To understand various issues and concerns faced by the entrepreneurs/top management on the key aspects of Related party transactions and to support them in implementing better governance in organizations.

1. RELATED PARTY TRANSACTIONS
Open - house discussion

2. The Need!
With the growing participation of
investors and other stakeholders in
companies, the question of
transparency in deals with related
parties has often been a hot topic.
With the objective to usher increased
degree of transparency in such
transactions, section 188 has been
introduced in the Companies Act, 2013.
Section 188 places the onus on board of directors to review,
approve and explain such transactions to shareholders and in
some cases seek their approval.

3. S.NO. NAME OF THE SCAMS YEAR
DAMAGES
(IN BILLIONS)
1. Enron Corporation, USA
Accused: Jeff Skilling & Ken Lay, CEO
2001 USD 74
2. World dotcom, USA
Accused: Bernie Ebbers, CEO
2002 USD 180 & 30,000
employees lost jobs
3. Parmalat SpA, ITALY
Accused: Calisto Tanzi, CEO
2002 Euro 13
4. AIG Group, USA
Accused: Hank Greenberg, CEO
2005 USD 3.9
5. Apple, USA
Accused: Steve Jobs
2006 USD .02
6. Lehman Brothers, USA
No one prosecuted due to lack of evidence.
2008 USD 50
7. Bernard Madoff Invt Securities, LLC, USA
Bernie Madoff, Chairman
2008 USD 64.8
8. Olympus Corporation, JAPAN
Micheal C Wooford
2011 YEN 376
Corporate Scams Around The World

4. S.NO. SCAMS YEAR DAMAGES (IN CRORES)
1. Telgi Scam 1991 Rs. 20,000
2. Securities Scam
Accused: Harshad Mehta
1992 Rs. 4,000
3. Fodder Scam
Accused: J and Lalu Prasad
1996 Rs. 950
4. Hawala scam
Accused: LK Advani, VC Shukla
1996 Rs. 810
5. Home Trade scam
Accused: Sanjay Agarwal
2002 Rs. 600
6. Satyam Scam
Accused: Ramalinga Raju
2009 Rs. 24,000
7. Madhu Koda scam
Accused: Madhu Koda
2009 Rs. 4,000
8. 2G spectrum scam
Accused: A Raja
2008-09 Rs. 1,76,000
Indian Scams

5. Applicable to all companies
as per Section 188 - Related
Party Transactions
Transactions in the “ordinary
course” of business or
undertaken at “arm’s length” do
not need any prior approval
List of related-party transactions
widened, immovable property also
brought under the ambit of related
party transactions
Shareholders who are related
parties are restricted from
voting on special resolution
All other contracts or arrangements
shall be approved by the board or
by shareholders, through a ordinary
resolution, depending on the nature
of transaction and the amount
involved
Any transaction entered into
without prior permission is
voidable at the option of the
board, if not ratified by it or by
shareholders within 3 months
Companies are mandated to
maintain a register with
particulars of all such contracts or
arrangements
Key Compliance Requirements

6. RPT - Exemptions
Exemptions
The provisions shall not apply to any
transactions entered into by the
company in its ordinary course of
business other than transactions
which are not at arm’s length.
Arm’s length transaction
Transaction between two related
parties that is conducted as if they
were unrelated, so that there is no
conflict of interest.
Ordinary Course of Business
The Companies Act has not defined the
term “Ordinary Course of Business”
The assessment of whether a
transaction is in ordinary course of
business is very subjective, judgmental
and can vary on case-to-case basis
giving consideration to nature of
business and objects of the entity.

7. Identification of Related Party
PRIVATE
COMPANIES
PUBLIC
COMPANIES
OTHERS
RELATED PARTY TO A COMPANY
INDIVIDUAL
DIRECTORS,
KMP’S &
RELATIVES
HOLDING,
SUBSIDIARY,
ASSOCIATE
COMPANIES
FELLOW
SUBSIDIARY
BODY
CORPORATE
ANY PERSON
DIRECTOR OR
HIS RELATIVE IS
A PARTNER
DIRECTOR OR
HIS RELATIVE IS
A DIRECTOR /
MEMBER
DIRECTOR IS A
DIRECTOR &
HOLDS WITH
HIS RELATIVES >
2% PAID UP
CAPITAL
Any body corporate whose Board/MD/Manager is to act according to directions of director or manager.
Any person on whose advice, directions or instructions the director or manager is accustomed to act.
Nothing shall apply, if such advice, directions or instructions are given in professional capacity.
PARTNERSHIP

