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Related Party Transaction | ||
RELATED PARTY TRANSACTION (As per Guidance Notes on Related Party Transaction)
As per Section 2(76) of the Companies Act 2013, ‘related party’, with reference to a company, means –(i ) a director or his relative; (ii ) a key managerial personnel or his relative; (iii) a firm in which a director, manager or relative is a parterner; (iv ) a private company in which a director or manager or his relative is a member or director; (v ) a public company in which a director or manager is a director and holds along with his relatives, more than two per cent of its paid-up share capital; (vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager; (vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:
(XI ) such other person as may be prescribed.” As per the Accounting Standards – 18 Related PartyParties are considered to be related if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and /or operating decision. As per the Indian Accounting Standards (Ind AS)A related party is a person or entity that is related to the entity that is preparing its Financial Statement (in this standard referred as the ‘reporting entity’ )
(i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. (vi)The entity is controlled or jointly controlled by person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity. What are Related Party Transactions?Related party transactions mean contracts or arrangements between a company and its related parties with respect to transactions covered in Section 188 of the Companies Act 2013. The expression ‘contract or arrangement’ has different connotations under the Act. While ‘contract’ envisages a written / formal binding document, ‘arrangement’ may be with or without a written document. Section 188 of the Act lists out few specified related party transactions such as sale, purchase or supply of goods or materials, selling, buying or leasing of property of any kind and availing or rendering of any services. As per Accounting Standard (AS) – 18, ‘Related Party Transaction’ is a transfer of resources or obligations between related parties, regardless of whether or not a price is charged. Indian Accounting Standard (IND AS) – 24 defines the term ‘related party transaction’ as a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged. DisclosuresDisclosures of details of Relatives by Directors and othersEvery director must disclose to the company, details of his relatives preferably along with disclosure of his interest, as follows:
Disclosures of Related Party Transactions As per the ActSection 134(3 ) of the Act read with Rule 8(2) of the Companies (Accounts) Rules, 2014 requires all companies to disclose in the Board’s Report, particulars of contracts or arrangements with related parties in Form AOC-2. Further, in terms of Section 177(8), where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in Board’s report along with the reasons thereof. Form AOC-2 has been prescribed for disclosure of particulars of contracts/ arrangements entered into by the company with related parties referred to in sub-section (7) of Section 188 of the Act including certain arms length transactions under the third proviso thereto. Form AOC-2 requires disclosure of (a) related party transactions which are entered into not on arm’s length basis and (b ) material related party transactions which are entered into on arm’s length basis. Thank You Prepared and complied by
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