A company may transfer a property, equipment or another asset to a director without receiving cash, or it may acquire an asset from a director and settle the price by issuing shares or giving another non-cash consideration. These arrangements can look like ordinary commercial deals, but Section 192 of the Companies Act, 2013 creates a specific approval and valuation check when directors or persons connected with them are involved.
The practical question is not simply whether the transaction is with a director. It is whether an asset is moving between the company and a covered director or connected person for consideration other than cash. If that is the arrangement, the company should complete the Section 192 analysis before the transaction is entered into.
Section 192 works in both directions
The provision covers two mirror-image situations. First, a director of the company, its holding company, subsidiary or associate company, or a person connected with that director, acquires or is to acquire an asset from the company for consideration other than cash. Second, the company acquires or is to acquire an asset from such a director or connected person for consideration other than cash.
This means the compliance check should start with four facts: who owns the asset now, who will own it after the transaction, what relationship the counterparty has with the director, and exactly how the consideration will be settled. A label such as “asset adjustment”, “swap”, “settlement” or “capital issue” does not answer those questions.
The ICSI Companies Act backgrounder on Board powers reproduces the same Section 192 structure: a company cannot enter into the covered arrangement unless the required prior general-meeting approval is obtained.
The approval must come before the arrangement
Section 192(1) requires prior approval by a resolution of the company in general meeting. The section uses the word “resolution”; it does not describe this approval as a special resolution. The important timing point is that approval is required before the company enters into the arrangement.
If the concerned director or connected person is also a director of the company’s holding company, a similar resolution is required in the holding company’s general meeting as well. Finance and secretarial teams should therefore identify group-company directorships before the notice is finalised rather than after documents have been signed.
A later ratification should not be treated as a substitute for the statutory wording requiring prior approval. If a proposed arrangement is already commercially agreed but approval has not yet been obtained, the safer course is to stop execution and resolve the approval position before the asset or consideration moves.
The meeting notice must carry the valuation, not merely mention that one exists
Section 192(2) requires the notice seeking approval to include the particulars of the arrangement and the value of the assets involved, with that value calculated by a registered valuer. The valuation is therefore part of the information placed before members for the decision.
ICAI’s current Guidance Note on CARO 2020 explains the same compliance sequence for audit purposes: the auditor checks the prior general-meeting approval, any required holding-company approval, and whether the notice contains the arrangement particulars and asset value calculated by a registered valuer under the applicable valuation framework.
A common process error is to obtain a valuation only for accounting entries or only after members have approved the transaction. That may leave the Section 192 notice itself incomplete. The approval file should therefore connect the valuation report, the asset description, the consideration terms and the general-meeting notice.
Non-cash does not simply mean “no money was paid on the transaction date”
This distinction can prevent an unnecessary Section 192 conclusion. ICAI’s CARO guidance explains that, for reporting under clause 3(xv), a transaction involving a change in assets or liabilities without cash or cash equivalents may be treated as a non-cash transaction. It also gives an important boundary example: where an asset is acquired in one year, a corresponding liability is recognised, and that liability is settled in cash in the following year, the transaction is not treated as a non-cash transaction merely because cash payment happened later.
So a normal credit purchase from a director should not automatically be classified as a Section 192 non-cash deal just because payment is deferred. The team should examine the contractual consideration itself. If the company is genuinely obliged to pay cash and records a payable that will later be settled in cash, that is different from settling the price through shares, another asset or another non-cash form of consideration.
That distinction is especially useful during year-end review because the ledger may show an asset addition and a payable without an immediate bank movement. The legal and audit analysis should follow the substance of the consideration, not only the absence of a same-day cash flow.
“Person connected with the director” needs a documented relationship analysis
Section 192 uses the expression “person connected with him”, but the Act and the related Rules do not provide a standalone definition for that expression. ICAI’s CARO guidance notes this gap and says that the Section 185 concept of a person in whom a director is interested may be used as a reference point for reporting under clause 3(xv).
That is useful audit guidance, but it should not be converted into an automatic legal shortcut. The company should document the actual relationship and obtain company-law advice where the connection is not straightforward. Existing director-interest records can help identify relationships: Section 184 and Form MBP-1 disclosures are relevant evidence, but an MBP-1 on file does not itself answer the Section 192 question.
