Related Party Transactions Compliances

A related party with reference to a company means the following

(1) director or his relative

(2) key managerial personnel or his relative 

(3) a firm in which director, manager or relative is a partner

(4) a private company in which director or manager or his relative is a member or director

(5) a public company in which director or manager is a director or holds along with his relatives more than 2% of its paid up share capital

(6) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the instructions, directions or advice of the director or manager 

(7) any person on whose advise, instructions or directions, the director or manager is accustomed to act. 

(8) any body corporate in which such director singly or in association with another director holds more than 2% shareholding of that body corporate or is a promoter, chief executive officer or manager of that body corporate 

(9) any firm or other entity in which such director is a partner, owner or member. 

Related party contract or arrangement pertains to 

(a) sale, purchase or supply of any goods or materials;

(b) selling or otherwise disposing of, or buying, property of any kind; (so immoveable property is covered)

(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:

It will not be construed as a related party if the transaction entered into by the company is in the ordinary course of business and is on arms length basis. 

BOD consent is required for entering into related party contracts. 

(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.

The interested director shall not be present at the Board meeting where the discussion pertaining to the said related party is taking place. 

 

Prior Special resolution will be required if 

(i) the paid up share capital of the company is Rs.10 crores or more 

(ii) the sale, purchase, supply of any goods or materials directly or though appointment of agents exceeds 25% of the annual turnover, 

(iii) selling or otherwise disposing of property of any kind directly or though agents exceeding 10% of the net worth

(iv) leasing property of any kind exceeding 10% of the net worth or turnover

(v) availing or rendering of services directly or through agents, exceeding 10% of the net worth

(vi) appointment to any office or place of profit in the company or subsidiary or associate company at a monthly remuneration exceeding Rs.2.5 lakhs 

The interested director and the related parties who are members in this particular contract or arrangement shall not vote on the said resolution.

The explanatory statement to be annexed to the notice of a general meeting convened to consider related party transactions shall contain the following particulars namely:-

(a) name of the related party ;

(b) name of the director or key managerial personnel who is related, if any;

(c) nature of relationship;

(d) nature, material terms, monetary value and particulars of the contract or arrangement;

(e) any other information relevant or important for the members to take a decision on the proposed resolution.

The company is required to maintain register of contracts or arrangements in which directors are interested in form MBP-4 and shall enter therein following particulars. 

(1) names of companies, firms, bodies corporates, or other association of individuals in which director has any concern or interest

(2) particulars of contracts or arrangements with related parties 

Entries to be made in the register immediately at once whenever there is a cause to make entry in a chronological order and entries to be authenticated by a company secretary or by any person authorised by the Board for that purpose.