Juley, a company secretary and sister of Disha, the Managing Director, is proposed to be appointed as a 'Consultant' with a monthly remuneration of ₹2.75 lakh. Disha seeks clarification on the applicable legal provisions

Related Party Under Section 2(76) of Companies Act 2013, inclusive definition of "related party", with reference to a company, has been given which include inter alia (i) a director or his relative; Relative: As per Section 2(77) Companies Act, 2013 the sister is deemed to be a relative of another being related to another person. Nature of Related Party Transactions: Section 188 of the Companies Act, 2013 provides that except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as prescribed under Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, no company shall enter into any contract or arrangement with a related party with respect to: such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company: Office or Place of Profit As per Explanation to Sub-Section (i) of Section 188 the expression "office or place of profit" means any office or place where such office or place is held by: a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise; an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise. Prior Approval of the Company by a Resolution First Proviso to the Section 188 (1) of the Act provides that no contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as prescribed, shall be entered into except with the prior approval of the company by a resolution. Rule 15 of the Companies (Meetings of board and its Powers) Rules, 2014 provides that except with the prior approval of the company by a resolution, a company shall not enter into a transaction or transactions, where the transaction or transactions to be entered into, - as contracts or arrangements with respect to clauses (a) to I of sub-section (1) of section 188, with criteria as mentioned below- Clause V: Appointment to any office or place of profit in the company, its subsidiary company or associate company- Monthly remuneration exceeding ₹2.50 lakh. Disclosure in Board's Report Section 188(2) of the Companies Act, 2013 provides that every related party contracts or arrangement shall have to be disclosed in the Board's report and referred to shareholders along with the justification for entering into such type of transactions in the prescribed form i.e., Form no. AOC-2 [pursuant to Section 134(3) (h) and Section 188(2)]. Form AOC-2 shall be signed by the persons who have signed the Board's Report. Analysis and Answer Nature of transaction and approval compliance: Appointment of Juley who is a sister (i.e. relative) of Disha, a managing director of a company is a related party transaction by way of holding office or place of profit. Since the monthly remuneration involved in this related party transaction is exceeding ₹2.50 lakh (which is ₹2.75 lakh in this case) the prior approval of the Board of directors and the shareholders by passing an ordinary resolution in the general meeting of the company is required. Disclosure compliance: The related party transaction of appointing Juley shall be disclosed by the company in the Board's report and referred to shareholders along with the justification for entering into such type of transactions in the prescribed form i.e., Form no. AOC-2.