Wednesday, January 7

Companies Act 2013: Restriction on non-cash transactions involving directors

Restrictions and legal requirements:
No company shall enter into an arrangement by which-
(a) a director of the company or its holding, subsidiary or associate company or a person connected with him acquires or is to acquire assets for consideration other than cash, from the company; or
(b) the company acquires or is to acquire assets for consideration other than cash, from such a director or person so connected, unless prior approval for such arrangement is accorded by a resolution of the company in general meeting (GM) and if the director or connected person is a director of its holding company, approval shall also be required to be obtained by passing a resolution in GM of the holding company.
Requirements of notice:
The notice for approval of the resolution by the company or holding company in GM shall include the particulars of the arrangement along with the value of the assets involved in such arrangement duly calculated by a registered valuer.
Effects of contravention:
Transaction in contravention of the above provisions shall be voidable at the option of the company, except-
(a) The company is compensated for loss by any other person and restitution of subject matter is not possible, or
(b) Rights acquired for value and without notice of the contravention of the provisions of this section.
 The new clauses under this section are:
·    A company shall not enter into any arrangement by which the director of the company or its holding company or any person connected with him can acquire assets for consideration other than cash from the company and vice versa without the approval of the company in GM.
·    Where the director or connected person is a director of its holding company, the resolution from holding company will also be required.
·    The expression person connected with the director has not been defined under the Act.
The notice of approval in GM in both the company and its holding company shall include particulars of the arrangement along with the value of assets duly calculated by registered valuer.

PS: Cash in the above provision would imply to include Cash through banking channels i.e. cheques, bank transfer, demand draft etc.

Contributed by Shruti Agarwal

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