[Interpretation of third proviso of 188-Companies Act, 2013]

“Provided also that nothing in this sub-section shall apply to any transactions entered into by the company in its ordinary course of business other than transactions which are not on an arm’s length basis.”

Situation

X & Y are related. X is doing curd selling business in the market at Rs. 20/- per packet.

Situation 1

X selling curd to Y at Rs. 20/- exempted from 188(1)

*ordinary course and arms length

Situation 2

X selling curd to Y at Rs. 10/-  (Special Resolution required –if capital more than 10 Crore or if satisfies any of the condition in Chapter XII Rules, Rule 15

*ordinary course but not on arms length (favouring shareholder)

Situation 3

X leasing Property (which is not in ordinary course) to Y at Rs. 10/- (Special Resolution required –if capital more than 10 Crore or if satisfies any of the condition in Chapter XII Rules, Rule 15

*not in ordinary course and not in arms length basis

Situation 4

X leasing Property (which is not in ordinary course) to Y at Rs. 20/- (Special Resolution required –if capital more than 10 Crore or if satisfies any of the condition in Chapter XII Rules, Rule 15

*not in ordinary course