cost accounting record rules

21. RELATED-PARTY TRANSACTIONS:

(1) In respect of related party transactions or supplies made or

services rendered by a company to its holding company or

subsidiary or a company termed “related party relationship” as

defined below and vice-a-versa, records shall be maintained

showing contracts entered into, agreements or understanding

reached in respect of:

(a) purchase and sale of raw materials, finished products, process

materials, chemicals and rejected goods including scraps, etc;

(b) utilisation of plant facilities and technical know-how;

(c) supply of utilities and any other services;

(d) administrative, technical, managerial or any other consultancy

services;

(e) purchase and sale of capital goods including plant and machinery;

(f) any other payments related to generation, transmission, distribution

and supply of power or activity under reference.

These records shall also indicate the basis followed for arriving at the

rates charged or paid for such products or services so as to enable

determination of the reasonableness of such rates in so far as they are in

any way related to activity under reference.

(2) The transactions by the following “related party relationships” shall

be covered under sub-rule(1) :-

(a) 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);

(b) 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;

(c) 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;

(d) key management personnel and relatives of such personnel; and

(e) 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.

However, the following shall not be deemed as “related party

relationships”:-

(a) two companies simply because they have a Director in common,

notwithstanding paragraph (d) or (e) above (unless the Director is

able to affect the policies of both companies in their mutual

dealings);

(b) a single customer, supplier, franchiser, distributor, or general agent

with whom an enterprise transacts a significant volume of business

merely by virtue of the resulting economic dependence; and

(c) the parties listed below, in the course of their normal dealings with

an enterprise by virtue only of those dealings (although they may

circumscribe the freedom of action of the enterprise or participate in

its decision-making process);

(i) providers of finance;

(ii) trade unions;

(iii) public utilities;

(iv) government departments and government agencies

including government sponsored bodies.

Explanation :- for the purpose of these rules, -

(a) "

to be related if at any time during the reporting period one party has

the ability to control the other party or exercise significant influence

over the other party in making financial and/or operating decisions;

(b) "

obligations between related parties, whether or not a price is

charged;

(c) "

(i) ownership, directly or indirectly, of more than one-half of the

voting power of an enterprise; or

(ii) control of the composition of the Board of Directors in the case

of a company or of the composition of the corresponding

governing body in case of any other enterprise; or

(iii) a substantial interest in voting power and the power to direct,

by statute or agreement, the financial and/or operating policies

of the enterprise.

(d) "

operating policy decisions of an enterprise, but not control of those

policies;

(e) "

party has significant influence and which is neither a subsidiary nor

a joint venture of that party;

(f) "

more parties undertake an economic activity, which is subject to

joint control;

(g) "

govern the financial and operating policies of an economic activity

so as to obtain benefits from it;

(h) "

the authority and responsibility for planning, directing and

controlling the activities of the reporting enterprise;

(i) "

daughter, brother, sister, father and mother who may connected by

blood relationship;

(j) "

of Section 4 of the Companies Act, 1956(1 of 1956);

(k) "

Section 4 of the Companies Act, 1956(1 of 1956);

(l) "

subsidiary of another company if both are subsidiaries of the same

holding company;

(m) "

the control of the Central Government or a State Government.