Related party transaction

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vijaylakshmi rathi (Querist)
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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?

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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21 August 2014 the ans depends upon which transaction u undertaking

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vijaylakshmi rathi

vijaylakshmi rathi (Querist)
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21 August 2014 transactions that are taken in ordinary course of business at arms length price

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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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.

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