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Related party transactions - Section 188 of Companies Act clarified

28 July, 2014

Prohibition of any related party from voting in any special resolution of the company to approve any contract or arrangement (as specified in Section 188 of the Companies Act, 2013) is applicable only to the contract or arrangement for which the special resolution is being passed.

MCA General Circular No. 30/2014, dated 17-7-2014 issued for this purpose clarifies that the term ‘related party’ has to be construed with reference only to the contract or arrangement for which the said special resolution is being passed. It has also been clarified that transactions arising out of compromises, arrangements and amalgamations dealt with under other specific provisions will not attract the requirements of said provisions. Contracts entered into before the commencement of said provisions will also not require fresh approval unless any modification is made therein on/after 1-4-2014.
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