Applicability of Related Party Transactions under Companies Act, 2013 and SEBI (LODR) Regulations, 2015
Securities and Exchange Board of India (SEBI) has notified SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) on 2nd September, 2015 after following the consultation process. SEBI in its Board meeting dated 19th November,2014 the conversion of existing listing agreements into a single comprehensive regulation for various type of listed entities. The Listing Regulations shall come into force on the 90th day from date of publication in the official gazette i.e. 1st December 2015.
This Table contains 17 Points of Applicability of Related Party Transaction under Companies Act, 2013 and SEBI (LODR) Regulation in the Tabular format. This is beneficial for my Younger Member who is Company Secretary of Listed Company and who is newly join a company. Related party is now a very complex issues now a days amongst the Company Secretaries.
Related Party Transactions under Companies Act 2013 and SEBI LODR
| Basis | Companies Act, 2013 | SEBI LODR |
| Defination 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 |
| Number 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 |
| 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 |
| 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 |
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