Related Party Transaction (notified)
Related party with reference to a company, means: [Sec 2(76)]
- a director or his relative;
- a key managerial personnel or his relative;
- a firm, in which a director, manager or his relative is a partner;
- a private co. in which a director or manager is a member or director;
- a public co. in which a director or manager is a director or holds along with his relatives, more than 2% of its paid-up S/C;
- any body corporate whose BoD, M.D or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
- any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;
- any company which is—
(A) a holding, subsidiary or an associate company of such company;
or
(B) a subsidiary of a holding company to which it is also a subsidiary;
9. such other person as may be prescribed
“Related Parties”- Comparision between New & Old Act
Related Party Transactions
Related Parties | 2013 Act | 1956 Act |
KMP or his relative {Refer Annexure} | Yes | No |
Senior Management of the Co. (All members of management 1 level below the executive directors, including the functional heads)- as per rules | Yes | No |
A firm in which such director, manager or relative is a partner | Yes | Some changes |
Public co. in which a director or manager is a director | Yes | No |
Holding, subsidiary , fellow sub. or an associate co. along with their directors & relatives, their KMPs & relatives, their Senior management | Yes | No |
Related Parties | 2013 Act | 1956 Act |
Public co. in which a director or manager is a Director holds along with his relatives, > 2% of its paid-up S/C | Yes | Some changes |
Any person on whose advice, directions or instructions a director or manager is accustomed to act, unless advice is given in a professional capacity | Yes | Some changes |
Body corporate whose BoD’s, MD or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager unless advice is given in a professional capacity | Yes | Some changes |
Following transactions are covered u/s 188
1. Board Resolution will be sufficient if following transactions are within the limit prescribed in the Act.
- 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 kind;
- availing or rendering of any services;
- appointment of any agent for purchase or sale of goods, materials, services or property;
- such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company; and (Rs 2.5 Lakh per month or more)
- underwriting the subscription of any securities or derivatives thereof, of the company (remuneration not more than 1% of net worth)
As per notified Rules regarding Section 188 of New Act :
Prior approval by SR at GM required if paid-up capital of Co is Rs.10 Cr or more OR the transaction with RP does not exceed such sum, as may be prescribed . The limits for clauses (a) to (e) as per rules are prescribed as exceeding 25% of annual Turnover or exceeding 10% of Net worth of Co as per last audited FS.
2. Contracts or arrangements with respect to clauses (a) to (e) of sub-section (1) of section 188 with criteria, as mentioned below
- Sale, purchase or supply of any goods or materials directly or through appointment of agents exceeding 25% of the annual turnover as mentioned in clause (a) and clause (e) respectively of sub-section (1) of section 188;
- Selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents exceeding 10% of net worth as mentioned in clause (b) and clause (e) respectively of sub-section (1) of section 188;
- Leasing of property of any kind exceeding ten percent (10%) of the net worth or exceeding 10% of turnover as mentioned in clause (c) of sub-section (1) of section 188;
- Availing or rendering of any services directly or through appointment of agents exceeding 10% of the net worth as mentioned in clause (d) and clause (e) of sub-section (1) of section 188;
- Interested member not to vote on SR – (issue for some Co’s)
- Disclosure in board report required along with appropriate justification for RPT
- Section exempts: Any transaction entered by company in its ordinary course of business other than transactions which are not an arm’s length basis.
RPT: Disclosure Requirements
What has changed?
- Boards’ report to capture RP arrangement – this was not required as per the old Act
- Boards’ report shall also capture the justification of undertaking such RPT
- Sec 186 disclosure around loans, investments etc now through the ‘FS’ – earlier through ‘register’ (Sec372 A)
Related Party Transaction
1956 Act | 2013 Act |
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Change in Definition – (Relative) [Section 2(77)Rule]
Act 2013 /Act 1956
Members and HUF | Y | Y | Husband and wife | Y | Y |
Father (including step-father) | Y | Y | Mother (including step-mother) | Y | Y |
Father’s father | N | Y | Mother’s father | N | Y |
Father’s mother | N | Y | Mother’s mother | N | Y |
Son (including step-son) | Y | Y | Daughter (NOT MENTIONED including step-daughter) | Y | Y |
Son’s wife | Y | Y | Daughter’s husband | Y | Y |
Sons’s son/ daughter | N | Y | Daughter’s son daughter | N | Y |
Son’s son’s wife | N | Y | Daughter’s son’s wife | N | Y |
Son’s daughter’s husband | N | Y | Daughter’s daughter’s husband | N | Y |
Brother | Y | Y | Sister | Y | Y |