MKB & ASSOCIATES

DECODING
RELATED PARTY
TRANSACTIONS

A COMPLICATED WEB
MANOJ BANTHIA
MKB & ASSOCIATES
SHANTINIKETAN, 5TH FLOOR, ROOM NO. 511
8 CAMAC STREET, KOLKATA-700017
E-MAIL : mbanthia2010@gmail.com
 MKB & ASSOCIATES

Understanding RPTs
• Who is a Related Party?
• What is the Status of the Entity?
• What are Related Party Transactions?
• What legal Provisions are applicable to
RPT based on status of an entity?
• What are the Compliances to be done?
• What are Disclosures Requirements?
 MKB & ASSOCIATES

WHO IS A RELATED PARTY???

SECTION 2(76) OF COMPANIES
ACT, 2013

SEBI (LISTING OBLIGATIONS & DISCLOSURE

REQUIREMENTS) REGULATIONS , 2015

ACCOUNTING STANDARD 18

IND-AS 24

SEC 5(24) OF I&B CODE

 MKB & ASSOCIATES

RELATED PARTY (S.2(76))

Related Party, with reference to a Company, means
A director or his relative Any body corporate whose Board of Directors,
managing director or manager is accustomed to
act in accordance with the advice, directions
or instructions of a director or manager;

A key managerial personnel or his relative Any person on whose advice, directions or
instructions a director or manager is accustomed
to act:

A firm, in which a director, manager or his Any company which is

relative is a partner;
- a holding, subsidiary or an associate company,
or
- a fellow subsidiary; or
- an investing Company or the venturer of the
Company

A private company in which a director or Such other persons as may be prescribed

manager or his relative, is a member or director;

A public company in which a director or manager A director (other than ID) or KMP of the holding
is a director and holds along with his relatives, company or his relative; - Rule 3 of The
more than two per cent. of its paid-up share Companies (Specification of Definition Details)
capital; Rules, 2014
 MKB & ASSOCIATES

Notification dt.5/6/2015
Section 2(76)(viii)
N. dt. 5/6/2015
Section 2(76)(viii) shall not apply with respect to Section 188

Impact:
➢ For the purposes of Section 188, a holding Company, Subsidiary
Company, fellow subsidiaries and associate companies will not be
related parties to a Private Limited Company.
➢ Thus, no Board Resolution or Special Resolution required for
transaction between a Private company and its H/S/FS/ACs.
➢ No Entry of Such transaction required in MBP 4
 MKB & ASSOCIATES

RELATED PARTY (S.2(76))

Some Important Points to be noted
S.2(77) “relative”, with reference to any person, means any one who is related to another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed;
Rule 4 of the Definition Details Rules. prescribed the following relations as Relatives :
Father, Mother, Son, Son’s wife, Daughter, Daughter’s husband, Brother & Sister (Step included)
"associate company", in relation to another company, means a company in which that other company has a
significant influence, but which is not a subsidiary company of the company having such influence and
includes a joint venture company.
"significant influence" means control of at least twenty per cent. of total voting power, or control of or
participation in business decisions under an agreement;
Director or KMP of Subsidiary or Associate or Fellow Subsidiary - Not a
related party.
A LLP in which the Director is a Partner - No details
A Significant Non corporate shareholder ?? - unless he falls under clause (vii)
Fellow Associate, Subsidiary’s associate or Fellow Subsidiary’s associate or
Associate’s associate - Not a related party
A person on whose instructions the board of a company is accustomed to act,
also has similar influence over the board of another company
 MKB & ASSOCIATES

RELATED PARTY REG 2(zb)

SEBI Listing Obligations Disclosure Requirements
Regulations

“Related Party”
means
a related party as defined
under sub-section (76) of
section 2 of the Companies
Act, 2013 or under the
applicable Accounting
Standards

APPLICABILITY of IND AS 24:

- ALL LISTED COMPANIES
- ALL UNLISTED COMPANIES HAVING NETWORTH OF RS. 250 CRORES OR MORE
- HOLDING, SUBSIDIARY, JOINT VENTURE OR ASSOCIATES OF ABOVE
 MKB & ASSOCIATES

