Related Party Transactions
(RPTs)
Vinod Kothari
Vinod Kothari & Company
1006-1009 Krishna Building224 AJC Bose RoadKolkata – 700017Phone 033-22811276/ 22813742/7715
E-mail – [email protected]
601-C, Neelkanth 98 Marine DriveMumbai 400002
Phone 022-22817427
E-mail: [email protected]
www.vinodkothari.comEmail: [email protected]
B-49, Panchsheel EnclaveNew Delhi- 110017
Phone 011 41315340E- mail- [email protected]
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• The presentation is a property of VinodKothari & Company.
• No part of it can be copied, reproducedor distributed in any manner, withoutexplicit prior permission.
• In case of linking, please do give creditand full link
2
About Us• Vinod Kothari &
Company,▫ Based in Kolkata, Mumbai,
Delhi
• We are a team ofconsultants, advisors &qualified professionalshaving recentlycompleted 25 years ofpractice.
3
Our Organization’s Credo:
Focus on capabilities; opportunities follow
RPTs under Companies Act, 2013
Section 188, Rules 6A & 15 of
MBP Rules, 2014
Who all are related parties?-1/2
Director or KMP orrelative thereof
Director (excl. IDs) orKMPs of the holdingcompany or his relative
Firm, in which a director,manager or his relative is apartner
Private company in whicha director or manager orhis relative is a member ordirector
Related Party
6
Who all are related parties?-2/2
Public company in which a directoror manager is a director and holdsalong with his relatives, more than2% of its paid-up share capital
any body corporate whose Board ofDirectors, managing director ormanager is accustomed to act inaccordance with the advice,directions or instructions of a directoror manager
any person on whose advice,directions or instructions a director ormanager is accustomed to act
any company which is—
(A) a holding, subsidiary or an associatecompany of such company; or
(B) a subsidiary of a holding company towhich it is also a subsidiary
Note- shall not apply to private companies
Related Party
7
Who all are excluded?
Director or KMP of associate and JV companies
Public companies where directors hold less than 2%
share capital
Any person appointed in senior management in
the company or
its holding, or
subsidiary or
associate company
8
Related Parties and Related Party
Transactions (Sec 188) – 1/4
• Definition is specific
▫ Includes family members of HUF
• Related party transactions under the law are subject to seriousrestraint
• Most transactions that a company may have with “related parties”require approval of Board
▫ Directors are required to observe compliance u/s 184(2) with regard todisclosure of interest and non- participation in a particular discussion.
• In the general meeting the member who is a related party shall notvote if he is related party to the context of a particular transaction
• All transactions with related parties though not covered by section188, shall require approval of Audit Committee in terms of sec 177.
9
Related Parties and Related Party
Transactions (Sec 188) – 2/2
10
Section 2(76) defines “related party”
• By way of Companies 1st (Removal of Difficulties) Order, 2014, the lacuna in drafting of section 2(76)(v) has been rectified to now read as:
• public company in which a director or manager is a director ANDholds along with his relatives, more than two per cent. of its paid-up share capital
• The apprehension about companies having common IDs being classified as a related party has been mitigated
Rule 2 of Companies (Meetings of Board and its Powers) Rules, 2014 also defines “related party”
• It reads as:• Director or KMP of holding company or his relatives shall be related party
Transactions covered under Sec 188
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Sale, purchase or supply of any goods or materials;
Note- “goods” means every kind of movable property other than actionable claims and money; andincludes stock and shares, growing crops, grass, and things attached to or forming part of the land whichare agreed to be severed before sale or under the contract of sale . (Sec 2(7) of the Sale of Goods Act*,1930)
Selling or otherwise disposing of, or buying, property of any kind;
Leasing of property of any kind
Availing or rendering of any services
Appointment of any agent for purchase or
sale of goods, materials, services or
property
Underwriting the subscription of any
securities or derivatives thereof, of
the company
Such related party's appointment to any
office or place of profit in the company, its
subsidiary company or associate company
Rule 15 of MBP Rules
• Without prior approval of company by a Resolution, a company cannottransact with related parties where the transaction or transactions to be enteredinto are for–
• sale, purchase or supply of any goods or materials directly or throughappointment of agents > 10% of the annual turnover or Rs. 100 crore; lowerone
• selling or otherwise disposing of, or buying, property of any kind directly orthrough appointment of agents > 10% of net worth or rs. 100 crore; lowerone
