CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Concept of Governance in Professional Managed Company and Promoters Driven Company
Verma Agro Ltd, a listed promoter-led company, proposes to sell goods worth a large amount to a firm owned by the promoter's brother. The promoter, who sits on the board, wants to vote on the board resolution and for the shareholders' resolution. Applying the governance principle for protecting minority shareholders, what is the correct position?
Related parties, including the promoter and his relatives, must abstain from voting on the material related party transaction. Approval should come from disinterested shareholders and directors, which protects minorities. Disclosure after completion or the promoter's shareholding does not give him a right to vote.
- APromoter may vote at the shareholders' meeting since he is a shareholder
- BRelated parties should abstain from voting on the material related party transaction resolution, so that approval comes from unrelated shareholdersCorrect
- COnly independent directors may vote and no shareholder approval is ever needed
- DThe transaction is valid if the promoter discloses it after completion
Explanation
Related party transactions require prior approval and related parties are barred from voting on such resolutions, so unrelated shareholders decide. Post-facto disclosure does not substitute for prior approval, and the promoter's shareholding does not remove the bar. Option C wrongly says shareholder approval is never needed for material transactions.
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