Related party tra. sec 188 company act & cluase 49(vii)

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sanjeev kumar (Querist)
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22 January 2016 Dear Experts,

Section 188 of the company act has specified the below limit of transaction or transactions specified entered with related party.
1. sale, purchase or supply of any goods or material, directly or through appointment of agnet, exceeding 10% of the turnover of the company or Rs. 100 Crores, which is lower
2.Leasing of property of any kind exceeding 10% of the networth of the company or 10% of turnover of the company or Rs.100 Crores , which ever is lower
My company has entered the transaction with related party for purchase of goods & Rent amounting of Rs. 35 Crores & 15 Crore respectively and annual turn over of the company is Rs. 500 Crores.
So, as per company act limit will be Rs. 50 Crores
Option First
Sale purchase transcation 35 Crores Limit 50 Crores(Not more than the limit)
Rent 20 Crore Limit 50 Crores(Not more than the limit)

As per option first company can entered in transaction and special resolution is not required.

Option second
sale purchase transaction 35 Crores
Rent 20 Crores
Total 55 Crores (Exceeding the limit of 50 Crore)

As per option second company can not entered the transaction without special resolution.

So which option will be accurate as per section 188 of the company act.

Please reply urgent

Sanjeev kumar

CS Divesh Goyal

CS Divesh Goyal (Expert)
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25 January 2016 Mr. Sanjeev,

If the Transaction with related party are on arm length price and on ordinary course of business then there is no need to pass any Resolution in Board or General Meeting.

So first check whether they are fulfiling these two conditions.

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