News

November 27, 2019

MCA amends threshold limits in related party transactions


[ by Kavita Krishnan ]

Ministry-of-Corporate-Affairs

The Ministry of Corporate Affairs (MCA) issued a notification concerning enforcement of Companies (Meeting of Board and its Powers) Second Amendment Rules, 2019 with a view to simplifying the provisions relating to related party transactions, by which it has amended the threshold limits in sub-rule 3 of rule 15 as follows:

• in sub-clause (i), the words “or rupees one hundred crores, whichever is lower”, shall be omitted;

• in sub-clause (ii), the words “or rupees one hundred crores, whichever is lower”, shall be omitted;

• in sub-clause (iii), for the words “amounting to ten per cent or more of the net worth of the company or ten per cent or more of turnover of the company or rupees one hundred crore, whichever is lower”, the words “amounting to ten per cent or more of the turnover of the company” shall be substituted; and

• in sub-clause (iv), the words “or rupees fifty crores, whichever is lower”, shall be omitted.

The amendments have removed the monetary threshold limits amounting to rupees 50 crore or 100 crore and the criteria of “lower of 10% threshold limit or monetary limit” thereby keeping the criteria for obtaining shareholder’s approval straight forward.

A comparison of the provisions pre and post amendment is provided below:

Sr. No. Before Amendment After Amendment
1 Contracts or arrangements of sale, purchase or supply of any goods or materials, directly or through the appointment of agent amounting to ten (10) percent or more of the turnover of the Company or rupees 100 crores, whichever is lower; Contracts or arrangements of sale, purchase or supply of any goods or materials, directly or through the appointment of agent amounting to ten (10) percent or more of the turnover of the Company;
2 Contracts or arrangements of selling or otherwise disposing of or buying a property of any kind, directly or indirectly or through the appointment of agent amounting to ten (10) percent or more of the net worth of Company or rupees 100 crores, whichever is lower; Contracts or arrangements of selling or otherwise disposing of or buying a property of any kind, directly or indirectly or through the appointment of agent amounting to ten (10) percent or more of the net worth of Company;
3 Contracts or arrangements of leasing of property of any kind amounting to 10 (ten) percent or more of the turnover of the Company or rupees 100 crores, whichever is lower; Contracts or arrangements of leasing of property of any kind amounting to 10 (ten) percent or more of the turnover of the Company;
4 Contracts or arrangements of availing or rendering of any services, directly or through the appointment of agent amounting to 10 (ten) percent or more of the turnover of the Company or rupees 50 crores, whichever is lower. Contracts or arrangements of availing or rendering of any services, directly or through the appointment of agent amounting to 10 (ten) percent or more of the turnover of the Company.

The said notification has been issued in the official gazette on the date of its issue i.e. 18 November 2019.



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