Under the Energy Department, Govt. of Tamil Nadu, three Companies as Government Company were incorporated as below: A Ltd. for Generation of Electricity, B Ltd. for Transmission of Electricity, C Ltd. for Distribution of

According to Section 2(76) of Companies Act 2013, 'related party', with reference to a company includes any body corporate which is a holding, subsidiary or an associate company of such company; or a subsidiary of a holding company to which it is also a subsidiary; or an investing company or the venture of the company. Transactions referred to in the question are covered under Section 188 (1) of the Companies Act, 2013 which deals with the related party transactions. All related party transactions require the approval of the Audit Committee as per section 177 of the Companies Act, 2013 except to a transaction, other than a transaction referred to in section 188 of the Companies Act, 2013, between a holding company and its wholly owned subsidiary company, as stated under fourth proviso to section 177(4) of the Companies Act, 2013. Up to certain limits, the approval of the Board is required and above the limits, approval of the members must be taken. As per proviso two of section 188(1) of the Companies Act, 2013 member of the company shall not vote where he is related party. However as per proviso three of the section 188(1) of the Companies Act, 2013, if 90% or more members are related party, members can vote. As per proviso four of the section 188(1) of the Companies Act, 2013, the approval of the Board is not required where the transactions are on arms length basis in ordinary course of business. Further, as per proviso five of the section 188(1) of the Companies Act, 2013, the approval of members is not required in case of transaction between holding and wholly owned subsidiary. Further, as per the exemption notification dated 5th June, 2015 issued by Ministry of Corporate Affairs, the first and second proviso to sub-section (1) to section 188 of the Companies Act, 2013 shall not apply to a Government Company where the contracts/arrangements to be entered into by it with any other Government Company; a Government company (other than a listed company), in respect of contracts/ arrangements other than those mentioned in (a) above, if it has obtained approval of the administrative ministry of the concerned Central/ State Government. In this case, C Ltd, being a Government company has entered into the following transactions: Purchase of power from A Ltd. (Government Company) Sale of power to subsidiary companies (all Government companies, as they are subsidiaries of a Government company) X Ltd, Y Ltd. and Z Ltd (wholly owned subsidiaries, being Government companies) distribute power through B Ltd. (Government company) Purchase of cables from a manufacturer and sale to its Subsidiary companies (Government companies) Levy of service charges at 0.05 paise per unit on its Subsidiary companies (Government companies) Therefore, in the present case, assuming that the transactions are at arm's length and in the ordinary course of business, neither the approval of the Board nor the members of the company is required and the related party transactions would be valid.