leasing of property of any kind > 10% of the net worth or 10% of the turnoveror Rs. 100 crore; lower one
availing or rendering of any services directly or through appointment ofagents > 10% of the net worth or Rs. 50 crore; lower one
appointment to any place of profit in the company, its subsidiary or associatecompany at a monthly remuneration > Rs. 2.5 lakhs;
remuneration for underwriting the subscription of any securities orderivatives thereof of the company > 1% of the net worth
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Type of transaction Maximum limit
sale, purchase or supply of any goods or materials directly or throughappointment of agents
10% of the annualturnover or Rs. 100 crore;lower one
selling or otherwise disposing of, or buying, property of any kind directly orthrough appointment of agents
10% of net worth or rs.100 crore; lower one
leasing of property of any kind 10% of the net worth or10% of the turnover or Rs.100 crore; lower one
availing or rendering of any services directly or through appointment of agents 10% of the net worth orRs. 50 crore; lower one
appointment to any place of profit in the company, its subsidiary or associatecompany at a monthly remuneration
Rs. 2.5 lakhs
remuneration for underwriting the subscription of any securities or derivativesthereof of the company
1% of the net worth
Other pointers
The turnover or net worth shall be on the basis of the Audited
Financial Statement of the preceding financial year
Any transaction entered into ordinary course of business or
transactions on ‗arm‘s length basis‘ shall not require any
approval of Board or of members of the company.
However the same shall still require the approval of Audit
Committee
However, one has to consider the provisions under sec 166 also
‗arm‘s length‘ transaction would mean a transaction between
two related parties that is conducted without any conflict of
interest
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Determination of transaction to be
at arm’s length• Illustrative tests-
▫ prices/ discounts/ premiums and on such terms which are offered tounrelated parties of similar category/ profile
▫ commercially negotiated transaction▫ pricing is arrived at as per the rule/guidelines that may be issued by or
acceptable for the purpose of Ministry of Corporate Affairs,Government of India/ Income Tax Act, 1961, Securities and ExchangeBoard of India as applicable to any of the contract/ arrangementscontemplated under the Companies Act, 2013, Rules framedthereunder or Listing Regulations
▫ terms of contract/arrangement other than pricing are generally on abasis similar to those as may be applicable for similar category of goodsand services or similar category/ profile of counterparties
▫ may also apply the most appropriate method from any of the followingmethods as prescribed under Section 92C(1) of the Income Tax Act,1961 read with Rule10B of the Income Tax Rules, 1962
▫ May seek professional opinion
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Accounting Standard 18
Related party & related party
relationships-1/3• Considered 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
• enterprises that▫ directly, or indirectly through one or more intermediaries,▫ control, or are controlled by, or are under common control▫ with, the reporting enterprise▫ including holding companies, subsidiaries and
fellow subsidiaries
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Related party & related party
relationships-2/3• associates and JVs• investing party or venturer• individuals owning,
▫ directly or indirectly,▫ an interest in the voting power▫ that gives them control or significant influence over the
enterprise, and▫ relatives of any such individual
• KMP and relatives; and• enterprises over which any related person as mentioned
above is able to exercise significant influence-▫ includes enterprises owned by directors or major
shareholders and▫ enterprises that have a member of key management in
common with the reporting enterprise
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Related party & related party
relationships-3/3• Not related parties-
▫ Companies having merely common directors▫ unless the director is able to affect the policies of both
companies in their mutual dealings• a single customer, supplier, franchiser, distributor, or
general agent with whom transaction of a significantvolume of business merely by virtue of the resultingeconomic dependence
• Parties in the course of their normal dealings with anenterprise by virtue only of those dealings▫ providers of finance;▫ trade unions;▫ public utilities;▫ government departments and▫ government agencies including government sponsored
bodies
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Related Party- Act, 2013 & AS 18 -1/2
Particulars Whether related party under Act, 2013
Whether related party underAS-18
Director or relative Yes If only common then no. If thedirector can affect policies, then yes.
