Rule 15 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 15 is the working rule under section 188 of the Companies Act, 2013 on contracts and arrangements with related parties. It lists what the Board agenda must disclose, requires an interested director to stay out of the discussion, fixes the thresholds above which prior approval of the company by a resolution is needed, and prescribes the explanatory statement. Our compliance advisory team works with companies on exactly these approvals. This article follows the rule as amended up to G.S.R. 811(E) dated 3 November 2025 per the MCA e-book. Later amendments should be checked.
A contract or arrangement with a related party needs the prior approval of the company by a resolution if it amounts to ten per cent or more of turnover (goods or services, and leasing) or ten per cent or more of net worth (property), if it is an appointment to an office or place of profit at a monthly remuneration exceeding two and a half lakh rupees, or if it is underwriting remuneration exceeding one per cent of net worth (rule 15(3)). Turnover and net worth are taken from the audited financial statement of the preceding financial year. An interested director must not be present during the discussion (rule 15(2)).
Rule 15(1): what the Board agenda must disclose
The agenda of the Board meeting at which the resolution is to be moved must disclose:
- (a) the name of the related party and the nature of the relationship;
- (b) the nature and duration of the contract and its particulars;
- (c) the material terms, including the value, if any;
- (d) any advance paid or received for the contract or arrangement;
- (e) the manner of determining the pricing and other commercial terms, both included in the contract and not considered part of it;
- (f) whether all factors relevant to the contract have been considered and, if not, the factors not considered, with the rationale; and
- (g) any other information relevant or important for the Board to take a decision.
Rule 15(2): interested directors
Where any director is interested in a contract or arrangement with a related party, he must not be present at the meeting during discussions on the subject matter of the resolution relating to the contract or arrangement.
Rule 15(3): when the company's prior approval is needed
For the first proviso to section 188(1), except with the prior approval of the company by a resolution, a company shall not enter into the transactions set out below. The table gives each limb, with the clause of section 188(1) it relates to.
| Item | Transaction | Threshold in the rule | Section 188(1) clause |
|---|---|---|---|
| 15(3)(a)(i) | Sale, purchase or supply of goods or material, directly or through an agent | Amounting to ten per cent or more of the turnover of the company | (a) and (e) |
| 15(3)(a)(ii) | Selling, disposing of or buying property of any kind, directly or through an agent | Amounting to ten per cent or more of the net worth of the company | (b) and (e) |
| 15(3)(a)(iii) | Leasing of property of any kind | Amounting to ten per cent or more of the turnover of the company | (c) |
| 15(3)(a)(iv) | Availing or rendering of any services, directly or through an agent | Amounting to ten per cent or more of the turnover of the company | (d) and (e) |
| 15(3)(b) | Appointment to any office or place of profit in the company, its subsidiary or associate company | Monthly remuneration exceeding two and a half lakh rupees | (f) |
| 15(3)(c) | Remuneration for underwriting the subscription of securities or derivatives of the company | Exceeding one per cent of the net worth | (g) |
The Explanation to clause (a) says the limits in items (i) to (iv) apply to a transaction or transactions to be entered into either individually or taken together with the previous transactions during a financial year. So a company cannot split one large supply into smaller contracts to stay under the line.
Explanation (1). The turnover or net worth referred to is computed on the basis of the audited financial statement of the preceding financial year.
Explanation (2). In the case of a wholly owned subsidiary, the resolution passed by the holding company is sufficient for entering into the transaction between the wholly owned subsidiary and the holding company.
Rule 15(3): the explanatory statement
The explanatory statement annexed to the notice of a general meeting convened under section 101 must contain:
- (a) the name of the related party;
- (b) the name of the director or key managerial personnel who is related, if any;
- (c) the nature of the relationship;
- (d) the nature, material terms, monetary value and particulars of the contract or arrangement; and
- (e) any other information relevant or important for the members to take a decision on the proposed resolution.
For a general guide to explanatory statements see Section 102: Explanatory Statement.
How rule 15 fits with the other related party rules
- Who is a "related party" and who is a "relative" is in the Definitions Details Rules; see Rules 2A, 3 and 4: unlisted public companies, related party and list of relatives.
- The Audit Committee must approve all related party transactions and may give an omnibus approval; see Rules 5, 6 and 6A.
- The Act's provisions, including the Board's approval and the consequences of a contravention, are in Section 188: Contracts Under Board and Member Approval and Section 188: Related Party Transactions.
- The register of contracts is described in Rules 16 and 17.
A worked example
Falcon Tools Limited (invented) has audited figures for last year showing its turnover and net worth. It proposes to buy goods from a related party. Over the year the purchases, taken together with the previous transactions, will amount to ten per cent or more of that turnover. The agenda of the Board meeting names the related party, the relationship, duration, material terms, advances and the pricing method. The director who is interested leaves the discussion. Because the ten per cent line is reached, the company needs the prior approval of its members by a resolution, with an explanatory statement giving the particulars in rule 15(3). If the counterparty were instead Falcon's wholly owned subsidiary and the holding company passed the resolution, that resolution would be sufficient for the transaction between them.
Need help with related party transactions?
Computing the thresholds from last year's audited figures, aggregating transactions across the year and drafting the explanatory statement are the steps that go wrong. We can build a related party transaction tracker and draft the Board agenda and resolutions through our compliance advisory service.
Key takeaways
- The Board agenda must carry seven kinds of disclosure; the interested director stays out of the discussion.
- Ten per cent or more of turnover: goods, services and leasing. Ten per cent or more of net worth: property.
- Office or place of profit above two and a half lakh rupees a month, and underwriting remuneration above one per cent of net worth, also need prior approval.
- Thresholds apply individually or together with previous transactions in the financial year, on the previous year's audited figures.
- A holding company's resolution suffices for transactions with its wholly owned subsidiary.
Read next
- Section 188: Related Party Transactions
- Rules 2A, 3 and 4: related party and list of relatives
- Rules 5, 6 and 6A: omnibus approval
- Rules 16 and 17: register of contracts MBP-4
Disclaimer: Based on the Companies Act, 2013 rules (and the Companies (Auditor's Report) Order, 2020) named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.