Secretarial Audit Insight Series Edition 5 RPT

[Defined under Section 2(76)]

i.          a director or his relative;

ii.          a KMP or his relative;

iii.          a firm, in which a director, manager or his relative is a partner;

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 2% of its PSC;

vi.          any body corporate whose BODs, MD 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.

(Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity)

·   Shareholder Approval (Ordinary Resolution): Required if thresholds exceeded

·        sale, purchase or supply of any goods or material >10% of turnover

·        selling or otherwise disposing of or buying property of any kind ≥10% of net worth

·        Leasing of property of any kind >10% of turnover

·        availing or rendering of any services >10% of turnover

·        monthly remuneration >₹2.5 lakh per month

·        Underwriting >1% of net worth (Turnover/Net worth based on last audited FS)

·        Nothing in contained in this subsection shall apply if the transaction is in ordinary course of business and at arm’s length price.

·        Requirement of passing the resolution under first proviso shall not be applicable for transactions entered into between a holding company and its WOS whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.

Sec 188(3)

Failure to do so: Transaction becomes voidable at Board’s/ shareholder’s option, and directors/employees concerned must indemnify the Company.

[Section 188(5)]

(i) in case of listed company, be liable to a penalty of Rs. 25 lakh; and

(ii) in case of any other company, be liable to a penalty of Rs. 5 lakh.

[Reg. 23(1)]

·        Materiality of related party transactions

·        Dealing with RPTs, including clear threshold limits

Such policy must be reviewed and updated at least once every 3 years.

Reg. 23(1) read with Schedule XII

Note: For listed entities which has listed its securities on SME exchange, the transaction shall be considered material, if exceeds Rs 50 crore or 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements.

[Reg. 23(2), 23(3)]

2.      The Audit Committee Members who are independent directors shall approve the RPTs

3.      Audit Committee must define “material modifications” in the policy

4.      RPTs of subsidiaries (even if listed entity is not a party) require Audit Committee approval if value of transaction exceed lower of the following:

·        10% of standalone turnover of subsidiary, or

·        Threshold of material RPTs of listed entity as per regulation XII.

[Reg. 23(3)]

·        Defined criteria aligned with RPT policy

·        AC to satisfy itself w.r.t. the need of such approval

·        Maximum validity: 1 year

·        Periodic review of RPTS entered into pursuant to such omnibus approval (at least quarterly)

·        If details not foreseeable: limit of ₹1 crore per transaction

[Reg. 23(2)(f)]

·        Value shall not exceed ₹1 crore

·        Not material as per sub-reg. 23(1)

·        Justification for non-approval submitted

If not ratified: transaction voidable at Audit Committee’s option. Concerned directors must indemnify the company.

[Reg. 23(4)]

2.      No related parties shall vote to approve

3.      No approval needed if RPT is with a listed subsidiary and Reg. 23 & 15(2) apply to that subsidiary

4.      For related party transactions of unlisted subsidiaries of a listed subsidiary as referred above, the prior approval of the shareholders of the listed subsidiary shall suffice.

[Reg. 23(5)]

·        Transactions between two public sector companies

·        Transactions between a holding company and its wholly owned subsidiary (WOS)whose accounts are consolidated with such holding and placed before the shareholders at general meeting for approval;

·        Transactions between two WOS of a listed holding company and placed before shareholders of listed entity for approval

·        Payments of statutory dues, taxes, charges, etc. to Government

·        Transactions between public sector companies and Central/State Government.

[Reg. 23(9)]

·        Disclose RPTs every six months at the time of publishing standalone and consolidated financial results

·        Publish disclosures on their website

·        High-value debt listed entities must disclose along with half-yearly results

Remuneration and sitting fees paid by listed entity or its subsidiary to directors/KMPs/senior management (excluding promoter group) are exempt from disclosure if not material.

On each director – Rs. 15,000/-

Also, incomplete form AOC-2 was attached with the Board Report w.r.t. FY 2018-19 as many columns were left blank

Employee – Rs. 1.5 lakh

·         Failure to update RPT Policy.

·   Failure to obtain prior shareholder approval for material RPTs.