8. Identification Of Related Party Transactions
RPT & THRESHOLD LIMITS
Sale,
purchase or
supply of
any goods or
materials.
Sale or
otherwise
disposing of
or buying
property of
any kind.
Leasing of
property of
any kind.
Availing or
rendering of
any services
Appt. of
agent for
purchase or
sale of
goods,
service /
property
Appointment
to any office
or place of
profit
Underwriting
of securities
or derivatives
Turnover > 10% or
Rs. 100 Crores w.e.
l
Networth > 10%
or Rs. 100 Crores
w.e.l
Networth>10%
or Turnover >
10% or Rs.100
Crores w.e.l
Turnover > 10%
or Rs.50 Crores
w.e.l
Monthly
remuneration>
Rs. 2.5 Lakhs
Remuneration of
underwriting >
1% of networth
Turnover/Net Worth shall be calculated on the basis of the Audited Financial Statements of the preceding financial year.

9. Provisions of RPT
CA 2013 - Notification – dated 5th
June ‘15
2(76) – Definition of RP with reference to company
The transactions done between a private company and
following companies noted below is out of the purview
of RPT :-
(a)Holding Company
(b)Subsidiary Company
(c)Associate Company
(d) Subsidiary of a holding company
(fellow subsidiary)
CA 2013 - Notification – dated 5th June 2015
Section 188 (1) proviso 2
Relaxation to Pvt. Ltd- Voting allowed on Resolution in
General Meeting by Related party.

10. Approval Mechanism
Related Party Transactions
At Arm’s lengthNot at Arm's length price
Value of Transactions
Within threshold limits Beyond threshold limits
Audit committee approval

11. Approval Mechanism
Within threshold limits
Listed Public CompaniesPrivate Companies
Prior Board’s Approval Audit committee approval
Unlisted Public
Companies with
audit committee
Unlisted Public
Companies without
audit committee
Audit committee approval Board’s Approval
The requirement of passing the above resolution, both Board or Shareholder’s shall not be applicable for transactions
entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such
holding company and placed before the general meeting for approval.

12. Approval Mechanism
Beyond threshold limits
Listed Public CompaniesPrivate Companies
Shareholders approval
by passing ordinary
resolution
Unlisted Public
Companies with audit
committee
Unlisted Public
Companies without
audit committee
Audit committee &
shareholders approval by
passing ordinary resolution
Shareholders approval by
passing ordinary
resolution
Audit committee &
shareholders approval by
passing ordinary
resolution
No member of the company shall vote on such resolution, to approve any contract or arrangement which may be
entered into by the company, if such member is a related party. However, the above provision shall not apply to
private limited companies.

13. Omnibus Approval of Audit Committee - Cl. 49
The Audit Committee may grant omnibus approval for RPT
proposed to be entered into by the company:
In line with the policy of related party transaction.
In respect of transactions of repetitive nature.
In the interest of the Company.
Such omnibus approval shall specify
The name/s of the related party, nature of
transaction, period of transaction.
Maximum amount of transaction that can
be entered into.
The indicative base price / current
contracted price and the formula for
variation in the price, if any.
Such other conditions as the Audit
Committee may deem fit.
Where the need for RPT cant be foreseen and
aforesaid details are not available, Audit
Committee may grant omnibus approval for such
transactions subject to their value not exceeding
Rs 1 Crore/ transaction.
Audit Committee shall review, at least on a quarterly basis,
the details of RPTs entered into by the company.
Such omnibus approvals shall be valid for a period not
exceeding one year and shall require fresh approvals after
the expiry of one year"

14. Consequences of Non - Compliance
Transactions without prior approval
Contracts Not ratifiedRatified within 3 months
Valid Transactions
Voidable at the
option of the
Board
Contract with a RP
to any Director/
authorised by any
other Director
1. Directors concerned shall indemnify against any loss incurred by the Company.
2. The Company can proceed against any director or employee in respect of any loss sustained by it due to such contract or arrangement
3. Disqualified if convicted u/s 188 during last preceding 5 years u/s 164(1) (g)
4. Office of director becomes vacant in case of disqualification u/s 164(1)(g)

