Related Party under Companies Act
This query is : Resolved
17 November 2009
Hi Friends
My query
On whether the following 2 company are related or not
Apple Pvt Ltd Company, where Mr A and Mr B is a director ,
Orange Ltd Company is another Company where Mr A is the director, and
Mango Ltd Company is another Company where Mr B is the Director.
Now there is a transaction between Orange and Mango, wheather in the annual report of Orange Ltd it has to be reported, whether Sec 297, 301, and AS-18 will apply
Hope you understand my question
Thanks and Regards
CA L.GopalShah
Chartered Accountant
Bhubaneswar
My query
On whether the following 2 company are related or not
Apple Pvt Ltd Company, where Mr A and Mr B is a director ,
Orange Ltd Company is another Company where Mr A is the director, and
Mango Ltd Company is another Company where Mr B is the Director.
Now there is a transaction between Orange and Mango, wheather in the annual report of Orange Ltd it has to be reported, whether Sec 297, 301, and AS-18 will apply
Hope you understand my question
Thanks and Regards
CA L.GopalShah
Chartered Accountant
Bhubaneswar
18 November 2009
Section 297 applies when there is a contract between the company and a director of the company or his relative, a firm in which such a director or relative is a partner, any other partner in such a firm, or a private company of which the director is a member or director.
So 297 & 301 does not apply in trasaction between Orange & Mango as there is no common director
As per AS - 18 related party relationships described in (a) to (e) below:
enterprises that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the reporting enterprise (this includes holding companies, subsidiaries and fellow subsidiaries);
associates and joint ventures of the reporting enterprise and the investing party or venturer in respect of which the reporting enterprise is an associate or a joint venture;
individuals owning, directly or indirectly, an 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 relatives of such personnel; and
enterprises over which any person described in (c) or (d) is able to exercise significant influence. This includes enterprises owned by directors or major shareholders of the reporting enterprise and enterprises that have a member of key management in common with the reporting enterprise.
So for this who will have to check. No help in this point
So 297 & 301 does not apply in trasaction between Orange & Mango as there is no common director
As per AS - 18 related party relationships described in (a) to (e) below:
enterprises that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the reporting enterprise (this includes holding companies, subsidiaries and fellow subsidiaries);
associates and joint ventures of the reporting enterprise and the investing party or venturer in respect of which the reporting enterprise is an associate or a joint venture;
individuals owning, directly or indirectly, an 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 relatives of such personnel; and
enterprises over which any person described in (c) or (d) is able to exercise significant influence. This includes enterprises owned by directors or major shareholders of the reporting enterprise and enterprises that have a member of key management in common with the reporting enterprise.
So for this who will have to check. No help in this point
19 November 2009
Hi Aditya
Thank You Very much for reply
Inface Apple, Mango and Orange all are Under the control and under the influence of one director, who is the director in only Apple Ltd.
Apple Ltd is BSE listed Company
Now i want to know wether should Apple and Mango relationship will be related party transaction under AS-18, whether it will come under disclosure in notes to account
Thank You Very much for reply
Inface Apple, Mango and Orange all are Under the control and under the influence of one director, who is the director in only Apple Ltd.
Apple Ltd is BSE listed Company
Now i want to know wether should Apple and Mango relationship will be related party transaction under AS-18, whether it will come under disclosure in notes to account
19 November 2009
Yes,
as per AS 18- Name of the related party and nature of the related party relationship
where control exists should be disclosed irrespective of whether or not
there have been transactions between the related parties
as per AS 18- Name of the related party and nature of the related party relationship
where control exists should be disclosed irrespective of whether or not
there have been transactions between the related parties
23 November 2009
what kind of relation this will be under AS-18
21 July 2025
Got it! Let me break down your query about related party relationships under Companies Act & AS-18 in this situation:
Situation Recap:
Apple Pvt Ltd: Directors - Mr. A and Mr. B
Orange Ltd: Director - Mr. A
Mango Ltd: Director - Mr. B
Apple Ltd is a listed company on BSE.
Mr. A is a director in Apple and Orange; Mr. B is a director in Apple and Mango.
You want to know:
Are Orange Ltd and Mango Ltd related parties?
Does Section 297/301 of Companies Act apply?
What about disclosure under AS-18?
Step 1: Applicability of Section 297 and 301
Section 297 (now covered under Section 188 of Companies Act 2013) applies when the transaction is between the company and a related party, which includes directors, their relatives, firms in which they are partners, or private companies where they are directors/members.
Since Orange Ltd and Mango Ltd do NOT share a common director, and the transaction is between two separate companies, Section 297/301 does NOT apply here.
Step 2: Related Party under Accounting Standard AS-18
AS-18 has a wider scope for related parties:
Related parties include:
Enterprises that control, are controlled by, or are under common control with the reporting enterprise (holding, subsidiary, fellow subsidiaries).
Associates, joint ventures.
Individuals owning or having significant influence over the reporting enterprise, and their relatives.
