STUDY CIRCLE MEETING BY
SINHAGAD ROAD ZONEOF
PUNE CHAPTER OF ICSI
08.08.2015
Related Party Transactions
CS ADITI BALAPATHAKTEAM LEADER
MSN ASSOCIATESCOMPANY SECRETARIES
Related Party Transactions
THE CONCEPT
NEWLY INTRODUCED UNDER COMPANIES ACT, 2013
BROADLY COVERS TWO CONCEPTS: RELATED PARTY – DEFINED UNDER SECTION 2 (76) TRANSACTIONS – DETAILED UNDER SECTION 188
RELATED PARTY
A Director or his Relative Relative to include1. Father [including step father]2. Mother [including step mother]3. Brother [including step brother]4. Sister [including step sister]5. Wife6. Son [including step son]7. Son-in-law8. Daughter9. Daugther-in-law
RELATED PARTY
A Key Managerial Personnel or his RelativeKMP means
CEO, Managing Director or Manager Company Secretary Whole-time Director Chief Financial Officer and Such other officer as may be prescribed
RELATED PARTY
A Firm, in which a director, manager or his relative is a partner
RELATED PARTY
A Private Company in which a director or manager is a member or director
RELATED PARTY
A Public Company in which a director or manager is a director AND holds along with his relatives, more than two percent of its paid-up share capital
RELATED PARTY
Any Body Corporate whose Board of Directors, MD or Manager is accustomed to act in accordance with the advice, directors or instructions of a director or manager
Any person on whose advice, directions or instructions a director or manager is accustomed to act;
Provoided that nothing in sub-clause (vi) and (vii) shall apply to the advice, instructions or directions given in a professional capacity
RELATED PARTY
Any company which is – Holding, subsidiary or an associate company of such
company or A subsidiary of a holding company to which it is also a
subsidiarySuch other person as may be prescribed
RELATED PARTY TRANSACTIONS
Sale, Purchase or supply of any goods or materials
Selling or otherwise disposing of, or buying, property of any kind
Leasing of property of any kindAvailing or rendering of any servicesAppointment of any agent for purchase or
sale of goods, materials, services or property
RELATED PARTY TRANSACTIONS
Such Related Party’s appointment to any office or place of profit in the Company, its subsidiary company or associate company
Underwriting the subscription of any securities or derivatives there of, of the Company
RELATED PARTY TRANSACTIONS
Office or Place of Profit Director receiving anything any thing by way of
remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, rent free accommodation or otherwise
Any relative, firm, private company or body corporate holding such office or place of profit receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation or otherwise
RELATED PARTY TRANSACTIONS
Some contracts or arrangements to require ORDINARY RESOLUTION to be passed if Paid-up share capital of a company is Rs. 10 Crores or more Transactions with respect to clauses (a) to (e) exceeding the
following thresholds: Sale, purchase, supply of goods exceeding 25% of Annual Turnover Selling, disposing or buying of property exceeding 10% of Net worth Leasing of Property of any kind exceeding 10% of the Net worth Availing or rendering of any Services exceeding 10% of Net worth
Appointment to any office or place of profit at a monthly remuneration exceeding Rs. 250000
Remuneration for underwriting the subscription or any securities or derivatives exceeding 1% of Net worth
RELATED PARTY TRANSACTIONS
Member who is a Related Party is not entitled to vote on such Resolution to approve Related Party Transactions
Requirement of Passing Ordinary Resolution not applicable for transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated
RELATED PARTY TRANSACTIONS
Exemptions: Transactions entered into by the Company in its
Ordinary Course of Business other than transactions which are not on an Arm’ Length Basis
For a private company, a member who is a related party can vote on the matter of Related Party Transactions
Section 8 Companies are exempt for transactions upto a monetary limit of Rs. 1,00,000
RELATED PARTY TRANSACTIONS
Ratification: The Related Party Transactions can be ratified within
three months by the Board of General Meeting as the case may be
Effects of Non Compliance
The Contract is voidable at the option of the BoardIf the Contract is with a related party to any
director, or is authorised by any other director, the directors concerned shall indemnify the company against any loss incurred by it
The Director or other employee who has entered into transaction in violation For listed company – punishable with imprisonment upto 1
year or with fine which may range from Rs. 25000 to Rs 500000 or with both
For other Companies – punishable with fine which may range from Rs. 25000 to Rs. 500000
Disclosure Requirements
Needs to be disclosed in the Board’s Report along with justification for entering into such transactions
Transactions at Arm’s Length shall also have to be disclosed
Disclosure in prescribed format in the Annual Return
Maintenance of Register
Section 189 provides for maintenance of register of Related Party Transactions in Form MBP-4
Such register is to be placed before the Board Meeting and shall be signed by ALL the director present for the meeting
The Register will be produced at the commencement of every Annual General Meeting and shall remain open and accessible during the continuation of the meeting to any person having the right to attend the meeting
Section 8 Companies are exempt if the transaction value does not exceed Rs. 100000
Maintenance of Register
Exemptions Register not required if it is a contract or
arrangement for the sale, purchase or supply of any goods or services, if the value of such goods and materials or cost of services does not exceed Rs. 500000 in the aggregate in a year or for banking companies for collection of bills in the ordinary course of business
Section 8 Companies are exempt if the transaction value does not exceed Rs. 100000
Some Practical Cases
Remuneration paid to Directors and Key Managerial Personnel
In A Private Limited Mr. and Mrs. X are directors. A Private Limited has purchased goods from B Private Limited in which son and daughter of Mr. X are directors
A Private Limited has taken a house from its director ‘X’ on leave and license for a period of 33 months.
Other relevant Sections - Section 184
Every Director to disclose his concern or interest in any company or companies or bodies corporate, firms or other association of individuals which shall include the shareholding
The disclosure is on Annual Basis and also at the time of change in the disclosure already given
Director is restrained from voting on contracts in which he is interested if the said contract is entered into
With Body Corporate in which director(s) holds more than 2 % shares
With a firm or other entity in which such director is a partner, owner or member as the Case may be
Other relevant Sections - Section 184
Exemptions Filing Requirement for Resolution done away with
recent notification dated 19th March 2015 Private Limited Company – director may participate
on contracts discussed in the Board Meeting after disclosure of interest
Provisions of sub-section 2 shall apply to Section 8 Companies only if it falls under the provisions of Section 188 and the value exceeds Rs. 100000
Other relevant Sections- Section 185
Loans, Guarantees or Securities to Directors or entities in which they are interested are prohibited
Exemptions Loan made/ guarantee given or security provided by
holding Company to its wholly owned subsidiary Guarantee given or Security provided by holding
Company to its subsidiary Loan given to managing or whole-time director
As a part of the conditions of service extended by the Company to all its employees, or
Pursuant to any scheme approved by the members by a Special Resolution
Other relevant Sections- Section 185
Exemptions to Private Limited Companyon fulfillment of following conditions In whose share capital, no body corporate has
invested any money If the borrowings of such a company from banks or
FIs or other bodies corporate is less than twice of its paid-up capital or Rs. 50 crores, whichever is less and
Such a company has no default in repayment of such borrowings subsisting at the time of making transaction under this section
Other relevant Sections- Section 186
Where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement of subsection (3) of section 186 shall not apply
Secretarial Check-Points
Identify Related Parties (refer MBP-1. AS-18 disclosures)
Understand the nature of transaction – whether it is a Related Party Transaction or Not
Ensure Board/ General meeting approval as the case may be
Observe Maintenance of RegisterEnsure proper disclosure in the Board’s ReportEnsure proper disclosure in the Annual Return
ANY QUESTIONS???
Thank you ! ! !