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Times come when identification and approval of Related Party Transactions becomes onerous.
The file contains the basic Standard Operating Procedure that can be followed for:
1. Identification of Related Parties as per Section 2(76) of the Companies Act, 2013;
2. Approval of proposed Related Party Transactions.
Looking forward for your valuable inputs and updates on the same.
| Related Party Transactions process flow | |
| A. | Identification of related Parties |
| B. | Identification of Related Party Transactions |
| C. | Approval |
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|
A. Identification of Related Parties |
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|
Process |
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| I. Relatives | Information Source | |
| 1 | Board of Directors | Directors to submit their list of relatives as per Companies Act, 2013 with their Annual Declarations in First Board Meeting Any Change in the relatives shall be intimated to the Company Secretary. |
| 2 | List of Relatives of Board of Directors as per Companies Act, 2013 | |
| 3 | PAN of Relatives | |
| 4 | Submission of the list to the Company Secretary at the beginning of the Financial Year | |
| 5 | Submission of the list as and when there is any change | |
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| II. Other Related Parties as per Companies Act, 2013, Section: 2(76) | Information Source | |
| 1 | List of Firms where Director or their relative is Partner | MBP ‐ 1 of Directors and for relatives similar Disclosure can be obtained, the disclosure from relatives shall also contain their shareholding in Private and Public Companies. Data should be Irrespective of the Percentage of holding. Any change to be intimated to the Company Secretary. |
| 2 | List of Private Companies where Director or their relatives is Director | |
| 3 | List of Private Companies where Director or their relatives is Member | |
| 4 | List of Public Companies where Director along with their relatives hold more than 2 % of Shareholding | |
| 5 | List of all Body Corporates where Director give instructions / directions for overall Management | Annual Declarations can be taken from the Directors in case otherwise applicable |
| 6 | List of all persons, the Directors take instruction from | |
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B. Identification of Transactions |
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| Types of Transactions | ||
| 1 | Transactions covered under Section 188 | AC Approval/ recommendation is Mandatory in all the cases |
| 2 | Transactions not covered under Section 188 | |
| 3 | Transactions specifically covered under any other Provision of Companies Act, 2013 | |
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|
c. Approvals |
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| Type 1 | Transactions Covered under Section 188 of the Companies Act, 2013 | |
| Approvals
|
i. | Audit Committee; if PUC >10 Cr., T/o > 100 Cr. |
| Ii | Board of Directors | |
| iii | Shareholders* | |
| No Approval of Board and Shareholders |
Transaction in Ordinary Course of Business + Arm’s length basis | |
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| I | Board of Directors to approve proposed Related Party Transactions subject to approval of Audit Committee, follow procedure as per Rule 6A for omnibus Approval |
| The approval shall also be subject to approval of Members of the Company if below mentioned limits prescribed under Section 188 are exceeded: (exemption to transactions between WOS) |
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Section 188 of the Companies Act, 2013 read with Rule 15 of Companies (Meetings of Board and its Power) Rules, 2014 |
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Limits for Passing Ordinary Resolution by Shareholders under Section 188 of the Companies Act, 2013 |
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| Section | Rule | Transaction | Particu-lars | Old Limit | New Limit w.e.f. 18.11. 2019 | ||
| 188 (1)(a)
188 (1)(e) |
15 (3)(a)(i) | i. Sale or ii. Purchase or iii. Supply |
Goods or | Directly | Turnover | >/= | >/= |
| Materials | or through Agent | Prescribed Amount | 100 Cr. | Om itted | |||
| 188 (1)(b) 188 (1)(e) |
15 (3)(a)(ii) | i. Selling or
ii. Disposing |
Property of any kind | Directly | Net worth | >/=
10% |
>/=
10% |
| or through Agent | Prescribed Amount | 100 Cr. | Om itted | ||||
| 188 (1)(c) | 15(3)(a)(iii) | i. Leasing | Property of any kind | Turnover | >/=
10% |
No Change | |
| 188 (1)(d) 188 (1)(e) |
15(3)(a)(iv) | i. Availing or
ii. Rendering |
Services | Directly | Turnover | >/=
10% |
>/=
10% |
| or through Agent | Prescribed Amount | 100 Cr. | Om itted | ||||
| 188 (1)(f) | 15(3)(b) | i. Appoint-ment | to any office | i. In Company or
ii. Subsidiary or iii. Associates |
Monthly Remu-neration | INR 2.5 Lakhs | No Change |
| or Place of Profit | |||||||
| 188 (1)(g) | 15(3)(c) | i. Under-writing the Subsc-ription | Securities | at Remu-neration | Net worth | > 1% | No Change |
| Derivatives | |||||||
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| Type 2 | Transactions not Covered under Section 188 of the Companies Act, 2013 | |
| Recommendation | i. | Audit Committee |
| Approval | ii. | Board of Directors |
| I
|
Board of Directors to approve proposed Related Party Transactions subject to recommendation of Audit Committee, follow procedure as per Rule 6A for omnibus Approval |
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| Process of approval/ recommendation of Audit Committee, where Company is required to or has constituted Audit Committee | |
| II | All proposed Related party Transactions requires approval of Audit Committee |
| All Related Party Transactions (other than 188) requires recommendation of Audit Committee | |
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| Transactions upto One Crore | |
| III | entered into by any Director/Officer entered into by relative of Director |
|
Without approval of Audit Committee |
|
| Such transaction has to be ratified within 3 months by the Audit Committee and if not ratified shall be voidable at the option of the Audit Committee | |
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| Type 3 | Transactions specifically covered under any other Provision of Companies Act, 2013 | |
| Recommendation | i. | Audit Committee |
| Approvals | ii. | Procedure as required under specific provision shall be followed |
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