A
HAND NOTE ON RELATED PARTY TRANSACTIONS (RPT)
UNDER
COMPANIES ACT, 2013
AND
REVISED
CLAUSE 49 OF THE LISTING AGREEMENT
BY CS K VINOTH AND CS D HEM SENTHIL RAJ
DEFINITIONS
Related
Party
Under
Companies Act, 2013
|
Under
Clause 49 of Listing Agreement
|
As
per Section 2(76)
|
As
per 49(VII)(B)
|
What is a Related Party
Transaction?
Under
Section 188 of Companies Act, 2013
|
Under
Clause 49 of Revised Listing Agreement
|
Entering
into any contract or arrangement with a related party with respect to:-
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.
|
A
related party transaction is a transfer of resources, services or obligations
between a Company and a related party, regardless of whether a price is
charged.
|
Authority/Approval
Required as per CA, 2013
Particulars
|
Approval
Required
|
Type
of Resolution
|
Where transaction value is within
the prescribed limit.
|
Audit Committee*
|
Ordinary Resolution
|
Board of Directors
|
Ordinary Resolution
|
|
Where
transaction value is exceeding the prescribed limits.
|
Audit Committee*
|
Ordinary Resolution
|
Board of Directors
|
Ordinary Resolution
|
|
Shareholders
|
Special Resolution
|
* Prior Approval of Audit Committee is not required under CA, 2013, However as a matter of good corporate governance practice, it is advisable to place the related party transactions in the Audit Committee of the Company
We have listed out the type of related party transaction which requires approval from shareholders:
Type
of Related Party Transaction
|
Limits
on Transaction
(Based
on Value)
|
Sale,
purchase or supply of any goods or materials, directly or through appointment
of agent
|
>
10% of Annual Turnover or 100 Crores w.e.l.
|
Selling
or otherwise disposing of or buying property of any kind, directly or through
appointment of agent
|
>
10% of Net Worth or 100 Crores w.e.l.
|
Leasing
of property of any kind
|
>
10% of Net worth or Turnover or 100 Crores w.e.l.
|
Availing
or rendering of any services, directly or through appointment of agent
|
>
10% of Net Worth or 50 Crores w.e.l.
|
Appointment to any office or place of profit in the
company, its subsidiary company or associate company
|
>2.5Lakhs
Per Month.
|
Remuneration for underwriting the subscription of
any securities or derivatives thereof of the company
|
>
1% of Net Worth.
|
The Turnover or Net Worth referred
in the above sub-rules shall be on the basis of the Audited Financial Statement
of the preceding Financial year.
Note: Where any
contract or arrangement is entered into by a director or any other employee,
without obtaining the consent of the Board or approval by a special resolution
in the general meeting and if it is not ratified by the Board or shareholders
at a meeting, as the case may be, within three months from the date on which
such contract or arrangement was entered into, such contract or arrangement
shall be voidable at the option of the Board.
TRANSACTION
LIMITS AS PRESCRIBED UNDER LISTING AGREEMENT
Particulars
|
Limit
|
Approval
Required
|
Type
of Resolution
|
Transactions of Material Nature *
|
Exceeds 5% of Annual Turnover or
20% of Networth, w.e.h. (As per last audited Balance sheet)
|
Shareholders
|
Special
|
All Related Party Transactions
|
-Not Applicable-
|
Audit
Committee
|
Ordinary
|
* Transaction of Material Nature
refers to those transaction/transactions to be entered into individually or
taken together with previous transactions during a financial year.
Disclosures
Required Under Listing Agreement
1. Details of all “Material
Transactions” with related parties shall be disclosed quarterly along with the
compliance report on corporate governance.
2.
The Company shall disclose the policy on dealing with Related Party
Transactions on its website and also in the Annual Report.
Exemption
Under CA, 2013 and Listing Agreement
Companies Act, 2013:
“There
is an exemption provided under the Companies Act, 2013, wherein the approval of
board or shareholders are not required if the Company has related party
transactions as per the prevailing market price and on arm’s length basis
irrespective of transaction value.”
Provided the Company need to
justify and should have necessary proof evidencing that the transactions are
made on arm’s length basis.
Listed Companies:
Listed
companies are required to follow the provisions as envisaged under the revised
Clause 49 of the Listing Agreement.
