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These are the Following Related Parties as per Companies Act 2013

  • A director or His Relative (Relative means a member of the same HUF, husband, wife, father, stepfather, mother, stepmother, son, stepson, son’s wife, daughter, daughter’s husband, brother, stepbrother, sister, step-sister).
  • Key Managerial Personnel or his Relatives.
  • A firm in which a director, manager, or relative is a partner.
  • A public company in which a director or manager is a director and holds along with his relatives more than 2% of its paid-up capital.
  • A private company in which a director, manager, or relative is a member or director.
  • Holding, Subsidiary or Associate of such company.
  • Any company which is a subsidiary of a holding company to which it is also a subsidiary.
  • Any Body Corporate whose board of directors, MD or manager is required to act in accordance with the advice, directions or instructions of a director or manager (N/A in cases when these directions are followed in a professional capacity).
  • Any person on whose advice, directions or instructions a director or manager is required to act (N/A when this is done in a professional capacity).
All about RPT and AS 18

Transactions as per Companies Act 2013 requiring Prior approval of the Board of Directors by the Board Resolution in Board Meeting

  • Goods and Materials:- Purchase, Supply & Sale of goods
  • Property: Selling , Buying or Leasing
  • Agent for (a) and (b) above
  • Others:
  • Availing of or the rendering of services
  • Underwriting of securities or derivatives
  • Related Parties Appointment to a place of profit or office in the Company/Subsidiary/Associate
  • If the Director or individual other than director/firm/private company/body corporate receive from the company an amount over and above the remuneration (In the case of directors) and anything by way of remuneration for others will need the approval of the Board by a resolution.

Transactions as per the Companies (Meetings of Board and its Powers) Rules 2014 Requiring Approval by the Company by Resolution

a. Sale/Purchase/Supply of Goods/Material Directly or Through an Agent Covering 10% or More of Turnover OR
One Hundred Crores (whichever is Lower).

b. Sale/Purchase of property directly or through an agent that is 10% or more of net worth OR
One Hundred Crores (whichever is Lower).

⇒ In case of Leasing of property directly Covering 10% or more of Turnover OR
One Hundred Crores (whichever is Lower).

c. Availing or Rendering of Services Directly or Through an Agent which is 10% or More of Turnover OR
Fifty Crores (whichever is Lower).

(All the above Limits are to be taken on all Transactions done on a Financial year Basis.)


d. Related party’s appointment to the place of profit or office in the company/subsidiary/associate where the remuneration exceeds Rs 250000

e. Underwriting of securities or derivatives when remuneration exceeds 1% of the net worth.

SEBI Governs Related Parties and Related Party Transactions

  • The SEBI Clause 49 also states certain regulatory requirements for related party transactions. It defines related party transactions as a transaction that includes the transfer of resources/services/obligation.
  • Its scope is of a wider range than the Companies Act 2013. It includes close family members of directors or key managerial personnel, a private company in which directors or key managerial personnel plus their relatives have control or significant influence.
  • Every related party transaction which is material has to be approved by the shareholders by passing a special resolution and all related parties shall not be allowed to vote on such resolutions.

Important Points to Note

  • The turnover or net worth for the purpose of calculation under Companies Rules 2014 shall be based on the audited financial statements, If the transaction is in the ordinary course of business and done on an arm’s length basis it shall not require the approval of the board or the company.
  • No member shall vote on the special resolution if such member is a related party.
  • Details of every contract entered into shall find its reference in the Board’s report along with justification about the same
  • Ratification of the transaction may be done by the Board or the shareholders within three months. If the same is not done, then the contract will be voidable at the option of the Board.
  • If the contract is with anyone related to the director or is authorized by any other director, the directors concerned shall make good to the company for losses if any caused to the company.

Penalties Under Sec 188 are

  • Listed Company: Imprisonment up to 1 year; fine ranging from Rs. 25000 to Rs. 500000 or both.
  • Any other company: Fine Flies Between from Rs. 25000 to Rs. 500000

AS-18 (Related Party Disclosures)

This standard establishes requirements for the disclosure of:-

a) Related party Transactions

b) Transactions between a reporting enterprise and its related parties.

The requirements of this Standard apply to the financial statements of each reporting enterprise as also to consolidate financial statements presented by a holding company.

