Government clarifies 'related party' deal norms in new Companies Act

NEW DELHI: The government issued a clarification diluting provisions over related-party transactions in new Companies Act, and excluded amalgamations and mergers from scope of this rule.

The new rule states only " related party" who has interest in a particular transaction would not have a vote to make a decision.

The earlier provision under Section 188 of the Act precluded "all related parties" in a company from voting on any transaction with "any related party", even though they had no stake in the transaction.

This meant only minority share holders could vote on such transactions. The government clarified "related party" refers to those who have interest in arrangement for which special resolution is passed.

"Moving from an era where promoters had full say in undertaking related-party transactions, Companies Act 2013 had tilted the scale to other extreme, by shifting significant powers to minority shareholders," said Sai Venkateshwaran, partner and head of accounting advisory services at KPMG, India.