KMP or relative Yes. KMP defined to includepersons with authority andresponsibility for planning,controlling activities
Yes. KMP defined to meanMD/CEO/manager, WTD, CS, CFO.
Director , KMP and his relatives ofholding company
Yes No
Firm in which director, manager orhis relative is a partner
Yes No
Private company in which directoror manager or his relative is amember or director
Yes No
Public company with commondirector and holds along withrelatives 2% of paid up capital
Yes No
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Related Party- Act, 2013 & AS 18 -2/2
Particulars Whether related party under Act, 2013
Whether related party under AS-18
BoD accustomed to act in accordance with directions of director or manager
Yes Yes
Holding company, subsidiary or associate
Yes Yes
Fellow subsidiary Yes Yes
Joint venture Yes Yes
Fellow associate No Yes, if an individual controls or exercises significant influence over both the enterprises
A person on whose advice a director or manager accustomed to act
Yes Yes. In case of individual , there must be an interest in the voting power that gives them control or significant influence. Relatives of such individuals shall also be related party.
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Sequence of approvals required u/s 188
• Contract in Ordinary Course of business and on arm‘s lengthbasis▫ Only Audit Committee approval
Need not be prior approval
However, prior omnibus approval may be granted
• Contracts not in the ordinary course of business▫ may be approved by Audit Committee and
▫ will be recommended to Board for approval.
• Contracts in Ordinary Course of business not on Arm‘s Lengthbasis▫ Audit Committee cannot approve
▫ Considering provisions under Sec 166 (duties of directors), Board to takenecessary action subject to the approval of the shareholders
• If approval of Board or prior approval of S/H not obtained▫ Needs to be ratified within 3 months from date.
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Rule 6A- Omnibus Approval
Criteria for omnibus approval• Audit Committee to set criteria for granting
omnibus approval▫ Such criteria are subject to approval of the Board
• The criteria to include-▫ maximum value of the transactions, in aggregate and
per transaction, which can be allowed under theomnibus route in a year;
▫ extent and manner of disclosures to be made at thetime of seeking such approval;
▫ review, at such intervals, as decided by the committeeof RPTs entered into by the company pursuant to eachof the omnibus approval made;
▫ transactions which cannot be subject to the omnibusapproval
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Consideration of Audit Committee
• Committee to consider the following-
▫ repetitiveness of the transactions (in past or infuture);
▫ justification for the need of omnibus approval
▫ need of the omnibus approval
▫ in the best interest of the company
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Foreseen & unforeseen
transactions• For foreseen transactions the approval shall contain
the following-▫ name of the related parties;▫ nature and duration of the transaction;▫ maximum amount of transaction that can be entered
into;▫ the indicative base price or current contracted price
and the formula for variation in the price, if any; and▫ any other information relevant or important for the
Audit Committee to take a decision on the proposedtransaction
• For unforeseen transaction-▫ Value shall not exceed 1 crore per transaction
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Other pointers
• Validity of omnibus approval is one financialyear
• shall require fresh approval after the expiry ofsuch financial year.
• No omnibus approval for transactions in respectof selling or disposing of the undertaking of thecompany.▫ Further, transactions which are not at arm‟s
length cannot be approved by the AuditCommittee
• Additional conditions may be set out by AuditCommittee as may deem fit.
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Some case studies -1/6
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If A is related to B, does it mean that B is related to A?
No. If A is related to B, this does not essentiallymean that B is also related to A. One has to refer tothe definition of „related party‟ under the Act, 2013to establish the relationship of related party.