RELATED PARTY RELATIONSHIP

(As per AS-18)
PARA 3(a) of AS-18:
Enterprises that directly, or indirectly through one or more intermediaries, control, or
are controlled by, or are under common control with, the reporting enterprise.
[Intermediary = Subsidiary (Explanation below Para 13)]
PARA 3(b) of AS-18:
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;
PARA 3(c) of AS-18:
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; [Shareholding SI = 20% or more Voting Power]
PARA 3(d) of AS-18:
Key Management Personnel and relatives of such personnel; [KMP = MD, WTD and any
persons in accordance with whose directions or instructions the Board is accustomed to
act.] {NED not a KMP}
PARA 3(e) of AS-18:
Enterprises over which any person described in (c) or (d) is able to exercise significant
influence;
 MKB & ASSOCIATES

RELATED PARTY RELATIONSHIP

(As per AS-18)
SOME IMPORTANT DEFINITIONS
- “Control” has been defined in Para 10.3 of AS-18
- Ownership of more than 50% of the Voting Power
- Control of composition of Board of Directors / Governing Body
- a substantial interest in voting power and a power to direct, by statute ‘or
agreement, the financial and/or operating policies of the enterprise.
- ASI 19 describes “intermediaries” as subsidiaries. Explanation to AS also states the
same.
- Clause 10.5 of AS 18 defines “Associate” as an enterprise in which an investing
reporting party has significant influence and which is neither a subsidiary nor a joint
venture of that party.
- As per clause 10.4 of AS 18 “Significant Influence” means participation in the financial
and/or operating policy decisions of an enterprise , but not control of those policies.
- “Significant Influence” can be exercised in several ways. It may be gained by share
ownership, statute or agreement. Significant influence through Share ownership can be
manifested by the investing party holding, directly or indirectly through intermediaries,
20% or more of the voting power.
 MKB & ASSOCIATES

RELATED PARTY RELATIONSHIP

(As per AS-18)
SOME POINTS TO BE NOTED

- Under the Companies Act 2013, a shareholder (irrespective of

his shareholding) is not a related party, unless he his also a
director.
- Relatives of “Major Shareholders” are not related parties under
Section 2(76) of the 2013 Act.
- A non-executive Director or a Director simpliciter and their
relatives are not “Related Party” under AS-18.
- “Relatives” as per AS 18 means spouse, son, daugther, brother,
sister, father and mother.
- Under the Companies Act, Son’s wife and Daughter’s husband
are also Relatives.
 MKB & ASSOCIATES

RELATED PARTY RELATIONSHIP

[As per Ind AS 24 - Para 9 cl (a)]
Control :
Power over Investee
Rights to variable returns
Ability to affect Variable
Control or Joint Control over RE returns through its power
PERSON [cl.(a)(i)] over the investee. (Ind AS
110)

Significant Influence over RE Joint Control :

Contractually agreed sharing
[cl.(a)(ii)] of control of an arrangement
(Ind AS 111)
CLOSE
MEMBER Is a KMP of RE or its Parent KMP:
[cl.(a)(iii)] Persons having authority and
responsibility for planning,
directing and controlling the
a c t i v i t i e s o f t h e e n t i t y,
including any director
Family Members who may be expected to influence or (executive or otherwise)
be influenced by a person:
Person’s Children, Significant Influence:
Spouse or Domestic Partner Power to participate in the
Brother , Sister, Father and Mother financial and operating policy
Children of Spouse or Domestic Partner decisions of an entity.
Dependants of that person’s spouse or domestic partner
[Shareholding SI = 20% or more
Voting power]
 MKB & ASSOCIATES

RELATED PARTY RELATIONSHIP

(AS PER IND-AS 24)

