Related party transaction

Amit Kanunga (Article Assistant and Post Gradute) (644 Points)
Replied 18 March 2016

Yes As per AS 18, it is considered as related party transactions indirectly...

Jacky (Accountant & CA Final Student) (320 Points)
Replied 18 March 2016

i think here chain rule will apply

0.51*0.49= 25% as it is more than 20% in this case

& therefore there is substantial interest in the voting power of the other enterprise

Amit Kanunga (Article Assistant and Post Gradute) (644 Points)
Replied 18 March 2016

Examples of related parties using Company A as the reporting enterprise:

A member of Company A’s Board of Directors
Company A’s Chief Accountant
Company B, a company that is 30% owned by Company A
Company C, a company that owns 51% of Company A’s stock
The husband of Company A’s President
The adult son of one of Company A’s Directors.

. Examples of disclosure determination for related party transactions

Company B, a company that is 30% owned by Company A, purchases 10% of Company A’s product during the year. Disclosure is required because the relationship is one of significant influence and the volume of activity is significant.
Company C, a company that owns 51% of Company A’s stock, purchases 1% of Company A’s product during the year. Disclosure is required whenever the relationship is one of control.
Company A purchases one half of one percent of Company C’s product during the year. As noted previously, Company C owns 51% of Company A’s stock. Disclosure is required because the relationship is one of control.
The husband of Company A’s President purchases one half of one percentof Company A’s product during the year. Disclosure in cases of significant influence is not required when the activity is not material.
The adult son of one of Company A’s Directors sells to Company A 10% of the raw materials that Company A purchases during the year. Disclosure is required because the relationship is one of significant influence and the volume of activity is significant.

RISHABH ARORA (Company Secretary in Practice ) (194 Points)
Replied 19 March 2016

As per Companies Act, 2013 unless a public company in which a director or manager is a director and holds along with his relatives, more than two per cent. of its paid-up share capital;

So as all the companies in your query are public limited companies and C Ltd also not becomes Associate of A ltd as A ltd not holds any shares in the C ltd.

It will not be counted as related party transaction.

ACS Parul Rawat (Entrepreneur | Corporate Law Advisor | Lawyer in Making | AIR-8) (218 Points)
Replied 19 March 2016

Hi Puneet

As per Section 2(76), the relationship doesnt fall under the defination of Related Party and hence as per Companies Act, 2013 it is not a Related Party Transaction.

Amit Kanunga (Article Assistant and Post Gradute) (644 Points)
Replied 19 March 2016

Originally posted by : Parul Rawat
	Hi Puneet As per Section 2(76), the relationship doesnt fall under the defination of Related Party and hence as per Companies Act, 2013 it is not a Related Party Transaction.

Hi Parul,

Can u read the point 9 of the below:

As per Section 2(76) of the Companies Act, 2013 –

Related Party ‘Related party’ has got a lot of significance in the public reporting scenario.

In case of public companies public and society stake is involved and in case of private companies, even if public stake is not involved, the stake of other elements of society may be directly or indirectly involved. In such situation, maintaining transparency in the working of a company or a body corporate is very much essential. Transactions with related parties may if not entered into with due care may give a wrong perception and may hinder the transparency of the entity. This has given the regulators to keep a check on related party transactions by way of legal provisions in various legislations. Section 2(76) of the Companies Act, 2013, read with Rule 3 of the Companies (Specification of definitions details) Rules, 2014, defines the term Related Party. The provisions with respect to Related Party Transactions is covered under Section 188 of the Companies Act, 2013. This article covers the former part, i.e. the definition and meaning of related party as per the 2013 Act. Section 2(76) defines related party as below: Section 2(76) “related party”, with reference to a company, means—

1. a director or his relative;

2. a key managerial personnel or his relative;

3. a firm, in which a director, manager or his relative is a partner;

4. a private company in which a director or manager or his relative is a member or director;

5. a public company in which a director or manager is a director and holds along with his relatives, more than two per cent of its paid-up share capital;

6. any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

7. any person on whose advice, directions or instructions a director or manager is accustomed to act:

8. that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;

9. any company which is— – a holding, subsidiary or an associate company of such company; or – a subsidiary of a holding company to which it is also a subsidiary;

10. such other person as may be prescribed;

lokeshkumaar (student) (77 Points)
Replied 19 March 2016

Dear all, The present case is not a related party. Looks like b ltd is formed as a joint venture between a ltd and c ltd. As per AS 18 Co venturers are not related parties. Hence the above transaction is not a related party transaction

ACS Parul Rawat (Entrepreneur | Corporate Law Advisor | Lawyer in Making | AIR-8) (218 Points)
Replied 19 March 2016

Hi Amit,

Even after interpretating Point 9 it is not covered in RPT, as per my view.

Jacky (Accountant & CA Final Student) (320 Points)
Replied 19 March 2016

Amit Kanunga (Article Assistant and Post Gradute) (644 Points)
Replied 19 March 2016

Originally posted by : Parul Rawat
	Hi Amit, Even after interpretating Point 9 it is not covered in RPT, as per my view.

Hi Parul,

For this Related party tnx

is their any other clause or section ?

ACS Parul Rawat (Entrepreneur | Corporate Law Advisor | Lawyer in Making | AIR-8) (218 Points)
Replied 19 March 2016

Section 188 to chk whether the transaction is RPT or not n Section 2(76) to chk whthr party is related or not as per CA 2013

Abhimanyu (CA) (316 Points)
Replied 20 March 2016

Thanks for the query, To answer this query we need to get def. of JV if the above situation is covered under JV def. thn, the above companies are RP and consequently transaction would be RPT....now to find out JV def. We ref. Accounting Standard 18, which is a Contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control, where joint control means contractually agreed sharing of power to govern the financial and operating policies of an economic activity so as to obtain benefit from it. And we know that JV parties are RPs. Now, it might be rebuttable but as both companies have contractually, meaning via subscribing to shares of the company B ltd. Agreed to share power to govern, Indirectly though, to obtain benefit from it. Lokesh Plz go through AS18 once again plz Puneet it is good and I personally appreciate the use of hindi language to present query more comfortably.

Abhimanyu (CA) (316 Points)
Replied 20 March 2016

Thanks for the query, To answer this query we need to get def. of JV if the above situation is covered under JV def. thn, the above companies are RP and consequently transaction would be RPT....now to find out JV def. We ref. Accounting Standard 18, which is a Contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control, where joint control means contractually agreed sharing of power to govern the financial and operating policies of an economic activity so as to obtain benefit from it. And we know that JV parties are RPs. Now, it might be rebuttable but as both companies have contractually, meaning via subscribing to shares of the company B ltd. Agreed to share power to govern, Indirectly though, to obtain benefit from it. Lokesh Plz go through AS18 once again plz Puneet it is good and I personally appreciate the use of hindi language to present query more comfortably.

Abhimanyu (CA) (316 Points)
Replied 20 March 2016

Thanks for the query, To answer this query we need to get def. of JV if the above situation is covered under JV def. thn, the above companies are RP and consequently transaction would be RPT....now to find out JV def. We ref. Accounting Standard 18, which is a Contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control, where joint control means contractually agreed sharing of power to govern the financial and operating policies of an economic activity so as to obtain benefit from it. And we know that JV parties are RPs. Now, it might be rebuttable but as both companies have contractually, meaning via subscribing to shares of the company B ltd. Agreed to share power to govern, Indirectly though, to obtain benefit from it. Lokesh Plz go through AS18 once again plz Puneet it is good and I personally appreciate the use of hindi language to present query more comfortably.