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

Meridian Steels Ltd, an unlisted company, plans to acquire a plant from Kaveri Alloys Pvt Ltd, in which Meridian's director Mr. Rao holds a controlling interest. The deal is a purchase of property from a related party and is not in the ordinary course of business. Under Section 188, what is the minimum approval required from the Board before entering the contract, apart from any shareholder approval that thresholds may require?

The Board must consent by a resolution passed at a Board meeting before the company enters the related party contract for buying property. Section 188(1) imposes this requirement regardless of listing status; the Registrar plays no approval role.

  1. AConsent of the Board by a resolution passed at a Board meetingCorrect
  2. BConsent of the Board through a circular resolution only after the contract is signed
  3. CApproval of the Registrar of Companies
  4. DNo approval, since the company is unlisted

Explanation

Section 188(1) bars a company from contracting with a related party for sale, purchase or disposal of property except with the Board's consent given by a resolution at a meeting of the Board. Being unlisted gives no exemption. Post-signing consent is only ratification within three months, not the required prior consent.

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