REPORTING ENTITY

A person
identified in
One entity is The entity is The entity, or
(a)(i)
an associate a post- any member
The entity is has
or joint employment of a group of
Entity and RE One entity is controlled or significant
venture of benefit plan which it is a
are members a joint jointly influence
the other for the part,
of same Both entities venture of a controlled by over the
entity benefit of provides key
Group are joint third entity a person entity or is a
(or an employees of management
(Same Group ventures of and the other who has member of
associate or either the personnel
= Parent, the same entity is an control or the key
joint venture reporting services to
Subsidiary & third party associate of joint control management
of a member entity or an the reporting
Fellow the third of the personnel of
of a group of entity related entity or to
Subsidiary [cl 9(b)(iii)] entity reporting the
which the to the parent of
entity entity (or of a
other entity the reporting the reporting
[cl 9(b)(i)] [cl 9(b)(iv)] parent of the
is a member) entity entity.
[cl 9(b)(vi)] entity).
[cl 9(b)(ii)] [cl 9(b)(v)] [cl 9(b)(viii)]
[cl 9(b)(vii)]
 MKB & ASSOCIATES

RELATED PARTY RELATIONSHIP

(clause 9(b)(i)
Entity and RE are members of same Group
(Same Group = Parent, Subsidiary & Fellow Subsidiary

HOLDING Reporting
SUBSIDIARY
COMPANY Entity

FELLOW
SUBSIDIARY
 MKB & ASSOCIATES

RELATED PARTY RELATIONSHIP

(clause 9(b)(ii)
One entity is an associate or joint venture of the other entity
(or an associate or joint venture of a member of a group of
which the other entity is a member)

HOLDING Reporting
SUBSIDIARY
COMPANY Entity

ASSOCIATE
or
ASSOCIATE FELLOW JV
or SUBSIDIARY
JV
 MKB & ASSOCIATES

RELATED PARTY RELATIONSHIP

(clause 9(b)(iii) & (iv))
Both entities are joint ventures of the same third party

One entity is a joint venture of a third entity and the other entity is an associate of the third
entity

JV JV
AX AX

THIRD THIRD
COMPANY COMPANY
A LTD A LTD

JV
ASSOCIATE
AY
 MKB & ASSOCIATES

RELATED PARTY RELATIONSHIP

(clause 9(b)(vi)
The entity is controlled or jointly controlled by a person
who has control or joint control of the reporting entity

Person
A LTD B PVT LTD
“A”

REPORTING
ENTITY
 MKB & ASSOCIATES

RELATED PARTY RELATIONSHIP

(clause 9(b)(vii)
A person identified in (a)(i) has significant influence over the entity or is a
member of the key management personnel of the entity (or of a parent of the
entity).

SIGNIFICANT
INFLUENCE

Person
A LTD B PVT LTD
“A”

CONTROL

KM
P

X LTD
REPORTING
ENTITY (HOLDING
CO)
 MKB & ASSOCIATES

Exemptions under AS

Two joint venturers

Not
Related
 MKB & ASSOCIATES

RELATED PARTIES AS PER I&B CODE

Related Party, in relation to a Corporate Debtor, means
A director or partner of the corporate debtor or a relative any limited liability partnership or a partnership firm
of a director or partner of the corporate debtor; whose partners or employees in the ordinary course of
business, acts on the advice, directions or instructions of a
director, partner or manager of the corporate debtor;

a key managerial personnel of the corporate debtor or a any person on whose advice, directions or instructions, a
relative of a key managerial personnel of the corporate director, partner or manager of the corporate debtor is
debtor; accustomed to act;
a limited liability partnership or a partnership firm in which a a body corporate which is a holding, subsidiary or an
director, partner, or manager of the corporate debtor or his associate company of the corporate debtor, or a subsidiary of
relative is a partner; a holding company to which the corporate debtor is a
subsidiary;
a private company in which a director, partner or manager of any person who controls more than twenty per cent. of voting
the corporate debtor is a director and holds along with his rights in the corporate debtor on account of ownership or a
relatives, more than two per cent. of its share capital; voting agreement;
a public company in which a director, partner or manager of any person in whom the corporate debtor controls more than
the corporate debtor is a director and holds along with twenty per cent. of voting rights on account of ownership or a
relatives, more than two per cent. of its paid- up share voting agreement;
capital;
anybody corporate whose board of directors, managing any person who can control the composition of the board of
director or manager, in the ordinary course of business, acts directors or corresponding governing body of the corporate
on the advice, directions or instructions of a director, partner debtor;
or manager of the corporate debtor;
 MKB & ASSOCIATES

