Related party transaction under companies act, 2013

SECTION 188 R.D.W. RULE 15 OF COMPANIES (MEETINGS OF BOARD AND ITS POWERS) 2014:

I. RELATED PARTY TRANSACTION such as:

(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:

Can be entered into by the Company with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to conditions mentioned below:

1. The agenda of the Board meeting at which the resolution is proposed to be moved shall disclose-

(a) The name of the related party and nature of relationship;

(b) The nature, duration of the contract and particulars of the contract or arrangement;

(c) The material terms of the contract or arrangement including the value, if any;

(d) Any advance paid or received for the contract or arrangement, if any;

(e) The manner of determining the pricing and other commercial terms both included as part of contract and not considered as part of the contract;

(f) Whether all factors relevant to the contract have been considered, if not, the details of factors not considered with the rationale for not considering those factors; and

(g) Any other information relevant or important for the Board to take a decision on the proposed transaction.

2. Where any director is interested in any contract or arrangement with a related party, such director shall not be present at the meeting during discussions on the subject matter of the resolution relating to such contract or arrangement-

II. For entering into any 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 with the prior approval of the Company by a Resolution.

(a) For Contracts or Arrangements with respect to clauses (a) to (e) of sub-section (1) of Section 188

(i) Sale, purchase or supply of any goods or material, directly or through appointment of agent,  or
Leasing of property any kind directly or through appointment of agent
Exceeding 10 percent of the Turnover of the Company or rupees one hundred crore, whichever is lower.

(ii) Selling or otherwise disposing of or buying property of any kind, directly or through appointment of agent, exceeding 10 percent of Net Worth of the Company or rupees one hundred crore, whichever is lower,

(iii) Availing or rendering of any services, directly or through appointment of agent, exceeding 10 percent of the Turnover of the Company or rupees fifity crore, whichever is lower

(b) For appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding two and a half lakh rupees

(c) For remuneration for underwriting the subscription of any securities or derivatives thereof, of the company exceeding one percent of the net worth.

EXPLANATION:

(1) The turnover or net worth referred in the above sub-rules shall be computed on the basis of the audited financial statement of the preceding financial year.

(2) In case of Wholly Owned Subsidiary, the Resolution passed by the Holding Company shall be sufficient for the purpose of entering into the transaction between the Wholly Owned Subsidiary and the Holding Company.

(3) The explanatory statement to be annexed to the Notice Of General Meeting convened pursuant to Section 101 shall contain the following particulars, namely:-

• name of the related party;
• name of the director or key managerial personnel who is related, if any;
• nature of relationship;
• nature, material terms, monetary value and particulars of the contract or arrangements;
• Any other information relevant or important for the members to take a decision on the proposed resolution.

EXCEPTIONS:

• Provided that nothing in this sub-section shall apply to any transactions entered into by the Company in its ordinary course of business at arm length basis.
• Provided that the requirement of passing the Resolution by Company in General Meeting shall not be applicable for transactions entered into between a Holding Company and its Wholly Owned Subsidiary whose accounts are Consolidated with such Holding Company and placed before the shareholders at the General Meeting for approval.

DEFAULT:

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.

FOR THE PURPOSE OF THIS SECTION:

RELATED PARTY, with reference to a Company, means-

(i) Director or his Relative;

(ii) Key Managerial Personnel or his Relative;

(iii) Firm, in which a Director, Manager or his Relative is a Partner;

(iv) Private Company in which a Director or Manager or his Relative is a Member or Director;

(v) Public Company in which a Director and Manager is a Director and holds along with his Relatives, more than two percent 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;

RELATIVE, with reference to any person, means anyone who is related to another, if-

• (i) They are members of a Hindu Undivided Family;
• (ii) They are husband and wife; or
• (iii) One person is related to the other in such manner as may be prescribed*

* A person shall be deemed to be the relative of another, if he or she is related to another in the following manner, namely:-

(1) Father: Provided that the term “Father” includes step-father.
(2) Mother: Provided that the term “Mother” includes the step-mother.
(3) Son: Provided that the term “Son” includes the step-son.
(4) Son’s wife.
(5) Daughter.
(6) Daughter’s husband.
(7) Brother: Provided that the term “Brother” includes the step-brother;
(8) Sister: Provided that the term “Sister” includes the step-sister.