Approval Process for Related Party Transactions
Related Party
Transaction approval process under Companies Act, 2013, Rules thereon and SEBI
(Listing Obligations and Disclosure Requirements), 2015 for Listed and
Unlisted Public Companies and Private Companies.
Flow chart credit: http://www.ey.com/IN/en/Issues/Governance-and-reporting/EY-Compass-on-Companies-Act-2013/EY-cfo-companies-act-2013-related-party-transactions
Listed Company
Ø Applicable Provisions
§ Section
188 of the Companies Act, 2013, as amended
§ Companies
(Meetings of Board and its Powers) Rules, 2014, as amended
§ SEBI
(Listing and Disclosure Requirements) Regulations, 2015 (Listing Regulations,
2015)
Ø Regulation
2(zc) of the Listing Regulations,2015 defines Related Party Transactions
(“RPTs”) as a transfer of resources, services or obligations between a company and a
related party, regardless of whether a price is charged.
Ø All
RPTs of Listed Companies require prior approval of the Audit Committee.
Ø RPTs exceeding
10% of annual turnover as per the last audited accounts would require
shareholders’ approval through Special Resolution.
Ø The related
parties shall abstain from voting on such resolutions.
Unlisted Public Company / Private
Company
Ø Applicable Provisions
§ Section
188 of the Companies Act, 2013, as amended
§ Companies
(Meetings of Board and its Powers) Rules, 2014, as amended
Ø RPTs
other than those entered into by the company other than in its ordinary course
of business or which are not on an arm’s length basis require approval of the
Board.
Ø RPTs exceeding
threshold limits provided under Rule 15(3) would require prior approval of the shareholders’
through Ordinary Resolution.
Ø The
related parties shall abstain from voting on such resolutions, except in case of private companies.
Ø The
Turnover or Net Worth shall be on the basis of the Audited Financial Statement
of the preceding financial year.
Materiality threshold for Unlisted
Public Company / Private Company
Transactions
|
Materiality threshold
|
Sale, purchase or supply of any goods or
materials
|
> 25% of turnover
|
selling or otherwise disposing of, or buying,
property of any kind
|
>10% of net worth
|
leasing of property of any kind
|
>10% of net worth or 25% of turnover
|
availing or rendering of any services
|
>10% of net worth
|
appointment to any office or place of profit in
the company, its subsidiary company or associate company
|
monthly remuneration > Rs.2.5 lacs
|
underwriting the subscription of any securities
or derivatives thereof, of the company
|
remuneration > 1% of net worth
|
appointment of any agent for purchase or sale of
goods, materials, services or property
|
No materiality threshold prescribed
|
Transactions
between Holding Company and Wholly owned subsidiary exempted from the
requirement of Section 188