RELATED PARTY AS PER I & B CODE

2(24)…contd. ….
m) any person who is associated with the corporate
debtor on account of-

(i) participation in policy making processes of the

corporate debtor; or
(ii) having more than two directors in common
between the corporate debtor and such person; or
(iii) interchange of managerial personnel between
the corporate debtor and such person; or
(iii) provision of essential technical information to,
or from, the corporate debtor;
 MKB & ASSOCIATES

WHAT ARE RELATED PARTY

TRANSACTIONS?
SECTION 188 OF COMPANIES
ACT, 2013

REGULATION 2(ZC) OF LODR

ACCOUNTING
IND-AS 24
STANDARD 18
 MKB & ASSOCIATES

RELATED PARTY TRANSACTIONS (188)

SPECIFIED CONTRACTS BETWEEN
A COMPANY & RELATED PARTY
✓Sale, purchase or supply or any goods or materials
✓Selling , buying property of any kind
✓Leasing of property of any kind
✓Availing or rendering of any services
✓Appointment of agent for purchase or sale of
goods, materials, services or property
✓Appointment to any office or place of profit in the
company/AC/SC
✓Underwriting of securities
 MKB & ASSOCIATES

Related Party Transaction as per LODR

 MKB & ASSOCIATES

Examples of RPT as per IND AS 24

• Purchase or Sale of Goods
• Purchases or Sales of Property and other assets
• Rendering or receiving of services
• Leases
• Transfer of research and development
• Transfers under licence agreements
• Transfers under finance arrangements (loan & equity
contributions)
• Provisions of Guarantees or Collateral
• Commitments to do something if a particular event occurs or
does not occur in future
• Settlement of liabilities on behalf of the entity
• Management Contracts including deputation for employees
 MKB & ASSOCIATES

RELATED PARTY TRANSACTIONS

The following transactions do not fall within the ambit of
Related Party Transactions

RELATED RELATED
PARTY
Reporting PARTY

A LTD B PVT LTD

Entity

ON
TI
TR

SAC
AN

A N
SA

TR
CT
IO
N

Subsidiary

RELATED PARTY
 MKB & ASSOCIATES

STATUS OF THE COMPANY?

 MKB & ASSOCIATES

COMPANY STATUS – RELEVANT TO

DETERMINE EXTENT OF APPLICABILITY

PRIVATE OR PUBLIC
COMPANY COMPANY
 MKB & ASSOCIATES

PUBLIC COMPANY – DIFFERENT

YARDSTICKS
PUBLIC
COMPANY

LISTED

UNLISTED
PUC < =10 SME Other
Cr & NW Listed Listed
<=25 cr Entity Entity

L/B/D/ Other
PUC>=10 TO >= Unlisted
dep >50 Public
Cr 100 Cr
Cr Company
 MKB & ASSOCIATES

PRIVATE COMPANY
• Provisions of Companies Act, 2013
applicable.
• All Private Companies, irrespective of
size, treated alike.

OTHER
PRIVATE UNLISTED
COMPANY PUBLIC
COMPANY
 MKB & ASSOCIATES

LISTED COMPANY – LODR APPLICABILITY

REGN 23 OF LODR
PLC <= 10 cr NOT APPLICABLE.
& NW < =25
cr or SME YES CLAUSE 34(3) &
SCH V (A)
Listed ?? APPLICABLE.

