Related party transactions

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SUSHIL KUMAR SHARMA (Querist)
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30 June 2015 Dear Sir,

We are a subsidiary company of a company incorporated in Japan. Are the transactions with Holding Company(i.e. Japanese Company)comes under the perview of Section 188 of the Companies Act, 2013.?

I am confusing thet whether Holding Japanese Company is a Company or Bodycorporate a per the provisions of Companies Act, 2013

Thanks

Amol S Joglekar

Amol S Joglekar (Expert)
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30 June 2015 It is covered under related party transactions.

SUSHIL KUMAR SHARMA

SUSHIL KUMAR SHARMA (Querist)
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01 July 2015 Dear Sir,

Thanks for your reply.

Please elobrate the provisions, for my better understanding.

Thanks

Ankur Garg

Ankur Garg (Expert)
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02 July 2015 As per my opinion RPT is applicable in your case. But I believe the same should be on arms length basis and in the ordinary course of business. Simply keep a BR in minutes on safer side.
No need to file any ROC form.

Thanks

SUSHIL KUMAR SHARMA

SUSHIL KUMAR SHARMA (Querist)
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02 July 2015 Dear Ankur Sir,

Thanks for your reply.
I am a continous reader of your all articles posted at CAClub. Thanks for your valuable contribution on CAClubindia.

Further with reference to my query, my understaning is as below:-
1. Our Holding company is incorporated in Japan and as per the definition of Companies Act 2013 it is not a "company" within the meaning of section 2(20)the Act.
2. The holding japanese company is body corporate.
3. We are not controlling our holding company in any manner.

still RTP applies to our case? Please provide your valuable comment for my better understanding. Also provide some reference, if possible.

Thanks

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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21 July 2025 Great question! Let me clarify the position on related party transactions (RPTs) under the Companies Act, 2013, when dealing with a foreign holding company (like your Japanese parent company).

Key Points:
Definition of "Related Party" under Section 2(76) of Companies Act, 2013
The term related party includes:

A director or key managerial personnel of the company or their relatives.
A firm, company, or other body corporate in which a director or relative is interested.
The holding company and its subsidiaries.
Any company which is a subsidiary of the holding company.
Any other person or entity as prescribed.
Importantly:

The Act’s definition of "holding company" in Section 2(46) includes any company that has control over another company, irrespective of whether it is incorporated in India or outside India.
A foreign company that controls an Indian company is treated as a holding company.
Is a Foreign Holding Company a 'Company' under the Act?
Section 2(20) of the Companies Act defines “company” as a company formed and registered under this Act or under any previous company law.
A foreign company incorporated outside India is not a "company" within this definition.
However, foreign companies are covered under the definition of “related party” in context of transactions involving an Indian subsidiary.
Applicability of RPT Provisions (Section 188) to Transactions with Foreign Holding Company
Since the foreign company is your holding company (i.e., it has control), transactions between your Indian subsidiary and this foreign holding company fall under the scope of Section 188 as related party transactions.
The foreign holding company is considered a related party even if it is not a company as per Indian Act, because it is a body corporate or an equivalent entity with control.
What Does This Mean Practically?
Transactions with your Japanese holding company must comply with Section 188 requirements, i.e.:
Approval by the Board (or Audit Committee if applicable).
Shareholders approval in certain cases.
Disclosure in financial statements as per AS-18 or Ind AS 24.
The transactions must be at arm’s length and in the ordinary course of business.
Maintain proper documentation like board resolutions, agreements, and valuation reports if needed.
Do You Need to File Form with ROC?
For RPTs under Section 188, filing of Form MGT-7 or AOC-2 will capture the disclosures in the Annual Return and Financial Statements.
No separate specific form for every RPT is mandated except disclosures in Annual Reports.

References for your study:
Companies Act, 2013: Section 2(20)
MCA FAQs and circulars on related party transactions.
Accounting Standard AS-18 / Ind AS 24 on Related Party Disclosures.

Final Notes:
Even if you do not control the foreign holding company, if it controls your company, the relationship exists.

Hence, RPT provisions apply to your transactions with your Japanese holding company.

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