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1. Definition of “Related Party” in the Companies Bill 2012:

“Related party”, with reference to a company, means—

(i) A director or his relative

(ii) A key managerial personnel or his relative

(iii) A firm, in which a director, manager or his relative is a partner

(iv) A private company in which a director or manager is a member or director;

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

(vi) 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.

(vii) Any person on whose advice, directions or instructions a director or manager is accustomed to act

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity (viii) any company which is—

(A) A holding, subsidiary or an associate company of such company; or

(B) A subsidiary of a holding company to which it is also a subsidiary (ix) such other person as may be prescribed

2. Clause 188 of the Companies Bill 2012

(1) Except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company shall enter into any contract or arrangement with a related party with respect to-

(a) Sale, purchase or supply of any goods or materials

(b) Selling or otherwise disposing of, or buying, property of any kind

(c) Leasing of property of any kind

(d) Availing or rendering of any services

(e) Appointment of any agent for purchase or sale of goods, materials, services or property

(f) Such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and

(g) Underwriting the subscription of any securities or derivatives thereof, of the company:

Provided that no contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed, shall be entered into except with the prior approval of the company by a special resolution:

Provided further that no member of the company shall vote on such special resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party:

Provided also that nothing in this sub-section shall apply to any transactions entered into by the company in its ordinary course of business, other than transactions which are not on an arm’s length basis.

(2) Every contract or arrangement entered into under sub-section (1) shall be referred to in the Board’s report to the shareholders along with the justification for entering into such contract or arrangement.

(3) Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a special resolution in the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the company against any loss incurred by it

(4) Without prejudice to anything contained in sub-section (3), it shall be open to the company to proceed against a director or any other employee who had entered into such contract or arrangement in contravention of the provisions of this section for recovery of any loss sustained by it as a result of such contract or arrangement

(5) Any director or any other employee of a company, who had entered into or authorised the contract or arrangement in violation of the provisions of this section shall, -

(i) In case of listed company, be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both; and

(ii) In case of any other company, be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.

Provisions for Related Party Transactions as mentioned in the Consultative Paper issued by SEBI for revision of Clause 49 of the Listing Agreement.

1. SEBI may require the listed companies to obtain shareholder’s approval, in case of divestment of shares in subsidiaries through inserting a provision in listing agreement

2. Presently, RPTs are disclosed to Stock Exchanges only annually. This requirement can be mandated by amending the reporting requirements specified under the Listing Agreement.

3. Suitable threshold limits for the reporting requirements will be proposed

4. It proposes to give Audit Committee the authority to investigate into any matter falling under its domain and the power to obtain professional advice from external sources and have full access to information contained in the records of the company.

5. It is proposed to consider mandating approval of disinterested/minority shareholders for managerial remuneration beyond a particular limit

6. Considering the wider coverage and more specificity of disclosure provided in Ind-AS 24 in comparison with AS 18, it is proposed to consider adoption of the definition and requirements in Ind-AS 24 for the purpose of reporting of Related Party Transactions requirements of the listing agreement.




Category Corporate Law, Other Articles by - Arpit Shah 



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