NO

LODR APPLICABLE.
RP means RP as per
Section 2(76) or under
IND AS 24
 MKB & ASSOCIATES

COMPANY STATUS & APPLICABLE

PROVISIONS
STATUS OF THE COMPANY COMPLIANCE OF
LISTED PUBLIC COMPANY : SECTION 177
-HAVING PAID UP CAPITAL OF LESS SECTION 188
THAN RS. 10 CR ,AND LODR - CLAUSE 23
-NET WORTH OF LESS THAN RS. 25 NOT APPLICABLE
CRORE CLAUSE 34 AND
SCH V APPLICABLE

SME LISTED COMPANY SAME AS ABOVE

OTHER LISTED PUBLIC COMPANY SECTION 177 & 188
LODR APPLICABLE
UNLISTED PUBLIC COMPANY: SECTION 177 & 188
- HAVING PUC OF RS. 10 CR OR MORE, OR
-TURNOVER OF RS. 100 CR OR MORE, OR
- HAVING IN AGGREGATE LOANS/
BORROWINGS/DEBENTURES/DEPOSITS OF
NOT LESS THAN 50 CROES
OTHER UNLISTED PUBLIC COMPANY AND SECTION 188
PRIVATE COMPANY
 MKB & ASSOCIATES

COMPLIANCE PROVISIONS

THE COMPANIES ACT, 2013

&
RULES THEREUNDER

SECURITIES AND EXCHANGE

BOARD OF INDIA (LISTING
OBLIGATIONS AND DISCLOSURE
REQUIREMENTS) REGULATIONS, 2015
ACT, 2013

APPROVAL OF AUDIT COMMITTEE
SECTION 177
Section 177(4)(iv):
(4) Every Audit Committee shall act in
accordance with the terms of reference
specified in writing by the Board which
shall, inter alia, include,—
****
(iv) approval or any subsequent
modification of transactions of the
company with related parties;
Provided that the Audit Committee may
make omnibus approval for related
party transactions proposed to be
entered into by the company subject to
such conditions as may be prescribed;".
Rule 6A for Omnibus Approval of Related
Party Transactions on Annual basis
MKB & ASSOCIATES
2nd Proviso:
Provided further that in case of transaction, other than
transactions referred to in section 188, and where Audit
Committee does not approve the transaction, it shall
make its recommendations to the Board:
3rd Proviso:
Provided also that in case any transaction involving any
amount not exceeding one crore rupees is entered into
by a director or officer of the company without
obtaining the approval of the Audit Committee and it is
not ratified by the Audit Committee within three months
from the date of the transaction, such transaction shall
be voidable at the option of the Audit Committee and if
the transaction is with the related party to any director
or is authorised by any other director, the director
concerned shall indemnify the company against any loss
incurred by it:
4th Proviso
Provided also that the provisions of this clause shall not
apply to a transaction, other than a transaction referred
to in section 188, between a holding company and its
wholly owned subsidiary company.".
 MKB & ASSOCIATES

RELATED PARTY TRANSACTIONS (188)

Except with the consent of the Board of Directors given by a resolution at a meeting of the Board, no
company shall enter into any contract or arrangement with a related party with respect to Related Party
Transactions

RELATED PARTY TRANSACTIONS RELATED PARTY as defined in Section

2(76)
✓Sale, purchase or supply or any
goods or materials
✓Selling , buying property of any Prior approval by SR(OR wef
kind 25.5.2015) required if:
✓Leasing of property of any kind
✓Availing or rendering of any Paid-up Share Capital of the
services
✓Appointment of agent for purchase Company not less than specified sum
or sale of goods, materials, services
or property
OR
✓Appointment to any office or place Value of transaction during a FY
of profit in the company/AC/SC
✓Underwriting of securities exceeding specified sum

➢Related Party not entitled to vote on Members’ Resolution

➢If 90% of members are either related parties or relatives of Promoters, RPs can
vote on Resolution.
➢Section not to apply to transactions entered in ordinary course of business and
are on Arm’s length basis.

