Second Amendment to Companies MBP Rules

On 14^th August 2014, Ministry of Corporate Affairs came out with its second amendment to the Companies (Meeting of Board and its Powers) Rules 2014. These Rules come into effect from the date of publication of these amendment Rules in official Gazette which is 14^th August 2014.

1. Rule 3 relating to board meeting through audio vidsual Means discussed earlier here, has been amended to give effect that “scheduled venue of the meeting, which shall be deemed to be a place of the meeting may be a place anywhere and need not be a place in India.
2. Rule 4(iv) have been amended to the effect that a meeting of Audit Committee through
   Audio Visual means shall not deal with “consideration of financial statement including consolidated financial statement, if any, to be approved by the Board under sub-section (1) of section 134 of the Act. Before amendment, a meeting of Audit Committee through
   Audio Visual means may have not deal with “consideration of accounts” only.

Related Party Transactions:

3. These Amendment Rules come out with far ranging changes related to related party transactions. Rule 15(3) has been substituted by a new set. We discussed original rule earlier here. New Rule 15(3) came into force with effect from 14^th August 2014 is discussed hereunder:

For the purposes of first proviso to sub-section (1) of section 188, except with the prior approval of the company by a special resolution, a company shall not enter into a transaction or transactions, where the transaction or transactions to be entered into,—

(a) as contracts or arrangements with respect to clauses (a) to (e) of sub-section (1) of section 188, with criteria as mentioned below -

• sale, purchase or supply of any goods or materials, directly or through appointment of agent, exceeding ten percent of the turnover of the company or rupees one hundred crore, whichever is lower, as mentioned in clause (a) and clause (e) respectively of sub-section (1) of section 188;
• selling or otherwise disposing of or buying property of any kind, directly or through appointment of agent, exceeding ten percent of net worth of the company or rupees one hundred crore, whichever is lower, as mentioned in clause (b) and clause (e) respectively of sub-section (1) of section 188;
• leasing of property of any kind exceeding ten percent of the net worth of the company or ten percent of turnover of the company or rupees one hundred crore, whichever is lower, as mentioned in clause (c) of sub-section (1) of section 188;
• availing or rendering of any services, directly or through appointment of agent, exceeding ten per cent of the turnover of the company or rupees fifty crore, whichever is lower, as mentioned in clause (d) and clause (e) respectively of sub-section (1) of section 188:

Explanation.—It is hereby clarified that the limits specified in sub-clauses (i) to (iv) shall apply for transaction or transactions to be entered into either individually or taken together with the previous transactions during a financial year.

(b) is for appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding two and half lakh rupees as mentioned in clause (f) of subsection (1) of section 188; or

(c) is for remuneration for underwriting the subscription of any securities or derivatives thereof, of the company exceeding one percent of the net worth as mentioned in clause (g) of sub-section (1) of section 188.

Explanation.- (1) The Turnover or Net Worth referred in the above sub-rules shall be computed on the basis of the Audited Financial Statement of the preceding Financial year.

(2) In case of a wholly owned subsidiary, the special resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between the wholly owned subsidiary and the holding company.

(3) The explanatory statement to be annexed to the notice of a general meeting convened pursuant to section 101 shall contain the following particulars, namely:—

• name of the related party ;
• name of the director or key managerial personnel who is related, if any;
• nature of relationship;
• nature, material terms, monetary value and particulars of the contract or arrangement;
• any other information relevant or important for the members to take a decision on the proposed resolution.