Easing of related-party transaction rules commended

Earlier, transactions of all companies having a paid-up capital of over Rs 10 cr were required minority shareholders' approval through a special resolution

The ministry of corporate affairs’ (MCA) move to relax rules on related party transactions has gone down well with experts.

MCA has done away with the earlier requirement that such transactions of all companies having a paid-up capital of over Rs 10 crore would require minority shareholders’ approval through a special resolution. Such a resolution requires at least 75 per cent shareholder approval.

Other companies (with less than Rs 10 crore of paid-up capital) were earlier required to get minority shareholders approval depending on specific thresholds for these transactions. Now, for all companies, specific thresholds relating to these transactions are prescribed.

“While this amendment does not do away with all the practical challenges, it is still a major step in the right direction,” said Sai Venkateshwaran, head of accounting advisory services, KPMG India.

He said introduction of the absolute monetary thresholds would still require several transactions not considered to be material for a large company to be referred to shareholders for approval.

No changes have been made in the threshold limits of a salary for a related party's appointment to any office or place of profit in the company, its subsidiary company or associate company. The threshold remains Rs 2,50,000 of monthly salary.

Dolphy Dsouza, partner in a member firm of Ernst & Young Global, said: “Though one more step has been taken to correct Section 188 of the Companies law, that is not enough and more changes would be required.”

The most important change, he said would be to align the Securities and Exchange Board of India Act and the Companies Act requirement with respect to definition of related party and related party transactions and the requirements relating to the approval process.