APPROVAL PROCEDURE UNDER COMPANIES ACT
APPROVAL
PROCEDURE
Approval of Audit Committee of
transactions with related parties or
their subsequent modifications.’
Committee may grant Omnibus
approvals for RPTs as per Rules.
All RPTs u/s 188 require approval
by Board of Directors of the
Company.
All transaction(s) exceeding
specified value require prior
approval of shareholders by way of
Ordinary Resolution.
No shareholders approval
necessary for transactions entered
into between a HC and its WOS
whose accounts are consolidated
with such holding company and
placed before the shareholders at
the general meeting for approval
Turnover or Net Worth shall be on the basis of the Audited Financial Statement of the preceding Financial year. (Expn 1)
MKB & ASSOCIATES
A company shall not enter into a contract or arrangement with any
related party except with the prior approval of company by
Ordinary Resolution (Rule 15(3))
FOR
sale, purchase or supply of any goods or 10% or more of Turnover of
m a t e r i a l s d i r e c t l y o r t h r o u g h the company
appointment of agents
selling or otherwise disposing of, or 10% or more of Networth of the
buying, property of any kind directly or company.
through appointment of agents
leasing of property of any kind 10% or more of turnover of the
company
availing or rendering of any services 10% or more of turnover of the
directly or through appointment of agents company
appointment to any office or place of at a monthly remuneration
profit in the company, its subsidiary exceeding two and half lakh
company or associate company rupees
remuneration for underwriting the exceeding one percent. of the
s u b s c r i p t i o n o f a n y s e c u r i t i e s o r net worth
derivatives thereof of the company
 MKB & ASSOCIATES

COMPLIANCE UNDER LODR

APPROVING REGN COMPLIANCE REQUIREMENT
AUTHORITY NO
AUDIT COMMITTTEE 23(2) • All related party transactions shall require prior approval of the audit
committee.

23(3) • Audit committee may grant omnibus approval for related party transactions
proposed to be entered into by the listed entity subject to the following
conditions
BOARD OF DIRECTORS • No specific requirement of taking approval of Board.
• Key function of the Board to monitor and manage potential conflict of
4(2)(f)(ii)(6) interest including abuse in RPTs.
SHAREHOLDERS 23(4) • All material related party transactions shall require approval of the
shareholders

• All entities falling under the definition of related parties shall not vote to
23(7) approve the relevant transaction irrespective of whether the entity is a
party to the particular transaction or not.

Explanation • A transaction shall be considered material if the transaction(s) to be

23(1) entered into individually or taken together with previous transactions
during a financial year, exceeds 10%of the annual consolidated turnover as
per the last audited financial statements of the listed entity.
23(1A) • Brand usage payment or Royalty - 5% (Material)

EXEMPTIONS 23(5) • Transactions entered into between two government companies;

• Transactions entered into between a holding company and its wholly owned
subsidiary whose accounts are consolidated with such holding company and
placed before the shareholders at the general meeting for approval.
 MKB & ASSOCIATES

COMPARISON OF APPROVAL MECHANISM

 MKB & ASSOCIATES

OMNIBUS APPROVAL
COMPANIES ACT 2013 LODR (23(3))

Audit Committee may make Omnibus Approval for Related Audit Committee may grant Omnibus Approval for RPT after
Party transactions satisfying itself regarding the need for such approval and that
such approval is in the interest of the listed entity

AC may, after obtaining approval fromBOD specify the criteria AC to lay down criteria for granting OA in line with RPT policy
for making Omnibus approval
Omnibus approval to indicate the following:
-Name of related Party
-Nature & duration of transaction
-Maximum amount of transaction
-Indicative base price & formula for variation
-Any other information relevant or important for AC to take
decision on proposed transaction??????
of the Company & such approval shall be applicable in
respect of transactions which are repetitive in nature;
Omnibus Approval to specify:
-Name of Related Party
- Nature of transaction
- Period of transaction
- Maximum amount of transaction
- Indicative base price & variation formula
- Such Other condition as deem fit

-Where need for RPT unforeseen and details not available, AC Where need for RPT unforeseen and details not available, AC
may make OA for such transactions subject to their value not may grant OA for such transactions subject to their value not
exceeding Rs. 1 crore per transaction exceeding Rs. 1 crore per transaction

