Rules 5 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 5 allows a draft resolution to be circulated to directors electronically. Rule 6 says which companies must constitute an Audit Committee and a Nomination and Remuneration Committee. Rule 6A sets the conditions on which an Audit Committee may give omnibus approval to related party transactions for a year. This article follows the rules as amended up to G.S.R. 811(E) dated 3 November 2025 per the MCA e-book. Later amendments should be checked.
All related party transactions require the approval of the Audit Committee, which may give omnibus approval after the Board approves the criteria (rule 6A). An omnibus approval is valid for not more than one financial year, covers only transactions of a repetitive nature, cannot cover the sale or disposal of the company's undertaking, and where details cannot be foreseen is limited to rupees one crore per transaction. The Board of every listed public company, and of a company covered under rule 4 of the Directors Rules, must constitute an Audit Committee and a Nomination and Remuneration Committee (rule 6).
Rule 5: passing a resolution by circulation
Rule 5 says a resolution in draft form may be circulated to the directors, together with the necessary papers, to seek their approval, by electronic means which may include e-mail or fax. The right to pass a resolution by circulation comes from section 175 of the Act; see Section 175: Resolution by Circulation. For a practical comparison with postal ballot for members, see Decisions Without a Meeting. The rule prescribes no further steps; what the section requires of a circulated resolution is in the Act.
Rule 6: committees of the Board
The Board of every listed public company, and of a company covered under rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, must constitute an Audit Committee and a Nomination and Remuneration Committee of the Board. The wording "every listed public company" was substituted for "every listed company" by the Amendment Rules of 7 May 2018. The classes that rule 4 of the Directors Rules covers are explained in Audit Committee Constitution Under Section 177 and Rule 4 Thresholds; the committee provisions themselves are in Section 177: Audit Committee and Section 178: Nomination and Remuneration Committee.
Rule 6A: omnibus approval
The rule opens by stating that all related party transactions require approval of the Audit Committee, and that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company, subject to the conditions below.
| Sub-rule | Condition |
|---|---|
| 6A(1) | After obtaining approval of the Board, the Audit Committee specifies the criteria for the omnibus approval, which must include: (a) maximum aggregate value of transactions allowed under the omnibus route in a year; (b) maximum value per transaction; (c) extent and manner of disclosures to the Audit Committee when seeking omnibus approval; (d) review, at intervals the Committee thinks fit, of transactions entered into under each omnibus approval; (e) transactions that cannot be subject to omnibus approval |
| 6A(2) | In specifying the criteria the Committee considers (a) repetitiveness of the transactions, in the past or the future, and (b) justification for the need for omnibus approval |
| 6A(3) | The Committee satisfies itself on the need for omnibus approval for transactions of repetitive nature and that the approval is in the interest of the company |
| 6A(4) | The omnibus approval contains or indicates (a) names of the related parties; (b) nature and duration of the transaction; (c) maximum amount of transaction; (d) the indicative base price or current contracted price and the formula for variation in price, if any; (e) any other information relevant or important for the Committee's decision |
| 6A(5) | Omnibus approval is valid for a period not exceeding one financial year and needs fresh approval after that year |
| 6A(6) | No omnibus approval for transactions of selling or disposing of the undertaking of the company |
| 6A(7) | Any other conditions the Audit Committee thinks fit |
The proviso to 6A(4) says that where the need for a related party transaction cannot be foreseen and the details above are not available, the Audit Committee may make omnibus approval for such transactions, subject to their value not exceeding rupees one crore per transaction.
Rule 6A was inserted by the Second Amendment Rules, 2015 (14 December 2015). The approval of related party transactions by the Board and members, and the thresholds, are in Rule 15 and in Section 188: Contracts Under Board and Member Approval. Our compliance advisory team can help with a policy for omnibus approvals.
A worked example
Birch Industries Limited (invented), a listed public company, buys packaging material every month from a related party, Birch Packaging Private Limited. Its Audit Committee, after the Board has approved the criteria, grants an omnibus approval naming the related party, the nature and duration of the supply, the maximum amount, the current contracted price and the formula for price variation. The approval lasts for the financial year; for the next year a fresh approval is needed. A one-off emergency purchase from a related party that could not be foreseen would need its own approval, or could fall under the unforeseen-transaction proviso, which caps each transaction at rupees one crore. The sale of an undertaking can never go through the omnibus route.
Practical points
- Record in the Audit Committee minutes why the transactions are repetitive and why omnibus approval is in the company's interest (6A(2) and (3)).
- Keep a list of transactions excluded from omnibus approval (6A(1)(e)).
- Diarise the end of the financial year, because an omnibus approval does not carry over (6A(5)).
- Take the Board's approval of the criteria first; the Committee cannot set the criteria without it.
Need help with committees and related party approvals?
Setting the right criteria, naming the related parties and tracking expiry dates is routine work that goes wrong when left to the year-end. We can draft the Audit Committee terms, the criteria resolution and the omnibus approval format through our compliance advisory service. Board powers are covered in Rules 8 and 9.
Key takeaways
- Rule 5: a draft resolution may be circulated by electronic means, including e-mail or fax.
- Rule 6: every listed public company, and a company under rule 4 of the Directors Rules, must have an Audit Committee and a Nomination and Remuneration Committee.
- Rule 6A: Audit Committee approval is required for all related party transactions; omnibus approval needs Board-approved criteria.
- Omnibus approval lasts one financial year at most and excludes sale or disposal of the undertaking.
- Unforeseen transactions: up to rupees one crore per transaction.
Read next
- Audit Committee Constitution Under Section 177 and Rule 4 Thresholds
- Section 188: Contracts Under Board and Member Approval
- Rule 15: related party transactions, thresholds and disclosures
- Rules 1 to 3: Board meetings through video conferencing
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.