MCA Amends The Threshold Limits For Related Party Transactions

The Ministry of Corporate Affairs (“MCA”) on 18th November 2019 vide notification of the Companies (Meeting of Board and its Powers) Second Amendment Rules, 2019 (“Second Amendment Rules, 2019”) issued further amendment to rule 15 of the Companies (Meeting of Board and its Powers) Rules, 2014.

The MCA vide Second Amendment Rules, 2019 seeks to revise the threshold limits pertaining to any contract or arrangement with a related party for transaction value beyond which the company would require approval of shareholders by way of a resolution [as provided under the first proviso to sub-section (1) of section 188 of the Companies Act, 2013].

The revised threshold limits prescribed in the Second Amendment Rules, 2019 are as follows:-

• For the sale, purchase or supply of any goods or materials, directly or through appointment of agent, the revised threshold limit provides ten percent or more of the turnover of the company as against the earlier threshold limit of amounting to ten percent or more of the turnover of the company or rupees one hundred crore, whichever is lower [Amendment in Rule 15(3)(a)(i)];

• For selling or otherwise disposing of or buying property of any kind, directly or through appointment of agent, the revised threshold limit provides ten percent or more of the net worth of the company as against the earlier threshold limit of amounting to ten percent or more of net worth of the company or rupees one hundred crore, whichever is lower [Amendment in Rule 15(3)(a)(ii)];

• For leasing of property of any kind, the revised threshold limit provides ten percent or more of the turnover of the company as against the earlier threshold limit of amounting to ten percent or more of the net worth of the company or ten percent or more of turnover of the company or rupees one hundred crore, whichever is lower [Amendment in Rule 15(3)(a)(iii)];

• For availing or rendering of any services, directly or through appointment of agent, the revised threshold limit provides ten percent or more of the turnover of the company as against the earlier threshold limit of amounting to ten percent or more of turnover of the company or rupees fifty crores, whichever is lower [Amendment in Rule 15(3)(a)(iv)].Â