Related party transaction
This query is : Resolved
vijaylakshmi rathi
(Querist)
21 August 2014
If a company deals at arms length price, i.e, in the ordinary course of business then will it still has to take shareholders approval?
21 August 2014
the ans depends upon which transaction u undertaking
Message likes :
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vijaylakshmi rathi
(Querist)
21 August 2014
transactions that are taken in ordinary course of business at arms length price
21 July 2025
Under Section 188 of the Companies Act, 2013, if a related party transaction (RPT) is:
In the ordinary course of business, and
At an arm’s length price,
➡️ Then shareholders’ approval is not required.
✅ Legal Position (as per Section 188):
“No approval of the Board or shareholders shall be necessary for any transaction entered into by the company in its ordinary course of business and on an arm's length basis.”
🧾 However, keep in mind:
Board approval is still required (via resolution at a Board Meeting) unless exempted (e.g. in private companies under certain conditions).
The company must disclose such transactions in its financial statements and directors’ report under AS-18 (now Ind AS-24, if applicable).
Arm’s length price should be justifiable — proper documentation or benchmarking (especially for tax scrutiny or audit) is advisable.
🛑 Shareholders’ Approval is required if:
The transaction exceeds specified limits under Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, and
The transaction is not at arm’s length or not in the ordinary course of business.
✔️ Conclusion:
If the RPT is both:
in the ordinary course of business, and
at an arm’s length price,
➡️ then shareholders’ approval is NOT required.
In the ordinary course of business, and
At an arm’s length price,
➡️ Then shareholders’ approval is not required.
✅ Legal Position (as per Section 188):
“No approval of the Board or shareholders shall be necessary for any transaction entered into by the company in its ordinary course of business and on an arm's length basis.”
🧾 However, keep in mind:
Board approval is still required (via resolution at a Board Meeting) unless exempted (e.g. in private companies under certain conditions).
The company must disclose such transactions in its financial statements and directors’ report under AS-18 (now Ind AS-24, if applicable).
Arm’s length price should be justifiable — proper documentation or benchmarking (especially for tax scrutiny or audit) is advisable.
🛑 Shareholders’ Approval is required if:
The transaction exceeds specified limits under Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, and
The transaction is not at arm’s length or not in the ordinary course of business.
✔️ Conclusion:
If the RPT is both:
in the ordinary course of business, and
at an arm’s length price,
➡️ then shareholders’ approval is NOT required.
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