The Statutory Source
Section 177(4)(iv) permits the audit committee to approve related-party transactions, and the proviso enables omnibus approval for transactions proposed to be entered into by the company, subject to prescribed conditions. Rule 6A of the Companies (Meetings of Board and its Powers) Rules, 2014 sets out those conditions. Omnibus approval is therefore a delegated approval mechanism, not a substitute for the audit committee’s oversight.
The Conditions That Make Omnibus Approval Valid
Omnibus approval is available only for transactions that are repetitive in nature. The audit committee must lay down the criteria for granting the approval in line with the company’s RPT policy. The approval must specify the maximum value per transaction and the maximum aggregate value for the financial year. Transactions that cannot be foreseen and for which details are not available may be covered, but the approval must record the basis for the audit committee’s satisfaction that the transaction is in the company’s interest.
A per-transaction ceiling of ₹1 crore is the commonly adopted outer limit for unforeseen transactions under the omnibus route. The company may adopt a lower limit; a higher limit requires a documented justification in the audit committee minutes.
What Omnibus Approval Does Not Cover
Omnibus approval cannot be used for transactions that are not repetitive, for transactions where the related party has not been identified, or for transactions that exceed the criteria set by the audit committee. A material RPT that crosses the Section 188 shareholder-approval threshold cannot be approved through the omnibus route alone; the shareholder resolution is independently required. Omnibus approval also does not displace the board’s Section 188 approval where the board is the approving authority.
The Criteria Document
The audit committee should adopt a written criteria document that defines: the categories of repetitive transactions eligible for omnibus approval; the per-transaction and annual aggregate limits; the pricing and arm’s-length benchmarks; the reporting frequency to the committee; and the circumstances in which a specific approval must be sought despite the omnibus authorisation. Without this document, the omnibus approval is an authorisation without parameters and is vulnerable to challenge.
Monitoring and Quarterly Review
The audit committee must review the RPTs entered into under omnibus approval at least quarterly. The review should compare actual transactions against the approved limits and criteria, identify any transaction that should have been brought for specific approval, and record the committee’s conclusion. A quarterly review that merely “notes” the register without analysing limit utilisation does not satisfy the oversight requirement.
Documentation for the File
The file should contain the audit committee resolution granting omnibus approval, the criteria document, the quarterly review minutes, the RPT register showing each transaction’s value and approval reference, and the board’s noting of the omnibus framework. Where a transaction is approved under the omnibus route, the transaction document should reference the omnibus resolution number and the criteria under which it qualifies.
Call to Action: For audit committee omnibus approval framework design or RPT criteria documentation, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.