Abstract

Transaction between two or more companies, primarily where the parties have some sort of relationship with one another can be termed as a related party transaction. Contractually, such transaction is in favour of party autonomy but from company law point of view it can raise concerns as the corporate governance standards will not be followed. Companies must adhere to the corporate governance standards which ensures utmost fairness and transparency in the internal proceedings and compliance with the existing laws. Since related party transaction goes against the principle of merit-based transaction, it will most likely result in breach of stakeholders right and common interest of the company. The existing law requires the companies to disclose in its Board report about the related party transaction highlighting its benefit for the company and stakeholders, thereafter it has to be ratified by the shareholders in the company’s Annual General Meeting. But in practise there are several instances of suspicious transaction wherein necessary approval is not obtained and it further leads to poor corporate governance. In India, there has been a rise in such transactions, mostly by the entities which are controlled by a group of family members. There is also high level of risk factor involved in it. For instance, if two companies are managed by two siblings then there is a possibility of selling and buying products below the market price, affecting other people or participants in the market. This article seeks to provide an insight on related party transaction while addressing the impact and risk associated and how it violates the key principles of corporate governance. In the later part of this paper, there would be a case study analysis on the IndiGo crisis.

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