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

Zenith Ltd, a listed company, seeks shareholder approval by resolution for buying property from Mr. Iyer, a director's relative who is a related party. Mr. Iyer's firm holds 8% of Zenith's shares, and Zenith has thousands of members, only a few being promoter relatives. Mr. Iyer's firm wants to vote. Which is correct?

The firm may not vote. Section 188 prohibits any member who is a related party from voting on the resolution approving the contract, and the exception for companies with ninety per cent or more members being promoter relatives or related parties does not apply to Zenith.

  1. AThe firm may vote because the stake is under 10%
  2. BThe firm may vote if it votes in favour only
  3. CThe firm may not vote, as no member who is a related party may vote on such resolutionCorrect
  4. DThe firm may vote if the Board permits

Explanation

The second proviso bars any member who is a related party from voting on the resolution approving the contract. The exception applies only where 90% or more members in number are relatives of promoters or related parties, which is not the case. Shareholding size or Board permission is irrelevant.

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