As per AS 18, Related party means "at any time during the year, one party has an ability to

  1. Control- The other party:- Exercise significant influence over the other party in making financial and/or operating decisions
  2. Control means:- Ownership, direct or indirect, of more than 50% of the voting power of an enterprise,
  3. In case of a company – control of the composition of the board of directors In case of any other enterprise – control of the composition of the corresponding governing body.
  4. Substantial interest in voting power and the power to direct the financial and/or operating policies of the enterprise.

Who is covered under Related Party Transactions

  • Holding companies, subsidiaries and fellow subsidiaries;
  • Associates and joint ventures of the reporting enterprise;
  • Investors in respect of which reporting enterprise is an associate or a joint venture;
  • Individuals owing direct or indirect interest in the voting power of the reporting enterprise that gives them control or significant influence over the enterprise, and relatives of any such individual;
  • Key management personnel and his relatives; and
  • Enterprises over which any person, who is a key management personnel or has direct and indirect interest in voting power, can exercise significant influence.

Why Do We File Related Party Disclosures

Requirement of statutes

The statutes governing an enterprise often require disclosure of related party transactions in the financial statements.

To reflect that transaction may not be at arm’s length price: Without related party disclosures, there is a general presumption that transactions reflected in the financial statements are on an arm’s length basis i.e. the transaction occurs between two unrelated parties and is not affected by any relationship.

Effect on Financial position and operating results: The operating results and financial position of an enterprise may be affected by a related party relationship even if related party transactions do not occur. The mere existence of the relationship may be sufficient to affect the transactions of the reporting enterprise with other parties.

Recording of all possible transactions: Related party transactions needs to be disclosed as sometimes, transactions would not have taken place if the related party relationship had not existed.

What needs to be disclosed under AS 18(Related Party Disclosures)

The Reporting Enterprise should disclose the following

  • The name of the transacting related party;
  • A description of the relationship between the parties;
  • A description of the nature of transactions;
  • Volume of the transactions either as an amount or a part thereof;
  • Any elements of the related party transactions which is necessary for an understanding of the financial statements;
  • Outstanding amount from related parties at the Balance Sheet date;
  • Provisions for doubtful debts due from related parties at the Balance Sheet date; and amounts written off or written back of debts due from or to related parties.

Cases when disclosure is not required

Intra-group transactions: Enterprises that have statutory requirement of confidentiality. Related party relationships of State-controlled enterprises with other state-controlled enterprises.

Examples of Related Party Transactions

The following are examples of the related party transactions in respect of which disclosures may be made by a reporting enterprise: -

  • Purchases or sales of goods (finished or unfinished);
  • Purchases or sales of fixed assets;
  • Rendering or receiving of services;
  • Agency arrangements;
  • Leasing or hire purchase arrangements;
  • Transfer of research and development;
  • License agreements;
  • Finance (including loans and equity contributions in cash or in-kind);
  • Guarantees and collaterals; and
  • Management contracts including for deputation of employees.

Comparison between AS 18 and Ind-AS 24


AS 18

Ind AS 24

Definition of Related party relationship

It uses the term "relatives of an individual"

It uses the term "a close member of that person’s family"

Definition of State controlled enterprises

It is an enterprise which is under the control of the Central Government and/or any State Government(s)

There is an extended coverage of Government Enterprises, as it defines a government-related entity as an entity that is controlled, jointly controlled or significantly influenced by a government

Coverage of Key Management Personnel in Related party relationships

Existing AS 18 covers key management personnel of the entity only

Ind AS 24 covers key management person of the parent as well

Coverage of entities that are post employment benefit plans as Related parties

Existing AS 18 does not specifically covered entities that are post-employment benefit plans, as related parties

Ind AS 24 specifically includes post employment benefit plans for the benefit of employees of an entity or its related entity as related parties

Disclosure of information by Government related entities

Existing AS 18 presently exempts the disclosure of such information

Ind AS 24 requires disclosures of certain information by the government related entities

Disclosure of Volume of the transactions

Existing AS 18 gives an option to disclose the "Volume of the transactions either as an amount or as an appropriate proportion"

Ind AS 24 requires "the amount of the transactions" need to be disclosed

Disclaimer: The entire contents of this article are solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation by the Author. Author of this Article do not constitute any sort of professional advice or a formal recommendation. The author has undertaken utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions. You are kindly requested to verify and confirm the updates from the genuine sources before acting on any of the information’s provided hereinabove.

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Published by

Tanuj Chandra Saxenaa
(Company Secretary)
Category Corporate Law   Report

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