Disclosures Requirements Under Section 188 of the Companies
Act
The disclosure requirements under Section 188 of the Companies Act 2013 are aimed at ensuring transparency and accountability in related party transactions. These disclosures are necessary for stakeholders to evaluate the company's financial position and assess any potential conflicts of interest. The disclosures should provide a comprehensive and accurate picture of the related party transactions that have taken place during the financial year. The nature and value of the transaction must be disclosed along with the name of the related party. The details of the transaction should include any terms and conditions, such as the pricing, payment terms, and delivery details. The disclosures must also specify the relationship between the company and the related party, such as whether the related party is a director, key managerial personnel, or a relative of the director. It is essential to note that the disclosures must be made in the company's financial statements, which include the balance sheet, profit and loss account, and cash flow statement. These disclosures must be made clearly and concisely to enable stakeholders to fully understand the transaction and its implications. Furthermore, the company must also provide details of the approval process and the rationale behind the decision to enter into the transaction. This information is essential to ensure stakeholders can evaluate the transaction and assess any potential associated risks. Overall, companies must ensure that they comply with the disclosure requirements under Section 188 of the Companies Act, 2013 to ensure transparency and accountability in related party transactions. The disclosures must be made in a clear and concise manner and provide stakeholders with all the relevant information necessary to evaluate the transaction. Consequences of irregularities of compliance:
1. Ratification of the transaction may be done by the Board or the
shareholders within three months. If the same is not done, then the contract will be voidable at the option of the Board. Non-compliance with the requirements stated in the Companies Act can render the transactions void. 2. If any director authorised the contract, the director must indemnify the company for any losses. 3. The company can proceed against the director or the employee for recovery of loss, if any, due to RPTs. 4. Any director or any other employee of company who had entered into or authorised the contract or arrangement in violation of the provisions of this section in case of a Private Company shall be liable to a penalty of five lakh rupees.
