Companies Act & MCA

Related Party Transactions Under Section 188: Approval and Evidence Checklist

Finin2min Compliance Desk·June 2026·7 min readRPT

Related-party transactions are not automatically prohibited, but they need identification, approval and evidence. The weakest RPT file is one that starts after the auditor asks for details.

For broader context, see the Companies Act, MCA and Startup Compliance Hub.

2-minute answer: A related-party transaction is not itself prohibited - it needs three separate tests done BEFORE the contract is signed, not after: (1) is it genuinely in the ORDINARY COURSE of business at ARM’S LENGTH (if so, board approval alone may suffice); (2) if not, does the value cross the Rule 15 threshold requiring special SHAREHOLDER approval, not just board approval; (3) for a company with a mandatory Audit Committee under Section 177, does the transaction need Committee approval as a separate, additional layer. Skipping straight to "we’ll call it ordinary course" without comparable pricing evidence is the single most common way an RPT file fails later.

Section 188 transaction types

Section 188 covers specified contracts or arrangements with related parties, including sale/purchase/supply of goods or materials, property transactions, leasing, services, appointment to office/place of profit and underwriting, subject to conditions.

For the connected rule, example or next step, see Related-Party Transactions in Listed Companies: Investor Red Flags | Finin2min Investor Protection.

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RPT control table

Control	Why it matters
Related-party master list	Identifies covered parties before transaction.
Ordinary course assessment	Supports whether transaction falls within routine business pattern.
Arm's length evidence	Pricing, quotations, comparable terms or valuation support.
Board/shareholder approval review	Check whether approval threshold and route apply.
Register and financial statement disclosure	Connect secretarial and accounts records.

For the connected rule, example or next step, see LLP Related-Partner Transactions: Documentation File for Partners and Relatives.

Practical workflow

Update related-party list from director disclosures and group structure.
Tag vendor/customer ledgers as related party where relevant.
Get approval before contract execution where required.
Keep pricing evidence and board note.
Reconcile RPT schedule with financial statements and audit file.

Finin2min warning

RPT is a control process, not an audit query. Identify related parties before the PO/invoice is raised.

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Official sources used

This article is intentionally source-limited to official MCA / India Code material. See "Source and review trail" below for the full, current list of official sources used on this page.

For the connected rule, example or next step, see Director Interest Disclosure Under Section 184: MBP-1 Control Checklist.

2026 Accuracy & Decision Check

Section 188 approval is a layered test, not a single threshold

Start with related-party identity and whether the transaction falls within section 188. Then test ordinary-course and arm’s-length facts, Board approval, prescribed shareholder-approval thresholds, and—where section 177 applies—Audit Committee requirements. These are separate control layers; an arm’s-length conclusion should be supported by actual comparables/valuation and not used as a label after the fact.

Decision / evidence controls

Refresh the related-party master from director disclosures and group structure before contracting.
Record transaction category and value against the current Rule 15 threshold.
Keep pricing/comparable evidence and conflict disclosures with the approval papers.
Reconcile statutory approvals with financial-statement related-party disclosures.

Worked example: Example: a service contract with a related entity may not require the same approval route as a large property transaction; the category/value and company status drive the threshold analysis.

Edge case: Edge case: listed/public companies may have additional section 177/SEBI LODR controls beyond section 188.

Primary-source checks

FAQs

Which section covers related party transactions? ▾

Section 188 covers specified related-party contracts and arrangements.

Are all related-party transactions prohibited? ▾

No. They must be identified, approved and supported as required by law.

What evidence helps defend arm's length pricing? ▾

Comparable quotes, pricing policy, valuation, board note and actual business rationale help.

Source and review trail

Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.

Primary category: Companies Act & MCA
Official starting point: www.mca.gov.in

Page source links

Primary sources & related provisions

Statutory provisions referenced in this guide:

Section 188 - Companies Act, 2013