Elegant Ltd., engaged in the retailing of petroleum products sourced from the national oil companies, sells petrol and diesel, in addition to other outside customers, to the companies in which the directors of the Compan

Section 188 of the Companies Act, 2013, read with Rule 15(3) of the Companies (Meetings of the Board and its powers) Rules, 2014 provides that where the related party transaction in a financial year for sale or supply of goods, materials exceeding ₹ 100 crores or 10% of the turnover of the company, whichever is lower, such contract shall not be entered except with the consent of the Board of Directors given by a resolution at a meeting of the Board and prior approval of the company by a resolution passed at a General Meeting. The 4 th proviso to the Section 188(1) further provides that where the transaction is entered into in the ordinary course of business and the transactions are at arm's length basis, the provisions of Section 188(1) shall not apply to such transaction. (i) Products sold at market price: In the given case, Elegant Ltd has crossed the threshold limit of the transaction by way of sale of petroleum products for ₹ 125 crore which forms 12% of its turnover. However, then such petroleum products are sold, in the ordinary course of business at arm's length prices, i.e. without offering any discount at the market price fixed by the oil marketing companies. Accordingly, the provisions of Section 188(1) shall not apply to this transaction and such transactions could be done as any other routine business transaction. (ii) Discount provided to related parties: In the given case, Elegant Ltd is allowing a discount of 10% to such related parties, and therefore the transaction cannot be considered to be at arm's length. Moreover, the value of Transaction with such related parties during the financial year is more than the limit prescribed under Rule 15(3) of the Companies (Meetings of the Board and its powers) Rules 2014, being 10% of the turnover and hence, consent of the Board of Directors given by a resolution at a meeting of the Board and prior approval of the company by a resolution passed at a General Meeting is required for entering into each of such contract.