Section 188. Related party transactions
(1) Except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to prescribed conditions, no company shall enter into any contract or arrangement with a related party with respect to—
(a) sale, purchase or supply of 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) appointment to any office or place of profit in the company, its subsidiary company or associate company; or
(g) underwriting the subscription of any securities or derivatives thereof, of the company.
Prior approval of the company by resolution shall be required for transactions of the prescribed class or value. A related party member shall not vote on such resolution, subject to the statutory exception for companies in which ninety per cent. or more members in number are relatives of promoters or related parties.
(2) Every contract or arrangement entered into under this section shall be referred to in the Board’s report to the shareholders along with justification for entering into it.
(3) Where any contract or arrangement is entered into without the consent required under this section, it may be ratified by the Board or shareholders within the prescribed period; failing ratification, it shall be voidable at the option of the Board and, in prescribed cases, the concerned director shall indemnify the company.
(4) The company shall be entitled to proceed against a director or employee for recovery of any loss sustained by it as a result of the contract or arrangement.
(5) Any director or other employee who enters into or authorises a contract or arrangement in violation of this section shall, in the case of a listed company, be liable to a penalty of twenty-five lakh rupees, and in the case of any other company, to a penalty of five lakh rupees.