-Validity – One Financial Year Validity Period – One Year

-Review Period – As deem fit Review Period – Quarterly basis

-No omnibus approval in respect of selling or disposing of the

undertaking
 MKB & ASSOCIATES

RPT POLICY UNDER LODR

REQUIREMENT CLAUSE COMPLIANCE REQUIREMENT
NO
Policy on materiality 23(1) • The listed entity shall formulate a policy on materiality of
of related party related party transactions and on dealing with related
transactions party transactions.
• Such policy shall be reviewed by the board of directors at
least once every three years

POLICY ON RELATED 23(3)(a) • Audit Committee shall lay down the criteria for granting
PARTY TRANSACTIONS the omnibus approval in line with the policy on related
party transactions

POLICY ON DEALING 46(2)(g) • Listed entity shall disseminate Policy on Dealing with
WITH RELATED PARTY Related Party Transactions under a separate section on its
TRANSACTIONS website
 MKB & ASSOCIATES

HOLDING SUBSIDIARY
RPT PROVISIONS
 MKB & ASSOCIATES

SPECIAL PROVISIONS
HOLDING - SUBSIDIARY
PROVISION REQUIREMENT
PRIVATE COMPANY Section 2(76)(viii) shall not apply with respect to Section 188 to a Private
Limited company.

fourth proviso to AC approval not necessary for Non-Section 188 transactions between a
section 177 (4)(iv) Holding Company and its WOS.

fifth proviso to Shareholders resolution not necessary for transactions entered into
Section 188(1) between a holding company and its wholly owned subsidiary whose
accounts are consolidated with such holding company and placed before
the shareholders at the general meeting for approval.
Explanation 2 to In case of wholly owned subsidiary, the resolution is passed by the
Rule 15 holding company shall be sufficient for the purpose of entering into the
transaction between the wholly owned subsidiary and the holding
company.
Regulation 23(5)(b) Audit Committee or Omnibus or Shareholders’ approval not needed in
case of transactions entered into between a holding company and its
wholly owned subsidiary whose accounts are consolidated with such
holding company and placed before the shareholders at the general
meeting for approval.
 MKB & ASSOCIATES

SOME VIEWS FROM

GUIDANCE NOTE
 MKB & ASSOCIATES

VIEWS FROM GUIDANCE NOTE

• In case of preferential allotment although it is a transaction with a related
party, the same is not a related party transaction. (pg 15)
• A Leave and Licence agreement is not treated as equivalent to leasing of
property. A licence creates limited rights with respect to use of immovable
property. However, it will be a transaction with a related party covered under
Section 177. (pg 27)
• Shares are treated as goods once allotted. Hence, issue of shares and
debentures will not fall under the purview of Section 188. However, transfer
of shares to a related party would be considered as a related party
transaction. (pg 27)
• Buyback of shares, since, it is a part of a scheme and not a contract or
arrangement with any individual director; it will not be treated as a related
party transaction.
• In view of the explanation given under Section 188( ), the appointment of a
Managing Director of a holding company as Chairman in a subsidiary company,
without any remuneration, will not be treated as a related party transaction
and will not require approval of the Board/ shareholders as provided in
Section 188 of the Act.
• The Audit Committee should discuss related party transactions which are not
in the ordinary course of business or which are not on arm’s length basis at its
meetings and not through circulation.
 MKB & ASSOCIATES

DISCLOSURE
REQUIREMENTS
 MKB & ASSOCIATES

DISCLOSURE/REPORTING REQUIREMENTS
UNDER COMPANIES ACT

PROVISION REQUIREMENT
188(2) Every contract or arrangement entered into under sub-section (1) shall be
referred to in the Board’s report to the shareholders along with the
justification for entering into such contract or arrangement.
129 Financial Statements to comply with Accounting Standards
- DISCLOSURE OF RELATED PARTY TRANSACTIONS IN FINANCIAL STATEMENTS
OF A COMPANY TO BE MADE AS PER APPLICABLE ACCOUNTING STANDARD
134(3)(h) BOARD’S REPORT TO INCLUDE PARTICULARS OF CONTRACTS OR
ARRANGEMENTS WITH RELATED PARTIES REFERRED TO IN SEC 188(1) IN AOC 2