15. Penal Provisions
Non - Compliance by any Directors
Other than Listed CompaniesListed Companies
Imprisonment for a term which may
extend to one year
Or
Fine >25000<Rs. 5 Lakhs or Both
Fine>Rs.25000<Rs.
5Lakhs
1. Directors concerned shall indemnify against any loss incurred by the Company.
2. The Company can proceed against any director or employee in respect of any loss sustained by it due to such contract or arrangement
3. Disqualified if convicted u/s 188 during last preceding 5 years u/s 164(1) (g)
4. Office of director becomes vacant in case of disqualification u/s 164(1)(g)

16. CA, 2013 LISTING AGREEMENT AS - 18
All transactions shall be referred to
Board’s Report along with
justification for entering into the
contract or arrangement which is
either not at arm’s length basis or
not in ordinary course of business.
Policy on dealing with Related Party
Transactions on its website and a web
link thereto shall be provided in the
Annual Report.
Disclosure to be given in AoC 2, which
shall be a part of the Board’s Report.
Details of all “Material Transactions”
with related parties shall be disclosed
quarterly along with the compliance
report on corporate governance as per
Clause 49 of the listing agreement.
Name of the related party;
Relationship between the parties;
Nature of transactions.
Volume of the transactions either as an
amount or as an appropriate proportion
Any other elements as may be necessary.
The amounts or appropriate proportions
of outstanding items pertaining to
related parties at the balance sheet date
Provisions for doubtful debts due from
such parties at that date amounts written
off or written back in
Disclosure Requirements

17. Loans to Directors
A Company shall not directly/indirectly, advance any
loan to any Director/any person in whom director is
interested, give any guarantee, provide any security in
connection with any loan taken.
Exceptions/Exemptions:
1. Loan to MD/Manager as a part of conditions of services to all
employees.
2. Loan/Guarantee/Security by Holding Company to WoS or JV.
3. Guarantee/Security by Holding Company in respect of loan by
Banks/FIs to Subsidiary, provided such loans are utilised for
their principal business activities.
4. The provisions of this Act is exempted to Private Limited
Companies, upon fulfilment of certain conditions.
5. In case of Nidhis, Loan given to directors/relatives in the
capacity as members & the same is disclosed in Annual
Accounts.
6. Loans does any advances, as it is a pre payment against goods
/ services which is likely to become due at a later period.
The essential requirement of loan is the advance of
money or some article, upon the understanding that it
shall be returned, and it may or may not carry interest.
Is book debt a Loan??
Yes, if it's prolonged beyond the usual credit period to
allow more time to the debtor for payment.

18. Investments by a Company
Includes:
Includes subscription or purchase of shares/share
warrants/Debentures, Bonds & similar debt securities.
Does not include:
Deposits, any acquisition made by a NBFC/ by a Company whose
principal business activity is acquisition of securities.
Acquisition of shares allotted on rights basis pursuant to
Section 62(1)(a).
Any investment in Mutual funds, as they are managed by trusts
& not body corporates. However investment in UTI attracts
these provisions as they constituted under UTI Act & is a body
corporate.
A Company shall make investments not more than 2 layers of investment companies by
way of subscription or purchase of securities by of any body corporate.
Approval mechanism for loans & investments:
Prior approval of the Shareholders is required if
loan/guarantee/security/investments exceeds the threshold
limits.

19. Implementation of road map
Identification of a related party.
Set Disclosure framework.
One time evaluation of existing contracts.
How SAS Partners can help?
Policy Formulation
Define a policy and underlying procedures on
RPT as well as responsibilities of management
and Board of Directors
Define Arm’s Length Policy in line with defined
regulations
Training
Training sessions to corporates on key
provisions of the Companies Act along with
potential implications.
Review
Periodic evaluation to identify any
unreported RPT.
Testing of RPT to review compliance with
Arm’s Length Policy

20. SOY JOSEPH
09-884-212-845
SONY GEORGE MATHEW
09-884-656-382
ALEX T KOSHY
09-884-904-699