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 ! ! !