Format
Calculations of Networth as per Clause 49 of Listing
Agreement for Related Party Transactions (RPT)
Related Party Transaction Value With X Vendor : Rs. 152
Crores
|
||
Networth Calculations
|
||
(In
Rupees)
|
||
Particulars
|
Mar-14
|
Mar-13
|
Share Capital
|
445,190,670
|
445,190,670
|
Reserves & Surplus
|
8,983,715,984
|
10,508,457,596
|
Networth
|
9,428,906,654
|
10,953,648,266
|
Networth in Crores
|
942.89
|
1095.36
|
20% of Networth
|
188.58
|
219.07
|
Turnover Calculations
|
||||||
(In Rupees)
|
||||||
Particulars
|
Mar-14
|
Mar-13
|
||||
Turnover
|
5,582,311,208
|
14,304,430,014
|
||||
[Sales Income + Other Income]
|
||||||
Turnover in Crores
|
558.23
|
1430.44
|
||||
5% of Turnover
|
27.91
|
71.52
|
||||
Conclusion:
Based on the
review and on the above said calculations, the Company’s related party
transactions are well within the limits as prescribed under revised Clause 49 of the Listing Agreement.
However, it is
advisable and as a matter of good corporate governance, the related party
transactions shall be placed before the board on a
periodical basis.
FAQ’S
1. What
are the penal provisions in case of non-compliance of Section 188 of the CA,
2013?
Listed Company/Entity:
Imprisonment
for a term which may extend to One year or fine which shall not be less than
Rs.25,000/-, which may extent to Rs.5,00,000/- or both as the case may be.
Other than Listed Company/entity:
Fine
which shall not be less than Rs.25,000/-, which may extent to Rs.5,00,000/-
2. What
are the implications of revised clause 49 of Listing Agreement in terms of RPT?
The
implications are:
a.
The
Company shall frame and adopt a policy on materiality of related party
transactions and dealing with related party transactions. The same shall be
filed with the stock exchanges and also be updated in the Company’s website.
Further the company shall include the policy in its Annual Report every year.
b.
Any
related party transactions irrespective of transactional values requires the
prior approval of Audit Committee.
c.
The
company shall have a periodical review of the related parties and the
transactions entered or to be entered into with the related parties.
3. What
happens if a listed entity does not formulate a policy on materiality of
related party transaction and dealing with RPT?
SEBI
shall issue a notice to the Company for violation of Revised Clause 49 of the
Listing Agreement and all the Related Party Transaction entered by the Company
will remain Void.
4. Whether
ratification of RPT is permitted both under CA 2013 & Listing Agreement?
Under CA, 2013:
Ratification
of RPT can be done in Board Meeting or General Meeting by passing a Special
Resolution is available under the Proviso of CA, 2013 and which shall be done
on or after three months from the date of entering into Related Party
Transaction.
Under Listing Agreement;
Ratification
of RPT is not available as per Revised Listing Agreement.
5. What
is the position of a relative of a director or KMP holding an office or place
of profit in the company, and what will be the compliance to be met under CA
2013 & Listing Agreement?
Under CA, 2013:
Prior
Approval has to be sort through Board Meeting or General Meeting as the case
may be. However if the transaction has been entered into before obtaining the
approval, the same shall be approved by the shareholders by way of a Special
Resolution to be passed at the General Meeting/Postal Ballot as the case may be
within three Months from the date of entering into such transaction.
Listing
Agreement:
Listing
Agreement doesn’t specifically provide for compliances pertaining to office or
place of profit. However any transactions falls within the meaning of material
transaction and related party transactions it shall require the prior approval
of shareholders and Audit Committee as the case may be.
6. Whether
it is mandatory to have an agreement to be entered into with the Related Party?
Or a Letter of Engagement is sufficient?
Any
Contracts or arrangements entered into with the related party (ies) mandates
for entering into agreements between the parties.
7. Whether
a RPT entered or to be entered with a foreign party viz. foreign body
corporate, firm, LLP or an individual requires the compliance of CA 13 &
LA?
Any
transactions entered into with a foreign party doesn’t require any compliance
under CA, 13 and Listing Agreement.
However,
there is certain compliance to met with as per the Income Tax Act and RBI
Regulations.
8. What
are the compliances to be met with in case of RPT entered or to be entered with
WOS, JV’s and Associates abroad?
Any
transactions entered with WOS, JV’s and Associates abroad requires compliance
under Income Tax Act and RBI Guidelines and does not requires approval under
CA, 2013 and Listing Agreement.
9. Whether
employees of the Company can be penalized for entering into contracts or
arrangements in violation of Companies Act, 2013?
Yes, the employees of the company
are also liable under the penal provisions of the CA, 2013.
10. Whether quorum is required for approval of related party transactions in the Board Meeting?
No, Quorum is not required.
BY
CS D HEM SENTHIL RAJ
CS K VINOTH
10. Whether quorum is required for approval of related party transactions in the Board Meeting?
No, Quorum is not required.
BY
CS D HEM SENTHIL RAJ
CS K VINOTH
