Understanding of Related Party Transactions

Related Party Transactions in India are governed by Companies Act 2013, Listing Agreement and Accounting Standards 18.

Compliance Requirements for Listed Companies.

Since for a Listed Company it is mandatory to follow Listing Agreement , Compliance requirements are governed by both Companies Act and Listing Agreement.

Related Party Definition

Companies Act – Section 2(76)
Listing Agreement- As defined in Section 2(76) of Companies Act as well as the Accounting Standard-18

So definition as per Listing Agreement is broader than the Companies Act.

Definition of Related Party Transactions

Companies Act 2013- Section 188 few transactions specifically defined

Listing Agreement- Definition is quite general
Which reads as follows’ transfer of goods, services and Obligations between a Co and Related Party.

That means for a Listed entity almost everything will be covered under this general definition.

Approvals required for a listed entity.

Prior approval of Audit Committee for all RPTs- Acc to Clause 49 of Listing Agreement and Section 177 of Companies Act .

Board approval- if the transaction is governed by section 188 of Companies Act
( Note- Board approval is governed only by Companies Act and not the Listing Agreement)

Note- no approval of the Board required if transaction with related party is in the ordinary course of business and on Arms length basis

Shareholder Approval- Required only if it is a material Related Party Transaction( Material RPT is defined in Listing Agreement)
Or exceeds the threshold limits as prescribed under( meeting of Board and its Powers) Rules 2014.

Listed Companies also need to have a RPT policy which is to be uploaded on Companies Website and Transactions with Related Parties are also to be Disclosed in the Annual Report.

I hope this Article will be useful for all of you.

Many Thanks to writer of the article Pranav Rastogi Contact- pranrast44@gmail.com

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