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

Gamma Ltd's transaction with a related party crosses the prescribed thresholds, so shareholder approval is needed. Mr. Rao, a member of Gamma, is a related party to that transaction. How may Mr. Rao vote on the resolution under Section 188, assuming fewer than ninety per cent of members are relatives of promoters or related parties?

Mr. Rao cannot vote on the resolution. The second proviso to Section 188(1) prohibits any member who is a related party from voting on the approving resolution. The exemption exists only for companies where ninety per cent or more members are relatives of promoters or related parties.

  1. AHe may vote only if he holds more than 10% shares
  2. BHe may vote but his vote is counted separately
  3. CHe may vote if the Board permits
  4. DHe cannot vote on the resolutionCorrect

Explanation

The second proviso to Section 188(1) says no member shall vote on such a resolution if that member is a related party. The exception applies only where ninety per cent or more of members are relatives of promoters or related parties, which is not the case here.

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