Section 188 related party transactions: when the board approves, when shareholders vote, and the AOC-2 disclosure

Last updated 25 Oct 2026 · India

Short answer. Under section 188 of the Companies Act, a company's contracts with a related party for sale or purchase of goods, property, leasing, services, appointing agents, underwriting or an office or place of profit need consent of the board by resolution at a meeting. If the value crosses the thresholds in Rule 15(3) of the Companies (Meetings of Board and its Powers) Rules (for example, goods or services of 10% or more of turnover), a shareholders' ordinary resolution is also needed, and related-party members cannot vote on it. Transactions in the ordinary course of business and at arm's length are outside section 188(1). Contracts are disclosed in Form AOC-2 with the board's report, and a contract entered without approval must be ratified within 3 months.

Step by step

List related parties under section 2(76) and get each director's interest disclosure (MBP-1).
For each contract, decide: ordinary course and arm's length, or not. Keep the working.
If not, pass a board resolution at a meeting; interested directors stay out of the discussion and vote.
Check Rule 15(3) thresholds; if crossed, put an ordinary resolution to shareholders.
Enter the contract in the MBP-4 register and disclose it in AOC-2.

Common mistakes

Calling everything arm's length without a pricing comparison on file.
Interested director voting on the board resolution.
Missing the 3-month ratification window for contracts already signed.
Leaving AOC-2 blank when there were contracts.

Frequently asked questions

Do all related party transactions need shareholder approval?

No. Only those above the Rule 15(3) thresholds that are not in the ordinary course of business at arm's length. Board approval at a meeting is needed for all section 188 contracts that are not exempt.

Can a related party shareholder vote on the resolution?

No. Members who are related parties to that contract cannot vote on the ordinary resolution.

Where are related party contracts disclosed?

In Form AOC-2, attached to the board's report, and in the MBP-4 register.

Official sources

Not tax or legal advice. This is a free explainer of public rules; deadlines and rules can change by notification, so confirm on the official portal or with your CA before you file. Last checked 25 Oct 2026.

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