RULE 15(2) WHERE ANY DIRECTOR IS INTERESTED IN ANY CONTRACT WITH RELATED
PARTY, SUCH DIRECTOR SHALL NOT BE PRESENT AT MEETING DURING
DISCUSSION

COMPLIANCE WITH SEC 184/189

 MKB & ASSOCIATES

OTHER DISCLOSURES UNDER

THE COMPANIES ACT
Agenda of Board Meeting (Rule 15(1)) Explanatory Statement of GM
(Expln 3 to Rule 15(3))
Name of the Related Party and nature of relationship Name of the related party
Nature, duration of the contract and particulars of the Name of the Director/KMP who is related
contract or arrangement
Material terms of the contract including the value Nature of relationship
Any advance paid or received for the contract Nature, material terms, monetary value and
particulars of contract
The manner of determining the pricing and other Any other information relevant or important
commercial terms, both included as part of contract for members to take a decision
and not considered as part of the contract;

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;
Any other information relevant or important for the
Board to take a decision on proposed transaction
 MKB & ASSOCIATES

DISCLOSURE/REPORTING REQUIREMENTS
UNDER LODR

REGN REQUIREMENT
48 The listed entity shall comply with all the applicable and notified Accounting
Standards
23(9) The listed entity shall submit within 30 days from the date of publication of its
standalone and consolidated financial results for the half year, disclosures of
related party transactions on a consolidated basis, in the format specified in the
relevant accounting standards for annual results to the stock exchanges and
publish the same on its website.
34(3) READ WITH Annual report shall contain RPT disclosures as specified in Para A of Schedule V
SCH V of these regulations

46(2)(g) Listed Entity to disseminate on its Website Policy on dealing with RPTs.

S C H V p a r a C Report on Corporate Governance shall disclose disclosures on materially

Disclosure 10 (a) significant related party transactions that may have potential conflict with the
interests of listed entity at large

S C H V p a r a C Report on Corporate Governance shall disclose web link where policy on dealing with
Disclosure 10 (f) related party transactions is disclosed.
 MKB & ASSOCIATES

RAMESH SRINIVASAN
WORKING GROUP ON RPT
 MKB & ASSOCIATES

DISCLOSURE/REPORTING REQUIREMENTS
UNDER LODR
REGN REQUIREMENT
Related Party Definition (i) any person or entity belonging to the promoter or promoter group of the listed entity
2(1)(zb) (ii) any person or any entity, directly or indirectly (including with their relatives), holding 20% or more of
the equity shareholding in the listed entity,
shall be deemed to be a related party.
Definition of RPT 2(zc) “related party transaction” means a transaction involving a transfer of resources, services or
obligations between
(i) the listed entity or any of its subsidiaries on the one hand and a related party of the listed entity or
any of its subsidiaries on the other hand; or
(ii) the listed entity or any of its subsidiaries on the one hand, and any other person or entity on the
other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its
subsidiaries,
23(2) to provide for Provided that a related party transaction to which the subsidiary of a listed entity is a party but the
approval of following listed entity is not a party, shall require prior approval of the audit committee of the listed entity only if
RPTs as well the value of such transaction (whether entered into individually or taken together with previous
transactions during a financial year) exceeds 10% of the annual total revenues, total assets or net
worth of the subsidiary, on a standalone basis, for the immediately preceding financial year, whichever
is lower, provided that the criterion relating to net worth shall not be applicable if the net worth of the
subsidiary is negative.
Provided further that prior approval of the audit committee of the listed entity shall not be required for a
related party transaction to which the listed subsidiary is a party but the listed entity is not a party, if
such listed subsidiary is not exempt from regulation 23 and the other corporate governance provisions
of these regulations specified in regulation 15(2)
23(4) Shareholders’ approval recommended prior approval.
Material RPT 23(1) Transaction exceeds 1000 crores or 5% of annual total revenues, or total assets or total net worth on a
consolidated basis, whichever is lower.
MKB & ASSOCIATES