For instance, Company A is accustomed to actaccording to the directions of Company B, however,Company B is not accustomed to act according tothe directions of Company A. In this case, though Bis a related party to A, A is not a related party to B.
Some case studies -2/6
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Whether by virtue of having a common director of twoprivate companies , they become related parties?
• Yes. Section 2 (76) (iv) of the Act, 2013 provides that if a directoror manager of any company (private or public) is a director ormember in private company, then the private company would be arelated party to the other company.
Whether by virtue of having a common director of twopublic companies, they become related parties?
• No, by virtue of merely being common directors, since section 2(76) (v) of the Act, 2013 provides that if a director or manager ofany company is a director AND holds along with his relatives morethan 2% of the paid up share capital of a public company, thensuch public company would be treated as a related party to theother company.
Some case studies -3/6
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A director in company A does not hold any shares in publiccompany B but his relatives hold more than 2% paid up sharecapital in B. Will A & B still be related?
• Here, though the director is not holding any shares in B,however, he alongwith his relatives is still holding morethan 2% of the paid up share capital in B. Here theexpression alongwith will have to be seen in anexpansive sense and not in a restrictive sense. It will notserve the purpose of the definition if a director could getaway with the impact of the section merely by parkinghis interest in B in the name of his relatives.
• Therefore, A and B will be related parties under the Act,2013.
Some case studies -4/6
.
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• Voting is prohibited only to the particularcontract in which he is a related party. MCA videcircular dated 17th July, 2014 has clarified
A is a member of companyB, and is also a relatedparty to B. In this scenario,can A vote on theresolution to be passed byB for entering into a RPT?
• In terms of the 3rd proviso to section 188(1),transactions between holding and wholly ownedsubsidiary company need not require approvalof members.
What will be the position incase of a wholly ownedsubsidiary company, wherethe holding company is theonly member of thesubsidiary and is also arelated party?
Some case studies -5/6
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A is a related party to B but isnot interested in theresolution of members forRPT. Can A vote on theresolution to be passed forentering in a RPT?
Yes. Clarified vide MCACircular dated 17th July,2014
Will RPTs which are on anarms’ length basis but doesnot take place in the ordinarycourse of business be coveredby the provisions of Section188 (1) of the Act, 2013?
Yes. A RPT to be exemptedfrom the provisions ofSection 188 (1) of the Act,2013 must necessarily be inthe ordinary course ofbusiness. It is prerequisitefor availing the exemption.
Accordingly, RPTs on anarms‟ length basis but not inthe ordinary course ofbusiness will be covered bythe provisions of Section 188(1) of the Act, 2013.
Some case studies -6/6
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Can we presume that the disinterested minorityshareholders will now dictate the results of the resolutionwhich may negatively impact a Company and create asituation of deadlock?
The language of the Section 188 seems to imply as much.
Imagine a scenario where 60% of the majority shareholding in Ais held by those prohibited from voting in the general meeting,which mean that only the remaining 40% disinterestedshareholders would vote. Therefore any shareholder holding20% or more in A can impede any such RPT from being passedwhich can make functioning of companies difficult, resulting ina situation of ‘hung companies’.
Section 188 – other provisions -1/6
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Will related party transactions entered into in the ‘ordinary courseof business’ require to be passed by such resolutions ofshareholders?
• The third proviso to Section 188 (1) of the Act, 2013 provides that the company willnot require the approval of the Board and / or shareholders provided thetransactions are entered into by the company with the related party:
• in the ordinary course of business; and
• such transactions are on an arms‟ length basis
• Accordingly, any transaction which takes place in the ordinary course of business, but is not on an arms‟ length basis will be covered under the provisions of Section 188 (1) of the Act, 2013.
• However, one has to still observe Section 166
Has any criteria been prescribed for determining which RPTs has been entered into on an arms’ length basis?
• No. The Act, 2013 does not prescribe any criteria for determining whether the RPT was entered into on an arms‟ length basis. It would, therefore, be a subjective decision to be decided upon by the Board of Directors of every company.
