Introduction:

In today's intricate business landscape, maintaining transparency and fairness in transactions is paramount. Related Party Transactions (RPTs) represent a significant aspect of corporate governance, particularly in cities like Bangalore, where the corporate ecosystem thrives. As businesses continue to expand and interconnect, understanding and effectively managing RPTs become essential to mitigate risks and uphold integrity.

Understanding Related Party Transactions

Related Party Transactions refer to deals or arrangements between two parties who share a pre-existing relationship, which could influence their decision-making. These relationships may include those between family members, subsidiaries, key management personnel, or entities under common control.

RELATED PARTY AND RELATIVE DEFINITION as per CA 2013

As per Section 2(77) of Act, a person shall be treated as a ―Relative‖ to another if (i) they are member of HUF (AS PER HINDU Law – Father, Wives, sons and daughters) (ii) they are husband and wife (iii), they are related to each other in any of the following manner- mainly Blood relative. Father (including step-father) Mother (including step-mother) Son (including step-son) Son’s wife Daughter Daughter’s husband Brother (including step-brother) Sister (including step-sister)

EXCLUDES: Grand Parents /Grand Children. Step Daughter Brother’s Wife Sister’s Husband

RELATED PARTY WITH REFERENCE TO COMPANY- Sec 2(76)

1. Director/s- relatives, KMP- Relatives, Firm in which Director/his relatives are partner/s
   
2. Private Company in which Director/ Manager or his relative is a Director/Member.
   
3. Public Company in which Manager/Director is a Director or holds with his relative 2 % of paid up capital
   
4. Any Body Corporate whose Board –MD-Manager- used to act as per instructions of Director concerned.
   
5. Any person –on whose advice/ directions, a Director /Manager is accustomed to act. Advice in professional capacity to be excluded.
   
6. Holding/Subsidiary/ Associated Companies-Private Company exempt.
   
7. Subsidiary of Holding Company’ to which our company is also a Subsidiary-Fellow subsidiary (not applicable to private company as per Notification issued on 05.06.2015)
   
8. Others as prescribed. Viz., Director or KMP of Holding Company
   
9. Relative of director/KMP of Holding Company
   

What are Related Party Transactions under 2013 Act and SEBI Equity Listing Agreement?

As per the Companies act 2013:

• sale, purchase or supply of any goods or material;

• selling or otherwise disposing of, or buying, property of any kind;

• leasing of property of any kind;

• availing or rendering of any services;

• appointment of any agents for purchase or sale of goods, materials, services or property;

• related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company; or

• underwriting the subscription of any shares in or derivatives thereof.

As per SEBI Equity Listing Agreement:

• Related Party Transaction covers transfer of resources, services or obligations between a company and a related party, regardless, of whether a price is charged.

Disclosure:

1.Details of all material Related Party Transaction to be disclosed quarterly along with the compliance report on corporate governance

2.Policy on dealing with Related Party Transaction to be

disclosed on the Company’s website and Annual Report

Penalties for Non-compliance

1.Company may proceed against a director / employee, who had entered into contract or arrangement in contravention of the provisions, for recovery of any loss sustained by it as a result of such contract or arrangement.

2.Such a director shall be disqualified for a period of 5 years.

3.In case of a listed company, such director / employee may be punishable with imprisonment for a term up to 1 year and/or with fine of `25,000 – `5,00,000.

4.In case of any other company, such director / employee

may be punishable with fine of `25,000 – `5,00,000

Conclusion:

Navigating related party transactions demands a multifaceted approach encompassing legal, financial, and strategic considerations. Businesses in Bangalore, propelled by innovation and entrepreneurial zeal, must prioritize robust compliance frameworks to foster transparency, mitigate risks, and uphold corporate integrity. By proactively embracing regulatory guidelines and leveraging technological advancements, businesses can not only navigate RPTs seamlessly but also enhance stakeholder trust and sustain long-term growth in Bangalore's dynamic business ecosystem.