Requirement of the Companies Act, 2013
A. Following are the Related parties as per section 2(76)
i. Director / Key Managerial Personnel and their Relatives
ii. Firm in which Director or Manager or relative is a partner
iii. Private limited company, in which director is a member or director.
iv. Public Companies in which director along with any relative holds more than 2% of paid up share capital of that company.
v. Anybody corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director.
vi. Any person on whose advice, directions or instructions a director is accustomed to act other than advice given in professional capacity.
vii. Holding/subsidiary/ associate company of such company or subsidiary of holding company to which it is also a subsidiary
B. Related party transactions are following as per section 188 of Companies Act, 2013.
i. Sale, purchase or supply of any goods or materials
ii. Availing or rendering of any services
iii. Selling or otherwise disposing of, or buying any property
iv. Leasing of property
v. Appointment of any agent for purchase or sale of goods, materials, services or property
vi. Appointment to office/ place of profit in the company, its subsidiary or associate
vii. Underwriting the subscription of any securities or derivatives thereof, of the company
C. Following approvals is required for entering any contract or arrangement with related party u/s 188 of Companies Act, 2013.
i. Prior Board resolution in a board meeting
ii. Prior approval of shareholders by way of special resolution in a general meeting if
a. in case company, having a paid-up share capital of Rs. 10 crore or more entering into contract or arrangement with any related party OR
b. Company entering into any of the transaction mentioned below:
- Sale, purchase or supply of any goods or materials directly or through appointment of agents exceeding 25% of Annual Turnover.
- Selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents exceeding 10% of Networth.
- Leasing of property of any kind exceeding 10% of Networth or Turnover
- Availing or rendering of any services directly or through appointment of agents exceeding 10% of Networth.
- Appointment to any office or place of profit in the company, its Subsidiary Company or Associate Company at a remuneration of more than Rs. 2.5 Lakhs p.m.
- Remuneration for underwriting the subscription of any securities or derivatives thereof of the company exceeding 1% of Networth. In case of Wholly Owned Subsidiaries, Special Resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between Wholly Owned Subsidiaries and the holding company.
D. No approval is required for transactions entered into by the company in its ordinary course of business other than transactions which are not on an arm's length basis.
E. Approval of Audit Committee is required for all related party transactions as per Clause 49 of Listing Agreement and section 177 of Companies Act, 2013. Requirements of Clause 49 of listing agreement
A. Related Parties
1. A person or a close member of that person's family is related to a company if that person:
a. is a related party under Section 2(76) of the Companies Act, 2013;or
b. has control or joint control or significant influence over the company; or
c. is a key management personnel of the company or of a parent of the company; or
2. An entity is related to a company if any of the following conditions applies:
a. The entity is a related party under Section 2(76) of the Companies Act, 2013; or
b. The entity and the company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others); or
c. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member); or
d. Both entities are joint ventures of the same third party; or
e. One entity is a joint venture of a third entity and the other entity is an associate of the third entity; or
f. The entity is a post-employment benefit plan for the benefit of employees of either the company or an entity related to the company. If the company is itself such a plan, the sponsoring employers are also related to the company; or
g. The entity is controlled or jointly controlled by a person identified in (1).
h. A person identified in (1)(b) has significant influence over the entity (or of a parent of the entity)
B. Related party transactions A related party transaction is a transfer of resources, services or obligations between a company and a related party, regardless of whether a price is charged.
C. Formulation of policy The company shall formulate a policy on materiality of related party transactions and also on dealing with Related Party Transactions. Provided that a transaction with a related party shall be considered material if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year, exceeds five percent of the annual turnover or twenty percent of the net worth of the company as per the last audited financial statements of the company, whichever is higher.
D. Approval in Audit committee All Related Party Transactions shall require prior approval of the Audit Committee.
E. Approval of shareholders All material Related Party Transactions shall require approval of the shareholders through special resolution in 1st AGM held after 1st October 2014 and the related parties shall abstain from voting on such resolutions.
1. Details of all material transactions with related parties shall be disclosed quarterly along with the compliance report on corporate governance.
2. The company shall disclose the policy on dealing with Related Party Transactions on its website and also in the Annual Report.
CA. Ankit Mangla
I am a recently qualified Chartered Accountant
Tags :Corporate Law