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The Supreme Court on Monday upheld the order of the Securities Appellate Tribunal (SAT) wherein it had held that the bar of voting, as per Section 188 of the Companies Act, 2013 on related parties, operates only at the time of entering into a contract or arrangement.

Securities and Exchange Board of India (‘SEBI’) approached the Top Court in an appeal wherein its notice alleging violation of Regulation 23 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and penalty imposed on RT Agro Pvt Ltd with a cumulative sum of Rs. 35 lakhs for the alleged violation of the said Regulation 23 was set aside by the SAT.

Essentially, one R. T. Exports Limited proposed to enter into a transaction with one Neelkanth Realtors Private Limited for purchase of 40,000 sq. ft. of residential space. This proposal was treated as a related party transaction and was required to be approved by the shareholders of the Company. Accordingly, a special resolution was approved by R. T. Exports Limited.

In terms of Section 188 of the Companies Act, 2013, the related parties abstained from voting on this special resolution. Thereafter, an Extra-Ordinary General Meeting was convened for rescinding the said resolution in which, the related parties also voted. SEBI took up this matter on a complaint and imposed the aforesaid penalty.

SAT in turn disapproved this order passed by the Adjudicating Officer, finding no fault in the related parties voting in the rescinding of the resolution.

Upholding the same, a bench of Justices Dinesh Maheshwari and Aniruddha Bose also disagreed with SEBI's hyper-technical stance noting that nothing of ill-intent on the part of RT Agro had been established in the present case.

Case Title: SECURITIES AND EXCHANGE BOARD OF INDIA vs. R.T. AGRO PRIVATE LIMITED & ORS.