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CS Professional · Corporate Restructuring, Valuation and Insolvency · Process of M&A Transactions

Alpha Ltd, an unlisted company, plans to buy a factory building from Beta Pvt Ltd, a related party, as part of a deal structure. The transaction is not in the ordinary course of business and is not on an arm's length basis. Under Section 188 of the Companies Act, 2013, what is the minimum approval needed before Alpha enters into it, ignoring prescribed thresholds?

The minimum approval is Board consent given by a resolution at a Board meeting. Section 188(1) requires this for buying property from a related party. Shareholder approval is added only where prescribed thresholds are crossed, and neither the ROC, the NCLT nor the auditors approve such a transaction.

  1. AConsent of the Board of Directors by a resolution at a Board meetingCorrect
  2. BConsent of the Registrar of Companies
  3. CApproval of the National Company Law Tribunal
  4. DConsent of the auditors by written report

Explanation

Section 188(1) bars a company from entering into a contract with a related party for disposing of or buying property except with Board consent by a resolution at a meeting. Shareholder approval applies only above prescribed thresholds, and the ROC, NCLT and auditors have no approval role here.

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