contract or arrangement entered into by the company shall be referred to in the Board’s report to the shareholders along with the justification for entering into such contract or arrangement [Section 188(2) of the Act]. Pursuant to Section 134(3) of the Act, the Board’s report shall include particulars of contracts or arrangements with related parties in prescribed form (Form AOC-2).

(6)Register of contracts or arrangements in which directors are interested— According to Section 189 of the Act, the company shall maintain a register (Form MBP-4) for related party transactions. After entering the particulars in the register, such register shall be placed before the next Board meeting and signed by all directors present at the meeting. The entries in the register shall be made at once, whenever there is a cause to make entry, in chronological order and shall be authenticated by the Company Secretary of the company or by any other person authorised by the Board for the purpose. Such register shall be kept at the registered office of the company. The register shall be preserved permanently and shall be kept in the custody of the Company Secretary of the company or any other person authorised by the Board for the purpose.

(7)Other important checkpoints— Section 188 (3) of the Act provides for ratification of the related party transaction entered into by a director or any other employee without consent of the Board of Director or approval of shareholders in general meeting. Ministry of Corporate Affairs (by its Circular dated 17-7-2014) has exempted companies from the compliance of Section 188 of the Act, arising out of compromises, arrangements and amalgamations dealt under the specific provisions of the Companies Act.

The provisions relating to related party transactions are one of the most amended provisions under the Act. In my view, “related party transactions” is one of the critical tests of corporate governance. The above checklist relates to related party transactions by private companies or unlisted public companies. In case of listed companies, the provisions of Section 188 of the Act and Regulation 23 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, both shall be complied with.

* Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at gp@csgauravpingle.com.