RELATED PARTY TRANSACTIONS UNDER THE COMPANIES ACT, 2013

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Business Mantra: Faridabad

List of Section covering provision relevant to Related Party Transactions:-  Sections 188, 188(1), 188(2), 188(3), 188(4) & 188(5) of The Companies Act, 2013. These sections are applicable in private as well as public limited companies.

Definition of Relative:- Sub Section (77) of Section 2 of The Companies Act, 2013 define “Relatives” as below:-

“Relative” means with reference to any person means anyone who is related to another, if-

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

Further as per rule 4 of the Companies (specification of definitions detail) Rules, 2014, a person shall be deemed to be relative of another if he or she is related to another in the following manner, namely:-

  • Father (Including Step Father)
  • Mother (Including Step Mother)
  • Son
  • Son’s Wife
  • Daughter
  • Daughter’s Husband
  • Brother
  • Sister

            Related party:- The 2013 Act defines the term “related party” to mean:

  1. A Director or his relative
  2. Key Managerial Person (KMP) or his relative
  • A firm, in which a director, manager or his relative is a partner
  1. A Private Company in which a Director or Manager is a member or Director
  2. A Public Company in which a Director or Manager is a Director and holds along with his relatives, more than 2% of its Paid-up Capital
  3. A body corporate whose board, Managing Director or Manager is accustomed to act in accordance with the advice, directions or instructions of a Director or Manager, except if advice/ directions/ instructions are given in the professional capacity
  • Any person on whose advice, directions or instructions a Director or manager is accustomed to act, except if advice/ directions/ instructions are given in the professional capacity
  • Any company which is:
  1. A Holding, Subsidiary or an Associate Company of such Company, or
  2. A Subsidiary of a Holding Company to which it is also a Subsidiary
  3. Such other persons as may be prescribed.
  4. Common Directorship- Public Company in which a Director or Manager of the Company is a Director or holds along with his relatives, more than 2% of its Paid up Capital its consider under relative parties.

List of Related Party Transactions is given below in the tabular form and consent of Board is required by way of Resolution in Board of Directors meeting for all type of Related Party Transactions in the Company. If the quantum of transactions crosses a certain limit, prescribed in The Companies Act, 2013 then in that case, consent of Shareholders is required in Extra Ordinary General Meeting by way of Special Resolution.

Sr. No Related Party Transaction Need of Special Resolutions
1. Sale-purchase or supply of any goods or materials 10% of turnover of the Company Or Rs. 100 Crores, whichever is lower.
2. Selling or otherwise disposing of or buying, property of any kind 10% of Net Worth of the Company Or Rs. 100 Crores, whichever is lower.
3. Leasing of Property of any kind 10% of turnover of the Company or 10% of Net Worth of the Company Or Rs. 100 Crores, whichever is lower.
4. Availing or rendering of any services In this services the above limit are same but the limit of Rs. 100 Crores replaced by Rs. 50 Crores.
5. Appointment of any agent for purchase or sale of goods, materials, services or property; If remuneration exceeds Rs. 250000/- per Month.
6. Such Related Party’s appointment to any office or place of profit in the Company, its Subsidiary Company or Associate Company and If Remuneration exceeds 1% of net worth as mentioned.
7. Underwriting the subscription of any securities or derivatives thereof, of the Company

Penalty and Prosecution Provisions:- Section 188(5) says that if any Director or any other employee of a Company who had entered into or authorized the contract or arrangement in violation of the provisions of this section shall-

  1. 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 Rs 25000/- but which may extend to Rs. 500000/- or with both;
  2. In case of any other Company, be punishable with fine which shall not be less than Rs. 25000/- but which may extend to Rs. 500000/-
Article written by Practicing Company Secretary Ms. Kirti Tuli CS

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