1. Related Party Transactions under the Companies Act, 2013
Presentation By
CA Anil Sharma

2. Overview Interested director Person in which director is interested
Related party transactions
Related party
Restrictions on related party transactions
Duties of directors related to such transactions
Effect of non- disclosure by directors
Disclosures in accounts
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3. Interested Director
Section 2(49) “interested director” means a director who is in any way, whether
by himself or
through any of his relatives or
firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member
is interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company.
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4. Interested Director
In Sub-section (2) of Section 184 “interested director” in relation to any contract or arrangement entered into or to be entered into with:
a body corporate in which such director or together with other directors holds more than 2 % shareholding of that body corporate
A body corporate of which he is a promoter, manager or CEO
A firm or other entity in which such director is a partner, owner or member, as the case may be.
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5. Section 185- A person in whom the director is interested
(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
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6. Sec 188- Related party transactions
(a) sale, purchase or supply of any goods or materials;
(b) selling or otherwise disposing of, or buying, property of any kind;
(c) leasing of property of any kind;
(d) availing or rendering of any services;
(e) appointment of any agent for purchase or sale of goods, materials, services or property;
(f) such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and
(g) underwriting the subscription of any securities or derivatives thereof, of the company:
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7. Related Party
Sec 2 (76) “related party”, with reference to a company, means—
(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager is a member or director;
(v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
(vii) 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;
(viii) 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;
(ix) such other person as may be prescribed.
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8. Related Party
Rule 3 of the Companies (Specification of Definitions Details) Rules, 2014.
For the purposes of sub-clause (ix) of clause (76) of section 2 of the Act the following shall be deemed to be a related party with reference to a company:
a director of its holding company and his relatives,
a key managerial personnel of its holding company and his relatives.
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9. Definition of ‘Relative’
Section 2 (77) ‘‘relative’’, with reference to any person, means anyone who is related to
another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed;
Corresponding to Section 2(41) and Section 6 and Schedule 1A of CA, 1956
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10. ‘Relative’
Rule 4 the Companies (Specification of Definitions Details) Rules, 2014.
With reference to any person, Relative means any one who is related to other in the following manner:
Members of a HUF
Spouse
Father includes step-father.
Mother includes the step-mother.
Son includes the step-son.
Son’s wife.
Daughter.
Daughter’s husband.
Brother includes the step-brother;
Sister includes the step-sister.

11. No more considered as ‘Relative’ under the Companies Act, 2013
Father's father.
Father's mother.
Mother's mother.
Mother's father.
Son's son.
Son's son's wife.
Son's daughter.
Son's daughter's husband.
Daughter's son.
Daughter's son's wife.
Daughter's daughter.
Daughter's daughter's husband.
Brother's wife.
Sister's husband.

12. Key Managerial Personnel
Sec 2 (51) “key managerial personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed ( not yet prescribed).
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13. Subsidiary company
Sec 2 (87) “subsidiary company” in relation to any other company means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies.
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;
(c) the expression “company” includes any body corporate;
(d) “layer” in relation to a holding company means its subsidiary or subsidiaries
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14. Associate company
Sec 2(6) “associate company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
Explanation.—For the purposes of this clause, “significant influence” means control of
at least twenty per cent. of total share capital, or
business decisions under an agreement;
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15. Sec 185- Loan to directors and others
Restriction on loan by a company
Shall apply to book debts in the nature of loan.
To its directors and to ‘others in which director is interested’
Restriction to apply on loan given directly or indirectly
“Others in which director is interested” is defined.
Exception is loan to MD/WTD in case the company has policy to give loan to its employees
Another exception is to NBFCs provided the minimum bank rate is charged.
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16. Sec 186- Loans by a company
Rule 11. 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 sub-section (3) of section 186 shall not apply:
Provided that the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under sub-section (4) of section 186.
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17. Section 188- Related party transactions
Related party transactions listed in the section.
Consent of the Board to be given by a resolution.
In case of company with prescribed share capital, prior approval of the company in general meeting is required.
Does not apply to transactions entered into by the company in ordinary course of business other than those which are not on arm’s length basis.
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18. Rule 15- Contract or arrangement with related party
In reference to Section 188(1) First Proviso.
With the prior approval of the company by a special resolution in the following cases:
A co. having paid up share capital of Rs. 10 Crores or more
Sale , purchase or supply of any goods or materials exceeding 25% of the annual turnover
Selling or otherwise disposing of or buying property exceeding 10% of net worth
Leasing of property exceeding 10% of net worth
Availing or rendering any services exceeding 10% of net worth
Appointment of any office or place of profit in co, its holding or subsidiary or associate company at a monthly remuneration exceeding Rs. 2.5 lakhs
Underwriting the subscription of any security exceeding 1% of net worth
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19. Sec 192- Restriction on non-cash transactions involving directors
This new section regulates arrangements in respect of acquisition of assets for consideration other than cash between a company and a director of the company or its holding company or its subsidiary or its associate or person connected with such director.
This section provides that such arrangements shall require prior approval by a resolution in general meeting.

