Gross related party transactions

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Nirupama (Querist)
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23 August 2011 Which all transactions fall under the head 'Gross Related Party Transactions' in the accounts of a company?

CS Bijoy

CS Bijoy (Expert)
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24 August 2011 For defining related party transaction you must know the definition of related party which is given in schedule A where 22 relation are given and transaction between any of them will be treated as related party transaction.

Nirupama

Nirupama (Querist)
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25 August 2011 Thanks Bijoy.

So you mean all transactions between the company and the relatives of directors given in Schedule IA of Companies Act fall under Gross Related Party Transactions.

Hope I am correct

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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26 July 2024 Yes, transactions between a company and the relatives of its directors, as outlined in Schedule IA of the Companies Act, 2013, generally fall under the category of "Related Party Transactions." Here’s a detailed explanation:

### **Understanding Related Party Transactions**

**Related Party Transactions (RPTs)** refer to transactions that occur between a company and its related parties, which include its directors, key managerial personnel (KMP), their relatives, or entities in which they have significant influence. These transactions are regulated under various provisions of the Companies Act, 2013, to ensure transparency and fairness in financial dealings.

### **Relevant Provisions from the Companies Act, 2013**

#### **1. Definition of Related Parties**

**Section 2(76)** of the Companies Act, 2013 provides the definition of related parties. According to this section, the term "related party" includes:

- **Directors and their relatives**.
- **Key Managerial Personnel (KMP) and their relatives**.
- **Entities where directors, KMP, or their relatives hold substantial interest**.

**Schedule IA** further specifies the transactions that should be disclosed. Transactions with related parties include those that involve directors or their relatives.

#### **2. Schedule IA: Transactions with Related Parties**

**Schedule IA** of the Companies Act, 2013 includes:

- **Transactions with Directors**: This includes any contracts or arrangements between the company and its directors.
- **Transactions with Relatives of Directors**: This includes transactions where the relatives of directors are involved, such as financial transactions, contracts, or arrangements.

These transactions need to be disclosed in the company's financial statements and reports.

### **Gross Related Party Transactions**

When reporting related party transactions:

1. **Disclosure in Financial Statements**: The company must disclose all related party transactions in its financial statements. This includes transactions with relatives of directors and key managerial personnel, as these are considered significant for the purpose of disclosure.

2. **Approval and Compliance**: Certain transactions require approval from the board of directors or the shareholders, as per the provisions of the Companies Act. This ensures that such transactions are conducted at arm’s length and are fair to the company.

3. **Transaction Reporting**: In financial statements, these transactions are typically reported in a separate section, ensuring transparency and compliance with legal requirements.

### **Example of Related Party Transactions**

If a director's relative provides consultancy services to the company, this transaction must be disclosed as a related party transaction. Similarly, if the company makes payments to a company in which a director has a significant interest, these transactions also fall under related party transactions.

### **Conclusion**

Yes, all transactions between the company and the relatives of directors, as specified in Schedule IA of the Companies Act, 2013, should be considered as "Gross Related Party Transactions." These transactions must be disclosed in the financial statements and comply with the regulatory requirements to ensure transparency and accountability.

For precise compliance and reporting, it is advisable to consult a company secretary or legal professional who specializes in corporate law to ensure adherence to all relevant provisions.