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Related party transaction with intercorporate borrowings.

RACHANA DAGA (CS) (555 Points)

09 April 2015

Dear Experts,

There is group of companies like Company A, Company B, Company C, Company D, Company E, and are closely held private companies and they are doing business of inter-corporate Borrowings. As there is exemption under rule 2 (1) (c) clause (vi) of The Companies (Acceptance of Deposits) Rules, 2014. Do they are under ambit of section 188, related party transaction.

Kindly give some inputs on this and do the needful.

Thanking you.

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Jaikishan (CA) (168 Points)
Replied 12 April 2015

As per my view Section 188 is not appliable since Section 188 refers to the terms and conditions mentioned below. Also Company Deposits Acceptance rules has provided exemption because the business which private companies are doing is in ordinary course of business. Kindly find the extract of Section 188 below: Kindly find the bold line in last.

Except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company shall enter into any contract or arrangement with a related party with respect to— (a) sale, purchase or supply of any goods or materials; (b) selling or otherwise disposing of, or buying, property of any kind; (c) leasing of property of any kind; (d) availing or rendering of any services; (e) appointment of any agent for purchase or sale of goods, materials, services or property; (f) such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and(g) underwriting the subscripttion of any securities or derivatives thereof, of the company: Provided that no contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed, shall be entered into except with the prior approval of the company by a special resolution: Provided further that no member of the company shall vote on such special resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party:

Provided also that nothing in this sub-section shall apply to any transactions entered into by the company in its ordinary course of business other than transactions which are not on an arm’s length basis.

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