Supreme Court: Section 138 of the Companies Act 2013 operates only at the time of entering into the contract of arrangement under bar of voting on related parties

The Supreme Court in the case Securities and Exchange Board of India vs R.T. Agro Private Limited observed as per Section 188 of the Companies Act, 2013 on related parties operates only at the time of entering into a contract or arrangement. The Supreme Court upheld an order of Securities Appellate Tribunal holding that the bar of voting.

The SEBI approached the Apex Court In appeal, the SAT held that the bar of voting as per Section 188 of the Companies Act, 2013 on related parties operated only at the time of entering into a contract or arrangement, i.e., when the resolution dated 15.07.2014 was passed; and therein the said related parties indeed abstained from voting. No fault was found in the said parties voting in the recalling of the said resolution, SEBI took up the matter on a complaint against the said voting by related parties and issued notice alleging violation of Regulation 23 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. Penalty was imposed against these parties.

the bench comprising Justices Dinesh Maheshwari and Aniruddha Bose observed while dismissing the appeal:

In fact, nothing of ill-intent on the part of the respondents has been established in the present case. The hyper-technical stance of the appellant could have only been, and has rightly been, disapproved on the given set of facts and circumstances, as taken by the Appellate Tribunal, in the given set of facts and circumstances of the present case, appears to be a plausible view of the matter.

the company R. T. Exports Limited proposed to enter into a transaction with one Neelkanth Realtors Private Limited for purchase of 40,000 sq. ft. of residential space. This proposal was treated as a related party transaction and was required to be approved by the shareholders of the Company. a special resolution was approved by R. T. Exports Limited and in terms of Section 188 of the Companies Act, 2013, the related parties abstained from voting on this special resolution. Thereafter, an Extra Ordinary General Meeting was convened for rescinding the resolution in which, the related parties also voted.

While dismissing the plea the bench comprising of Justices Dinesh Maheshwari and Justice Anirudh Bose The given facts and circumstances in the present case and the view taken up by the Appellate Tribunal appears to be plausible view of the matter. The hyper- technical stance of the appellant could have only been and has rightly been disapproved on the given set of facts and circumstance.

The appellant-SEBI took up the matter on a complaint and issued notice alleging violation of Regulation 23 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

The order passed by the Adjudicating Officer and has allowed the appeal filed by the present respondents but The Securities Appellate Tribunal has not approved holding that the bar of voting as per Section 188 of the Companies Act, 2013 on related parties operated only at the time of entering into a contract or arrangement, i.e., when the resolution dated 15.07.2014 was passed; and therein the said related parties indeed abstained from voting. The Appellate Tribunal found no fault in the said parties voting in the recalling/rescinding of the said resolution.

Nothing of ill-intent on the part of the respondents has been established in the present case. The hyper-technical stance of the appellant could have only been, and has rightly been, disapproved on the given set of facts and circumstances