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Where any contract entered into by the director or any other employee, without obtaining the consent of the Board or requires the approval by way of resolution & if it’s not corrected by the Board/Shareholder within 3 months from date on where such a contract was entered into, such a contract or arrangement shall be voidable at the option of Board. If the contractor the arrangement is with a Party related to any director or is authorized by any other director, such a director shall indemnify the company against any loss incurred by it.
Further, it shall be open to the company to proceed against a director or any other employee who had already entered into such a contract or arrangement which in contravention of the provision of a section for recovery of the loss sustained by it according to such contract or arrangement.
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Any of the director or other employees of the company, who had entered into or are authorized by the contract or arrangement in violation of provision of this section it shall, in case of listed company shall be punishable with imprisonment or in custody for the term or period which may be extended to 1 year or with fine which shall not be less than 25000 but which may extend to 500000 rupees or with both; & in case of any other company, it shall be punishable by fine which shall not be less than Rs.25000 but which may be extended to 500000 rupees.
Audit Committee to take a decision on proposed transaction of related party & For related party contact and arrangements, Form AOC 2 is required to be enclosed with a Board Report.
Read Also: Compliance Aspect of the Related Party Transactions.
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