Section 188 – other provisions – 2/6
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Has any exemption been given to transactions between holding andsubsidiary companies, considering that most of the transactionsbetween them can never be on arms’ length basis?
• Exemption of obtaining shareholders resolution is only granted totransactions entered into between a holding company and wholly ownedsubsidiary companies
• Hence, approval of Board and Audit Committee shall still be required
• The very concept of a holding subsidiary relationship is that thesubsidiaries mainly thrive on the transactions with their holdingcompanies.
• However, no exemption has been given to holding subsidiary transactionswhich are not on an arms‟ length transactions.
Section 188 – other provisions -3/6
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>The 3rd proviso says so. However, one has to take care of the provisions ofSec166 also.
>Further, all RPTs entered into by a company alongwith any modificationsto the same will require approval of the Audit Committee of the company, ifany.
>Therefore, it seems that while all arms‘ length transactions in ordinarycourse of business with related parties are not required to be approved by theBoard or shareholders, they would still require approval of the AuditCommittee, if any and considering the provisions of Sec 166, of the Boardalso.
Does it mean that RPTs which are in the ordinary course ofbusiness and on an arms’ length basis will not be required to be
passed by the Board?
Section 188 – other provisions -4/6
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Are directors liable for any loss suffered by the company withrespect to RPTs?
Any RPTs entered into by a company without prior approval of the Board
or shareholders, needs to be ratified within 3 months of entering into such
RTPs. Otherwise-
The RPT shall become voidable at the instance of the Board; and
If the same is with any director, or is authorised by any other director,
the director(s) concerned shall be required to indemnify the
company against any loss incurred by it.
The company has power to initiate any proceeding against director or
employee who has entered into such contract or arrangement.
In terms of section 164, he shall be disqualified for appointment as a
director of any other company for 5 years.
Section 188 – other provisions -5/6
• All companies are not required to form an Audit Committee. Therefore
companies not having Audit Committees are not required to get its RPTs
approved by the Audit Committee.
• However, where a company has an Audit Committee, approval of the RPT
by the Audit Committee is necessary since the Committee is required to act
in accordance with its terms of reference.
• Once approved by the Audit Committee, the same may be recommended to
the Board for its approval.
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Is it mandatory for a company to get its RPTs approved by an AuditCommittee?
Section 188 – other provisions -6/6
38
Does lending/guarantee to/from subsidiary come under relatedparty contract? Does the issue or subscription of securitiescovered?
•A subsidiary is certainly a related party as per section 2(76).
•However section 188 does not cover either loans or guarantees or issue
or subscription of securities.
•But section 177(4)(iv) will certainly cover such contracts which requires
Audit Committee approval.
Procedure to be followed for
entering into RPTs -1/2Serial No
Particulars Remarks
Mandatory Provisions
1 The RPT will first need to be approved bythe Audit Committee , if any.
In case the company does not have anyAudit Committee, this provision will notapply.
As per the Rules, only:(i) listed companies,(ii) Every public company having :
•paid up capital of 10 crore or more;or•turnover of Rs. 100 crore or more•in aggregate outstanding loans andborrowings, debentures or depositsexceeding Rs. 50 crore or more.
are mandatorily required to form anAudit Committee.
2 Once approved by the Audit Committee, ifany, the Board of Directors of theCompany will need to pass the resolutionat ameeting of the Board
Such resolutions cannot be passed by aresolution by circulation.
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Procedure to be followed for
entering into RPTs -2/2
For companies with paid up capital of Rs. 1 crore or more
3 The RPT will additionally needto be passed by theshareholders of the company
Members who are also related party to theparticular contract cannot vote on suchresolutions.This is not required for transactionsbetween holding company and whollyowned subsidiary companies
RPTs entered in ordinary course of business and on an arms’ length basis
4 None of the provisions u/s 188will apply to such transactions.However, approval by AuditCommittee, if any would stillbe applicable.
