## CARO Clause: Non-Cash Transactions with Directors or Connected Persons

### What the Clause Requires

The auditor must verify whether the company has entered into any non-cash transactions with:

Directors of the company, or
Persons connected with the directors

If such transactions exist, the auditor checks whether the provisions of Section 192 of the Companies Act, 2013 have been complied with.

### Applicable Law: Section 192, Companies Act 2013

Section 192 requires that prior approval for any non-cash arrangement with a director or connected person must be obtained through a resolution passed in a General Meeting of the company.

> Key point: The approval must be pre-transaction — post-facto ratification does not satisfy Section 192.

### Auditor's Procedure

1. Review the register of contracts and related-party disclosures.

2. Identify any arrangements with directors or their connected persons that are non-cash in nature.

3. Verify that a General Meeting resolution was passed before the transaction was entered into.

4. Report non-compliance if the required resolution is absent.

Worked example

### Example 1

A company transfers a piece of land to its Managing Director in exchange for services rendered (no cash changes hands). The auditor checks: (a) Was this a non-cash transaction with a director? Yes. (b) Was a resolution passed in the General Meeting before the transfer? The auditor finds only a Board resolution. Conclusion: Section 192 not complied with — the auditor must report this in the CARO report.

### Example 2

A company issues shares to a company owned by a director's spouse as consideration for acquisition of machinery. The auditor verifies the date of the General Meeting resolution approving this arrangement and confirms it predates the allotment of shares. Section 192 is complied with — no adverse remark required.

⚠️ Common exam mistakes

Treating a Board resolution as sufficient — Section 192 requires a General Meeting resolution, not just board approval.
Overlooking transactions with 'persons connected with directors' (e.g., relatives, companies in which the director has a significant interest) and restricting the check to the director personally.
Failing to verify the date of the resolution — it must precede the transaction, not follow it.

Bare-Act text Section 192 · Companies Act, 2013 · click to expand

Prior approval for such arrangement is accorded by a resolution of the company in general meeting.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Non-Cash Transactions with Directors – Section 192

Worked example

⚠️ Common exam mistakes