Key managerial personnel and their relatives.
Enterprises over which any such persons can exercise significant influence.
Step 3: Analyzing your companies under AS-18
Apple Pvt Ltd (listed company) controls or significantly influences the other companies?
Mr. A and Mr. B are directors in Apple Pvt Ltd and also directors in Orange Ltd and Mango Ltd respectively.
Are Orange Ltd and Mango Ltd related parties to Apple Pvt Ltd?
Since Apple Pvt Ltd has directors common with Orange Ltd and Mango Ltd, Apple Pvt Ltd likely exercises significant influence over these companies through these directors.
Are Orange Ltd and Mango Ltd related parties to each other?
There is no direct common director or control relationship between Orange and Mango.
So, they are NOT related parties to each other under AS-18.
Step 4: Disclosure Requirements in Apple Pvt Ltd’s Annual Report
Since Apple Pvt Ltd has control or significant influence over Orange Ltd and Mango Ltd through its directors, both Orange and Mango will be related parties to Apple.
AS-18 requires disclosure of related party relationships, whether or not transactions occur.
Therefore, in Apple Pvt Ltd’s notes to accounts, disclosure of transactions (if any) and relationships with Orange Ltd and Mango Ltd is mandatory.
Summary Table
Relation Between Section 297/301 AS-18 Related Party? Disclosure Needed In?
Orange Ltd & Mango Ltd No No No disclosure between them
Apple Pvt Ltd & Orange Ltd Possibly Yes Disclosure in Apple Pvt Ltd’s accounts
Apple Pvt Ltd & Mango Ltd Possibly Yes Disclosure in Apple Pvt Ltd’s accounts
Final Notes:
The key test for related party under AS-18 is control or significant influence, which exists between Apple Pvt Ltd and Orange/Mango Ltd via the common directors.
The transaction between Orange and Mango is NOT related party transaction since no common control or common director exists between them.
Situation Recap:
Apple Pvt Ltd: Directors - Mr. A and Mr. B
Orange Ltd: Director - Mr. A
Mango Ltd: Director - Mr. B
Apple Ltd is a listed company on BSE.
Mr. A is a director in Apple and Orange; Mr. B is a director in Apple and Mango.
You want to know:
Are Orange Ltd and Mango Ltd related parties?
Does Section 297/301 of Companies Act apply?
What about disclosure under AS-18?
Step 1: Applicability of Section 297 and 301
Section 297 (now covered under Section 188 of Companies Act 2013) applies when the transaction is between the company and a related party, which includes directors, their relatives, firms in which they are partners, or private companies where they are directors/members.
Since Orange Ltd and Mango Ltd do NOT share a common director, and the transaction is between two separate companies, Section 297/301 does NOT apply here.
Step 2: Related Party under Accounting Standard AS-18
AS-18 has a wider scope for related parties:
Related parties include:
Enterprises that control, are controlled by, or are under common control with the reporting enterprise (holding, subsidiary, fellow subsidiaries).
Associates, joint ventures.
Individuals owning or having significant influence over the reporting enterprise, and their relatives.
Key managerial personnel and their relatives.
Enterprises over which any such persons can exercise significant influence.
Step 3: Analyzing your companies under AS-18
Apple Pvt Ltd (listed company) controls or significantly influences the other companies?
Mr. A and Mr. B are directors in Apple Pvt Ltd and also directors in Orange Ltd and Mango Ltd respectively.
Are Orange Ltd and Mango Ltd related parties to Apple Pvt Ltd?
Since Apple Pvt Ltd has directors common with Orange Ltd and Mango Ltd, Apple Pvt Ltd likely exercises significant influence over these companies through these directors.
Are Orange Ltd and Mango Ltd related parties to each other?
There is no direct common director or control relationship between Orange and Mango.
So, they are NOT related parties to each other under AS-18.
Step 4: Disclosure Requirements in Apple Pvt Ltd’s Annual Report
Since Apple Pvt Ltd has control or significant influence over Orange Ltd and Mango Ltd through its directors, both Orange and Mango will be related parties to Apple.
AS-18 requires disclosure of related party relationships, whether or not transactions occur.
Therefore, in Apple Pvt Ltd’s notes to accounts, disclosure of transactions (if any) and relationships with Orange Ltd and Mango Ltd is mandatory.
Summary Table
Relation Between Section 297/301 AS-18 Related Party? Disclosure Needed In?
Orange Ltd & Mango Ltd No No No disclosure between them
Apple Pvt Ltd & Orange Ltd Possibly Yes Disclosure in Apple Pvt Ltd’s accounts
Apple Pvt Ltd & Mango Ltd Possibly Yes Disclosure in Apple Pvt Ltd’s accounts
Final Notes:
The key test for related party under AS-18 is control or significant influence, which exists between Apple Pvt Ltd and Orange/Mango Ltd via the common directors.
The transaction between Orange and Mango is NOT related party transaction since no common control or common director exists between them.
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