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Contravention of Sec 188
• Punishment for violation of provisions of the section
▫ Listed Company
Imprisonment extending to 1 year or
Fine Rs. 25,000 – Rs. 5 lakhs or with both
▫ Any other company
Fine Rs. 25,000 – Rs. 5 lakhs
▫ Penalty on any director or employee who enters into or
authorizes the contract in contravention of provisions
of the section
▫ Punishment levied even if no loss has been incurred by
Company from such RPT.
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RPTs under SEBI (LODR)
Regulations, 2015
Regulation 23
Related party & related party
transaction• Regulation 2(1)(zb)- related party means a related party as defined
under▫ section 2(76) of CA, 13, or▫ under the applicable accounting standards
• Regulation 2(1)(zc)-• “related party transaction” means
▫ a transfer of resources,▫ services or▫ obligations▫ between a listed entity and a related party,▫ regardless of whether a price is charged and
• In terms schedule II of LODR Audit Committee to madatorilyreview a statement of significant RPTs as defined by AuditCommittee▫ For this purpose, possible meaning of significant transaction may be
transaction of above 1 crore.
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Requirements under regulation 23
in brief Formulation of policy on “materiality” and on dealing with RPT
Material RPT Previous +proposed transaction during FY exceeds 10% of annual consolidated
turnover
All RPT shall require prior approval of the audit committee Audit committee may grant omnibus approval
Quarterly review of RPTs pursuant to omnibus approval
Resolution valid for 1 year
Material RPT shall require approval of shareholders Earlier it was Special Resolution
Now ordinary resolution
All related party to abstain from voting
Existing transactions may be continued only after approval of shareholders at thegeneral meeting held after these regulations
Exceptions▫ transactions entered into between two government companies;
▫ transactions entered into between a holding company and its wholly ownedsubsidiary whose accounts are consolidated with such holding company andplaced before the shareholders at the general meeting for approval.
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Corporate Governance Provisions
• Company to frame a policy on materiality of Related Party Transactions
and on dealing with Related Party Transactions
• Who would approve the policy
▫ Logically, audit committee, followed by the board
• Policy on dealing with material transaction to be put on the website of the
company and a web link thereto should be mentioned in the Annual report
• Contract or arrangement with related parties to be disclosed in the Board
Report with the justification for entering into such contract or arrangement
• Listed entity to make disclosure in compliance with AS 18 on ―related party
disclosures‖ in its annual report
• Details of material transactions with related parties to be disclosed in
quarterly compliance report on corporate governance
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Recommended contents of RPT
Policy• Terms of the Policy
▫ Requirement of approval of Audit Committee, Board, shareholders▫ Arm‟s length transactions▫ Transactions u/s 188 and LODR
• Governance Structure▫ Identification of related parties and related party transactions Who and how to identify
▫ How to ascertain a transaction to be at arm‟s length methods thereon
▫ How to ascertain a transaction to be in ordinary course of business▫ Procedure for approval and review of RPTs
• Omnibus Approval by Audit Committee▫ Criteria for such approval▫ Other conditions
• Dissemination of information▫ Where, to whom and how to report
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Omnibus approval under
Regulation 23
Conditions for omnibus approval
• Audit committee
▫ to lay down the criteria for granting the omnibusapproval in line with the policy on related partytransactions
▫ such approval shall be applicable in respect oftransactions which are repetitive in nature
▫ to satisfy itself
the need for such omnibus approval and
that such approval is in the interest of the listedentity
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Foreseen & unforeseen
transactions• For foreseen transaction the approval to specify-
▫ the name(s) of the related party,
▫ nature of transaction,
▫ period of transaction,
▫ maximum amount of transactions that shall be enteredinto,
▫ the indicative base price / current contracted price andthe formula for variation in the price if any; and
▫ such other conditions as the audit committee maydeem fit
• For Unforeseen transaction-
▫ Value shall not exceed 1 crore per transaction
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Other pointers
• Review on quarterly basis
• Validity for one year
▫ Year is not defined
• Exemption to transactions between
▫ govt. companies
▫ holding and wholly owned subsidiaries
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Comparison CA,13 & LODR
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RPTs under Act, 2013 & SEBI LODR
summarised-1/3Basis Companies Act, 2013 SEBI LODR
Scope of Related
Party
As defined under Section 2 (76) As defined under Section 2 (76) and
AS-18
Scope of
Transaction
Transactions covered under Section
188 (1)
Transfer of resources, services or
obligations between a company and a
related party, regardless of whether a
price is charged
Hierarchy of
approvals
Approval of Audit Committee, Prior
approval of Board and Shareholders
Prior approval of Audit Committee and
Shareholder‟s approval
Carve-out for
ordinary course
and arm’s length
transactions
Excluded from the purview of
Section 188 (1)
No such carve-outs
Materiality As provided under Rule 15 10% of annual consolidated turnover
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Basis Companies Act, 2013 SEBI LODR
Exclusions while
computing materiality
Transactions in ordinary
course and on arm‟s length
basis
No such exclusion
Need for prior
approval by
shareholders
Prior approval required for
material transactions
No such requirement.
