When a company enters into transactions with Related Party Transactions, then some compliances need to be done as per the Companies Act, 2013. However, the Listed Companies are required to do more compliance as per SEBI Regulations. This article would provide you with brief information about the compliances to be done by the Unlisted Companies.
Who are related Parties?
The related parties are defined in Section 2 (75) of the Act.
What are related party transactions?
- Goods or materials: Sale, supply or purchase
- To Sell or otherwise dispose, or buy, property of any kind;
- To Lease property of any kind;
- Avail or render any services;
- Appoint any agent for purchase or sale of goods, materials, services or property
- Appoint related party to any office or place of profit in the company/subsidiary/associate company; and
- Underwrite the subscription of any securities or its derivatives.
Prior Conditions for entering into RPTs
Board resolution
Other conditions
- Disclosure in Agenda for Board meeting in which resolution is proposed to be moved:
- Name of related party and nature of relationship
- The nature and duration of contract and other particulars of the contract or arrangement
- The terms of the contract or arrangement along with the value, if any.
- Any advance: In respect of contract paid or received
- The manner in which the pricing and other commercial terms have been determined.
- Factors relevant to the contract have been considered. If not considered, then details should be disclosed along with the rationale for not considering those factors.
- Interested director (relating to subject matter of the resolution) shall not be present during discussion on that matter.
- Prior approval of company by a resolution [i.e. in general meeting] is required in following cases
| Clauses of section 188 (1) | Limit | Turnover or Net worth is to be computed on the basis of audited financial statements of preceding Financial Year. | |
| (a) whether with or without (e) | More than or equal to 10% of Turnover of company | ||
| (b) whether with or without (e) | More than or equal to 10% of Net worth of company | ||
| (c) | More than or equal to 10% of Turnover of company | ||
| (d) whether with or without (e) | More than or equal to 10% of Turnover of company | ||
| Abovementioned transactions are to be taken for a year whether individually or taken together with previous transactions during the year. | |||
| (f) | Monthly remuneration exceeding Rs. 2.5 lakh | ||
| (g) | Remuneration for underwriting exceeding 1% of Net worth. | ||
Other conditions for RPTs
- Member of the company shall not vote on such resolution for which such member is a related party (in context of the contract for which said resolution is being passed).
This condition will not apply to a company in which 90% or more members (in number) are relative of promoters or are related party.
- Every contract/arrangement is required be referred to in the Board Report to the shareholders.
- When any contract/arrangement is entered into by any director or any other employee without consent of board or approval of members by resolution, it should be ratified by board/shareholders within 3 months. If not ratified then the contract will be voidable at the option of the board/shareholders.
- When transaction is between wholly-owned subsidiary and holding company, resolution by holding company will be sufficient.
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07 December 2023 
