Board Resolutions for Sale of Company Car – Unrelated Party vs. Related Party

Overview : This blog post explains the legal framework for passing board resolutions when selling a company car. It outlines the steps and compliance requirements under the Companies Act, 2013 and Secretarial Standards for both unrelated and related party transactions. The article details the necessary board powers, disclosure norms, valuation reports, and filing obligations while providing ready-to-use sample resolutions for each scenario.
Unrelated Party vs. Related Party Transactions
Selling a company-owned asset, such as a car, involves strict adherence to corporate governance norms under the Companies Act 2013 and applicable Secretarial Standards. The process can become even more nuanced when the buyer is a related party (a relative of the director or any other KMP). This post breaks down the legal requirements and provides ready-to-use sample resolutions for both scenarios.
Understanding Board Powers Under the Companies Act, 2013
Section 179(3) of the Companies Act 2013 outlines the specific powers of the Board of Directors that cannot be delegated to committees, individual directors, or managers. These powers must be exercised only through resolutions passed at duly convened Board meetings. This provision ensures that critical decisions impacting the company's financial and operational stability are made collectively by the board. Following are some of the critical decisions that the board must directly approve by passing Board resolutions:
- Borrowing Money
- Investing Funds
- Granting Loans/Guarantees
- Approving Mergers/Acquisitions
- Sale/Lease of Assets
Why It Matters for Selling a Company Car:
If the sale of a car qualifies as a substantial asset (depending on its value relative to the company's net worth), it falls under Section 179(3). The board must pass a resolution in a properly convened meeting (with quorum, notice, and minutes as per SS-1). The board cannot delegate this decision to a committee or a single director.
Related Party Transactions: Special Considerations
Related Party: The sale of a car owned by the company to a related party (e.g., sale to a director, any other key managerial persons or their relatives of the connected entities) constitutes a Related Party Transaction (RPT) under Section 188. The related party transaction requires strict compliance to ensure transparency and fairness. Before approval by the board, the interested director must disclose their interest (via Form MBP-1) and abstain from voting. At the same time, the board must obtain a registered valuer's report to validate the sale price at arm's length.
Valuation Report: Section 188 provides that when selling a company car to a related party, a valuation report must be obtained from an IBBI-registered valuer. The valuation is necessary to comply with the requirement of shareholder approval in case the value exceeds ₹10 Lakh or 10% of the net worth of the company.
Shareholders Approval: Shareholder approval via an ordinary resolution is mandatory if the transaction exceeds ₹10 lakh or 10% of the company's net worth (whichever is lower). After the approval of the shareholders is obtained the company must file Form MGT-14 for an ordinary resolution under Section 188 is mandated by Section 117(3)(g) of the Companies Act, 2013, which requires all resolutions (including ordinary resolutions) approving Related Party Transactions (RPTs) to be filed with ROC within 30 days.
Scenario 1: Sample Board Resolution for Sale of Car to an Unrelated Party
"RESOLVED THAT pursuant to Section 179(3) of the Companies Act, 2013, and the Articles of Association of the Company, the board hereby approves the sale of the company-owned car (Registration No.: [XXXX], Make: [YYYY], Model: [ZZZZ]) to [Buyer's Name] for a total consideration of ₹[Amount].
RESOLVED FURTHER THAT Mr./Ms. [Director's Name] is authorised to execute the sale agreement, transfer documents, and complete all filings with the Regional Transport Office (RTO)."
Scenario 2: Sample Board Resolution for Sale of Car to a Related Party
"RESOLVED THAT pursuant to Sections 179(3) and 188 of the Companies Act, 2013, read with Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, and the Articles of Association, the Board hereby approves the sale of the company-owned car (Registration No.: [XXXX], Make: [YYYY], Model: [ZZZZ]) to Mrs. [Wife's Name], wife of Mr. [Director's Name], for ₹[Amount], as per the valuation report dated [DD/MM/YYYY] issued by [Registered Valuer's Name].
RESOLVED FURTHER THAT Mr./Ms. [Authorized Director's Name] is empowered to execute all necessary documents, including the sale deed, and ensure compliance with RTO and ROC filings.
NOTED THAT Mr. [Director's Name], being an interested party, abstained from voting on this resolution as per Section 184 of the Act."
Conclusion
In summary, the sale of a company car—whether to an unrelated or related party—requires rigorous compliance with the Companies Act, 2013 and associated Secretarial Standards. Setindiabiz provides all kinds of legal and secretarial assistance to companies through their vast pool of associate professionals so that they remain compliant with the law.