The Ministry of Corporate Affairs has prescribed the rules for omnibus approval of related party transactions. Under the newly inserted Rule 6A of the Companies (Meetings of Board and its Powers) Rules, 2014, all related party transactions shall require approval of the Audit Committee and the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company. The Audit Committee shall, after obtaining approval of the Board of Directors, specify the criteria for making the omnibus approval which shall include the following, namely:-
- maximum value of the transactions, in aggregate, which can be allowed under the omnibus route in a year;
- the maximum value per transaction which can be allowed;
- extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus approval;
- review, at such intervals as the Audit Committee may deem fit, related party transaction entered into by the company pursuant to each of the omnibus approval made;
- transactions which cannot be subject to the omnibus approval by the Audit Committee.
The criteria for omnibus approval can be either specified by the Board or can be a part of the policy for related party transactions of the Company. The Audit Committee shall consider (a) repetitiveness of the transactions (in past or in future) and (b) justification for the need of omnibus approval, while specifying the criteria for making omnibus approval. The Audit Committee shall satisfy itself on the need for omnibus approval for transactions of repetitive nature and that such approval is in the interest of the company. The omnibus approval shall contain or indicate the following: -
- name of the related parties;
- nature and duration of the transaction;
- maximum amount of transaction that can be entered into;
- the indicative base price or current contracted price and the formula for variation in the price, if any; and
- any other information relevant or important for the Audit Committee to take a decision on the proposed transaction. There is no separate reporting to be done to the Board. The minutes of the Audit Committee are placed before the Board, by virtue of which the Board is informed about the approvals granted and review thereof.
It has been provided that where the need for related party transaction cannot be foreseen and aforesaid details are not available, the Audit Committee may make omnibus approval for such transactions subject to their value not exceeding INR 10 million per transaction.
Omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh approval after the expiry of such financial year. Omnibus approval shall not be made for transactions in respect of selling or disposing of the undertaking of the company.
Listed companies under SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 had the advantage of omnibus approval policy, however, certain other public companies which are also required to have an audit committee (depending upon the criteria as provided by the rules), did not have the benefit of such omnibus approval policy until this amendment, and related party transactions in such companies required approval of the audit committee on case to case basis.
There was a confusion earlier that only those related party transactions which are covered under section 188 of the Companies Act, 2013 and not exempted from the compliance of the said section are the only ones which needs to be approved by the audit committee under section177 of the Companies Act, 2013. With a clear language under newly inserted rule 6A, it has been clarified that ‘all’ related party transactions are required to be approved by the audit committee.