Preparing e-Form AOC-2 is not mainly a data-entry exercise. The difficult part is deciding which related-party contracts belong in the disclosure population and why. A year-end team can easily go wrong in either direction: it may copy every accounting line involving a related party into AOC-2, or it may exclude a transaction merely because no shareholder approval was required.
The Companies Act gives a more precise chain. Section 134(3)(h) requires the Board’s Report to include particulars of contracts or arrangements with related parties referred to in section 188(1) in the prescribed form. Rule 8(2) of the Companies (Accounts) Rules, 2014 identifies that prescribed disclosure as e-Form AOC-2. The starting population should therefore be built from the section 188 analysis, then reconciled to the company’s books and Board records.
Start by testing the transaction against the seven Section 188 categories
Section 188(1) does not use a generic phrase covering every possible dealing with a related party. It lists particular types of contracts or arrangements. For AOC-2 preparation, first determine whether the transaction is one of these:
- sale, purchase or supply of goods or materials;
- selling or otherwise disposing of, or buying, property of any kind;
- leasing of property of any kind;
- availing or rendering of services;
- appointment of an agent for purchase or sale of goods, materials, services or property;
- appointment of a related party to an office or place of profit in the company, its subsidiary or associate; or
- underwriting the subscription of securities or derivatives of the company.
This first filter prevents a common classification error. A counterparty being a related party does not, by itself, turn every balance or movement in the ledger into a section 188 contract. A transaction that falls outside these listed categories may still be governed by another Companies Act provision, an accounting standard, a securities-law rule or another legal requirement, but it should not be forced into section 188 simply because the counterparty is related.
Test ordinary course and arm’s length separately
Section 188(1) contains an important exception for transactions entered into by the company in its ordinary course of business that are also on an arm’s length basis. The provision defines an arm’s length transaction as one between two related parties conducted as if they were unrelated, so that there is no conflict of interest.
For a defensible year-end file, record two conclusions rather than one combined tick box: is the transaction in the ordinary course of the company’s business? and is it demonstrably on an arm’s length basis? If either conclusion is not supportable, the team should not rely on the ordinary-course-and-arm’s-length exception.
Evidence should fit the transaction. A routine purchase may be supported by procurement history, third-party quotations or comparable commercial terms. A service arrangement may need a clearer record of scope, pricing logic and comparable terms. The point is not to create paperwork for its own sake; it is to preserve the basis on which the company classified the contract.
Do not confuse approval analysis with disclosure analysis
Section 188 is often approached only as an approval provision, but subsection (2) separately states that every contract or arrangement entered into under subsection (1) is to be referred to in the Board’s Report to shareholders along with the justification for entering into it. Section 134(3)(h) and Rule 8(2) then connect that Board-report requirement to the prescribed AOC-2 disclosure.
That means the annual-report working paper should not contain only a column saying “Board approval taken: yes/no.” It should show the legal path for each item: the section 188 category, the ordinary-course conclusion, the arm’s-length conclusion, the approval route where applicable, and the resulting Board-report/AOC-2 treatment. Approval and disclosure are related questions, but they are not the same question.
Build the AOC-2 working paper before drafting the disclosure
A practical internal schedule can make the final review much easier. These are working-paper fields rather than a claim that each is a current MCA e-form field:
- Related party and relationship basis: identify the counterparty and document why it is treated as related under the applicable law.
- Section 188 category: map the contract to the relevant clause of section 188(1), or record why it falls outside the seven categories.
- Nature, period and value: capture what the contract does, its duration and the amount or pricing mechanism.
- Ordinary-course conclusion: record the business rationale and evidence supporting the conclusion.
- Arm’s-length conclusion: retain the pricing or comparability evidence used.
- Corporate approvals: cross-reference the relevant Board or member approval, where the law requires one, rather than relying on memory at year-end.
- Board-report/AOC-2 conclusion: state whether the item is included, excluded or requires further legal review, with a short reason.
This schedule also gives the auditor, company secretary and finance team one place to resolve differences before the Board’s Report is finalised.
Three hypothetical cases show why the classification matters
A related-party service contract outside the ordinary course
Assume a manufacturing company enters into a one-off management service arrangement with a related party that is not part of its ordinary operating model. “Availing or rendering of services” is expressly within section 188(1). Because the ordinary-course limb is not satisfied, the company should not treat the statutory exception as available merely because the price appears commercially reasonable. The contract should move through the applicable section 188 approval analysis and into the Board-report disclosure review.
A routine related-party purchase supported as ordinary-course and arm’s-length
Assume the company regularly buys a standard input from a related party as part of its normal business and retains evidence that the terms are comparable to independent-market terms. The ordinary-course and arm’s-length conclusions may take the transaction outside the section 188(1) approval machinery. Even then, the year-end team should preserve the classification evidence and test the current e-Form AOC-2 reporting position rather than deleting the item from its reconciliation simply because no approval was triggered.
A related-party ledger item that is not one of the seven Section 188 categories
Suppose a ledger contains a related-party item that does not represent any of the seven contracts or arrangements listed in section 188(1). The correct response is not to squeeze it into the nearest section 188 label. Flag it for the other legal or accounting rules that may apply, but keep the section 188/AOC-2 analysis faithful to the statutory categories.
Reconcile the legal schedule to the records that already exist
Before the Board approves the report, reconcile the AOC-2 working population to the related-party master, major contracts, purchase and sales records, service and lease arrangements, Board or committee papers, and the related-party disclosures used for the financial statements. A difference between these sources is not automatically an error because the legal and accounting populations can arise from different rules, but every difference should have an explainable reason.
A useful review question is: Can the team trace each included item back to a contract and a statutory conclusion, and can it explain every material related-party item that was not included? If the answer is no, the disclosure process is not yet ready for Board sign-off.
Use the current e-Form terminology, not an old static checklist
The current Rule 8 text records that “Form AOC-2” was substituted by “e-Form AOC-2” with effect from 14 July 2025 under the Companies (Accounts) Second Amendment Rules, 2025. A company still using an old annual-report checklist or a saved paper-form template should therefore refresh its process against the live MCA filing architecture before finalisation.
This matters especially where teams reuse last year’s annexure without checking whether the current electronic form, validation logic or filing workflow has changed. The statutory classification should be completed first; the live form should then be used to confirm the data fields and filing presentation required for that year.
Keep company classification and additional regulatory layers separate
Section 134(3A) provides for an abridged Board’s Report route for a One Person Company or small company. Rule 8 itself also states that it does not apply to an OPC or small company. Accordingly, those companies should follow the specific abridged-report rules applicable to them rather than applying the full Rule 8 checklist unchanged.
Listed companies may have additional related-party approval and disclosure obligations under securities law, and financial statements have their own related-party disclosure requirements under the applicable accounting framework. Those layers should be reconciled with the Companies Act review, not treated as substitutes for it.
The most reliable AOC-2 process is therefore a classification-and-reconciliation exercise: identify the section 188 category, document ordinary-course and arm’s-length conclusions, trace the applicable approvals, determine the Board-report treatment and only then populate the current electronic form. That approach is more defensible than either copying the related-party note wholesale or treating AOC-2 as an afterthought after annual accounts are complete.