20. Sec 194-Prohibition on forward dealings in securities of company by
Sec 194-Prohibition on forward dealings in securities of company by director or a key managerial personnel
This new section prohibits whole-time director or any key managerial personnel from buying certain kinds of future contracts in securities of the company, its holding, subsidiary or associate company.
There were no such provisions in the 1956 Act.

21. Sec 195- Prohibition on insider trading of securities
This act prohibits directors or key managerial person of the company from dealing in securities of a company, or counselling, procuring or communicating directly or indirectly, about non-public price-sensitive information to any person.
There was no such provision in the 1956 Act.

22. Section 19-Subsidiary company not to hold shares in its holding company
*The wording in section 19(1) of the CA,2013 is 'No company ( defined as a co incorporated under this Act or under any previous company law) shall, either by itself or through its nominees, hold any shares in its holding company.

23. Sec 149(6)- Qualification of an independent director
(6) An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director,—
(a) (ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company;
(d) none of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or
(e) who, neither himself nor any of his relatives—
(i) holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;
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24. Sec 149(8)- Qualification of an independent director
(8) The company and independent directors shall abide by the provisions specified in Schedule IV.
Schedule IV- Code for Independent Director.
III. Duties :
The independent directors shall—
(9) pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the company;
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25. Sec 102-Statement to be annexed to Notice
A statement setting out the following material facts concerning each item of special business to be transacted at a general meeting, shall be annexed to the notice calling such meeting, namely:—
(a) the nature of concern or interest, financial or otherwise, if any, in respect of each items of—
(i) every director and the manager, if any;
(ii) every other key managerial personnel; and
(iii) relatives of the persons mentioned in sub-clauses (i) and (ii);
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26. Sec 166- Duties of directors
(4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
(5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
(7) If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
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27. Sec 189- Register of Contracts or arrangements
(1) Every company shall keep one or more registers giving separately the particulars of all contracts or arrangements to which sub-section (2) of section 184 or section 188 applies, in such manner and containing such particulars as may be prescribed and after entering the particulars, such register or registers shall be placed before the next meeting of the Board and signed by all the directors present at the meeting.
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28. Rule 9- Disclosure by a director of his interest
(1) Every director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1.
(2) It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice.
(3) All notices shall be kept at the registered office in the custody of the company secretary of the company or any other person authorized by the Board for the purpose.
(4) Such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept
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29. Rule 16- Register of contracts or arrangements in which directors are interested
(1) Every company shall maintain one or more registers in Form MBP 4, and shall enter therein the particulars of-
(a) company or companies or bodies corporate, firms or other association of individuals, in which any director has any concern or interest, as mentioned under sub-section (1) of section 184:
Provided that the particulars of the company or companies or bodies corporate in which a director himself together with any other director holds two percent. or less of the paid-up share capital would not be required to be entered in the register;
(b) contracts or arrangements with a body corporate or firm or other entity as mentioned under sub-section (2) of section 184, in which any director is, directly or indirectly, concerned or interested; and
(c) contracts or arrangements with a related party with respect to transactions to which section 188 applies.
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30. Sec 190- Contract of employment with managing or WTD
(1) Every company shall keep at its registered office:
(a) where a contract of service with a managing or whole-time director is in writing, a copy of the contract; or
(b) where such a contract is not in writing, a written memorandum setting out its terms.
(2) The copies of the contract or the memorandum kept under sub-section (1) shall be open to inspection by any member of the company without payment of fee.
(3) If any default is made in complying with the provisions of sub-section (1) or sub-section (2), the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees for each default.
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31. Sec 164- Disqualifications for appointment of directors
(1) A person shall not be eligible for appointment as a director of a company, if —
(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years;
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32. Sec 167- Vacation of office of director
(1) The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in section 164;
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33. Punishment for non- compliance of Section 185
the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and
the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.
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34. Related Party Disclosures
Applicable Accounting Standard AS-18
Para 3 of the AS describes the related party relationships
(a) holding companies, subsidiaries and fellow subsidiaries,
(b) associates and joint ventures and the investing party or venturer ,
(c) individuals owning, directly or indirectly, an interest in the voting power of the reporting enterprise that gives them control or significant influence over the enterprise, and relatives of any such individual,
(d) key management personnel and relatives of such personnel,
(e) enterprises over which any person described in (c) or (d) is able to exercise significant influence and
(f) enterprises owned by directors or major shareholders of the reporting enterprise and enterprises that have a member of key management in common with the reporting enterprise.
Definitions of KMP and Relatives are different than those in the CA, 2013.
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