A share-for-asset deal shows why one transaction can trigger several provisions
Assume ABC Limited wants to acquire an office property owned by one of its directors. Instead of paying the director in cash, ABC proposes to issue equity shares as the consideration.
The transaction falls squarely into the Section 192 screening question because the company is acquiring an asset from its director for consideration other than cash. Before entering into the arrangement, the company should obtain the required general-meeting approval and ensure that the notice contains the arrangement particulars and a registered-valuer value for the asset.
Section 192 does not complete the compliance analysis. Because shares are being issued, the company must separately identify the correct share-issue route and approvals. The distinction between authorised, issued, subscribed and paid-up share capital and the applicable issue route matters independently of the Section 192 approval.
Now change the facts. Suppose ABC buys the same property for an agreed cash price, records the amount as payable and pays the director later through banking channels. The mere delay in payment does not, by itself, make the consideration non-cash. Other director-interest or related-party provisions may still apply, but Section 192 should not be triggered simply because the cash settlement is deferred.
Section 184 and Section 188 are separate tests, not substitutes
A director-linked asset transaction may also require a director-interest or related-party review. The company should therefore avoid a “one approval covers everything” approach.
For a contract in which a director is concerned or interested, the Section 184 disclosure and participation rules need their own analysis. If the counterparty and transaction fall within the related-party framework, the Section 188 approval and disclosure requirements may also matter.
Section 192 asks a narrower but different question: is a covered director or connected person acquiring an asset from the company, or is the company acquiring an asset from that person, for consideration other than cash? Passing a Section 188 approval does not erase that question, and a Section 192 resolution does not automatically satisfy the other provisions.
Why the transaction can surface directly in the statutory audit
For a company to which CARO 2020 applies, clause 3(xv) asks the auditor to report whether the company entered into non-cash transactions with directors or persons connected with them and, if so, whether Section 192 was complied with. The broader CARO applicability framework should be checked first because CARO does not apply to every company.
ICAI’s Guidance Note makes clear that a management representation alone is not enough. The auditor is expected to corroborate it with appropriate evidence. The suggested sources include director-interest records, relevant statutory registers, movements in property, plant and equipment, and minutes of Board and general meetings.
This creates a practical documentation lesson for management too. If a company enters into a covered arrangement, the audit file should not have to reconstruct the transaction from scattered records. Keep the relationship analysis, asset description, valuation report, general-meeting notice, resolution, contract, accounting entry and evidence of consideration together.
If Section 192 is breached, the arrangement is voidable rather than automatically void
Section 192(3) says that an arrangement entered into in contravention of the section is voidable at the instance of the company. “Voidable” matters: the provision does not say that every such arrangement is automatically void from the beginning.
The subsection also contains two protective situations. The arrangement is not voidable where restitution of the money or other consideration is no longer possible and the company has been indemnified by another person for the loss or damage caused to it, or where another person has acquired rights bona fide for value and without notice of the contravention.
Those exceptions are not a planning route for skipping prior approval. They deal with consequences after a contravention and protect particular situations. A transaction team should still treat the prior approval and valuation requirements as pre-signing controls.
A pre-signing Section 192 control sheet
- Map the asset movement. Identify the asset, present owner and proposed owner.
- Map the director relationship. Check whether the counterparty is a director of the company, holding, subsidiary or associate company, or a person connected with such a director.
- Identify the real consideration. Separate a genuine cash price payable later from shares, asset swaps or other non-cash settlement.
- Check group directorships. If the concerned director or connected person is also a director of the holding company, test the additional holding-company approval.
- Commission the valuation in time. Obtain the registered-valuer work before the general-meeting notice is issued so the notice can carry the required asset value.
- Obtain the prior resolution. Do not execute first and assume that a later member approval cures the timing requirement.
- Run parallel provisions separately. Check Section 184, Section 188, the applicable share-issue or asset-transfer rules, accounting requirements and any listing or sectoral rules that the facts engage.
- Prepare for audit evidence. Where CARO applies, ensure the records support both the existence or absence of a non-cash transaction and the Section 192 compliance conclusion.
The most reliable Section 192 analysis starts before anyone drafts the final transfer document. If an asset is moving between the company and a director-linked counterparty, write down the consideration first. Once it is clear that the consideration is genuinely non-cash, the approval, valuation and audit trail should be treated as part of the transaction itself rather than as year-end paperwork.
