INTERPRETATION OF “ORDINARY COURSE OF BUSINESS” UNDER SECTION 188 OF THE COMPANIES ACT, 2013

AUTHOR – BHAVANA V HEGDE, STUDENT AT CHRIST (DEEMED TO BE UNIVERSITY)

BEST CITATION – BHAVANA V HEGDE, INTERPRETATION OF “ORDINARY COURSE OF BUSINESS” UNDER SECTION 188 OF THE COMPANIES ACT, 2013, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 6 (2) OF 2026, PG. 515-527, APIS – 3920 – 0001 & ISSN – 2583-2344.

Abstract

The meaning of the term “ordinary course of business” under Section 188 of the Companies Act, 2013, has been a persistent issue of controversy in corporate law scholarship. Section 188, which addresses related party transactions (RPTs), is a significant legislative effort to balance the conflicting goals of business agility and shareholder protection. The law aims to control transactions that would otherwise be vulnerable to conflicts of interest and self-dealing. Still, the wording has provided considerable room for judicial discretion and corporate leeway. This paper situates the phrase within the broader context of corporate governance reforms in India, which over the last two decades have evolved in response to global corporate scandals, domestic failures in transparency, and recommendations from expert committees.

The primary research problem addressed herein is the ambiguity surrounding the term “ordinary course of business” and the inconsistent approaches in its application by companies, regulators, and courts. The research aims to critically analyze the dual tests of arm’s length and ordinary course of business and to examine whether the existing legal framework effectively protects shareholder interests while allowing proper business freedom. Against the backdrop of Indian jurisprudence, comparisons are also drawn with practices in foreign jurisdictions such as the United States, the United Kingdom, and Singapore, to present possible lessons for reform.

Methodologically, the research embraces a comparative and doctrinal methodology. Statutory interpretation, judicial precedents, regulatory reports, and academic scholarship are used to examine the development and interpretation of Section 188.

The preliminary conclusion is that the term “ordinary course of business” should be more clearly defined by statute or regulation, as its vagueness makes effective enforcement impossible. The study advocates a hybrid approach to the problem, blending principle-based guidance with sector-specific explanations to provide both transparency and business realism.

Keywords

Related Party Transactions (RPTs), Ordinary Course of Business, Companies Act, 2013,  Corporate Governance,  Arm’s Length Principle