This guidance note on Related Party Transactions is formulated by the Secretarial Standards Board of ICSI and aims to explain the procedures, practices and compliances associated with Related Party Transactions (RPTs).
In the interest of good corporate governance, companies should maintain an arm’s length relationship in all transactions, including Related Party Transactions (RPTs) which are generally seen as an area of conflict of interest therefore it requires extra caution to avoid abuse of such transactions.
Transactions with related parties need not always be disadvantageous. The concern arises only when there is abuse of a related party transaction on account of conflict of interest and non-arm’s length dealings which are beneficial to a related party but detrimental to other stakeholders. Therefore, transparency in such transactions is essential in the interest of stakeholders and good corporate governance.
To develop the legal fabric in respect of RPTs, the necessary provisions are enshrined under the Companies Act, 2013 and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. In order to understand and appreciate the nuances of RPTs, it is necessary to understand the various provisions of law and the related aspects which needs explanation. Hence, this Guidance Note on Related Party Transactions is formulated by the Secretarial Standards Board of ICSI and aims to explain the procedures, practices and compliances associated with RPTs.