Voting by related
parties
Related party who are
parties to the transaction to
abstain from voting
All related parties to abstain from voting
Applicability to
existing transactions
Applicable only to
transactions entered into
on or after April 1, 2014
All existing material related party
contracts or arrangements entered into
prior to 2nd September and which may
continue beyond such date.
Policy on Material
RPTs
No such requirement Regulation 23
Exemption to
government
companies
From the shareholders
resolution
From the approval of Audit committee as
well as shareholders
RPTs under Act, 2013 & SEBI LODR
summarised-2/3
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Basis Companies Act, 2013 SEBI LODR
Review of transactions under
omnibus approval
Audit committee may
decide
Quarterly
Transactions which cannot be
entered into under omnibus
approval
Audit committee to decide No such requirement.
Selling and disposing of
undertaking
Cannot grant omnibus
approval
No such restriction
Criteria for omnibus
approval
Prescribed in Rule 6A of
MBP Rules
Not prescribed
Validity of omnibus approval One financial year One year
Authority to set criteria for
granting omnibus approval
Audit Committee subject to
approval of Board
Audit Committee
RPTs under Act, 2013 & SEBI LODR
summarised-3/3
Consolidated requirements under
Companies Act, 2013 & SEBI LODR
Regulations, 2015
Approval- Audit Committee
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Notes:1. Omnibus approval granted by AC will be valid for only one financial year2. AC to review the RPTs entered into pursuant to such omnibus approval at such interval as it may deem fit (at least on
quarterly basis for Listed companies)
Approval- shareholder
58
Applicability of Shareholder's approval
Material RPT as defined Listing Regulations
Entered into with Wholly owned
subsidiary
No approval required
Entered into with any other Related Party
Approval of shareholders required by way of an Ordinary
Resolution
All related parties to abstain from voting
Not Material RPT but exceeds the limits under Rule 15 of Companies ( Meetings of
Board an its Powers) Rules, 2014
Prior approval of shareholders required by way of an Ordinary
Resolution
Related parties that are parties to the contract shall abstain from
voting
Provisions under Secretarial
Standards & Guidance notes
thereon
SS One
• Director shall not be reckoned for quorum in respect of
an item in which he is interested and
• he shall not be present during discussions and voting on
such item.
▫ Section 184(2) and Rule 15 of MBP Rules also talks about
the same
• In case of all the directors are interested
▫ To be decided at general meeting
▫ In general meeting voting entitlement shall be decided in
terms of Section 188, Rule 15 of MBP Rules and SS-2
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SS Two
• Related party not entitled to vote in a resolution inwhich he is a related party
• However, shall be counted for the purpose of quorum• In case of public companies chairman is
▫ not entitled to propose a resolution in which he isinterested
▫ not entitled to conduct proceeding of the meeting▫ required to entrust the conduct of the proceeding of the
meeting to un-interested director or to other member▫ to resume only after the matter is transacted This restriction is applicable only if the interest w.r.t only
a particular transaction.
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