Provisions Related To Related Party

PROVISIONS RELATED TO RELATED PARTY
Definition-2(76) “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 his relative is a partner;
(iv) a private company in which a director or manager is a member or director;
(v) a public company in which a director or manager is a director or 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:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice,
directions or instructions given in a professional capacity;
(viii) any company which is—
(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary;
(C) an investing company or the venturer of the company
(ix) such other person as may be prescribed;
188. Related party transactions
(1) Except with the consent of the Board of Directors given by a resolution at a meeting of
the Board and subject to such conditions as may be prescribed, no company shall enter into
any contract or arrangement with a related party with respect to—
(a) sale, purchase or supply of any goods or materials;
(b) selling or otherwise disposing of, or buying, property of any kind;
(c) leasing of property of any kind;
(d) availing or rendering of any services;
(e) appointment of any agent for purchase or sale of goods, materials, services
or property;
(f) such related party's appointment to any office or place of profit in the company,
its subsidiary company or associate company; and
(g) underwriting the subscription of any securities or derivatives thereof, of the
company:
Provided that no contract or arrangement, in the case of a company having a paid-up share
capital of not less than such amount, or transactions not exceeding such sums, as may be
prescribed, shall be entered into except with the prior approval of the company by a
resolution:
Provided further that 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:
Provided also that nothing contained in the second proviso shall apply to a company in
which ninety per cent. or more members, in number, are relatives of promoters or are
related parties.
Provided also that nothing in this sub-section shall apply to any transactions entered into
by the company in its ordinary course of business other than transactions which are not on
an arm’s length basis.
Provided also that the requirement of passing the resolution under first proviso 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 shareholders at the general meeting for approval
Explanation.— In this sub-section,—

(a) the expression “office or place of profit” means any office or place—
(i) where such office or place is held by a director, if the director holding it
receives from the company anything by way of remuneration over and
above the remuneration to which he is entitled as director, by way of salary,
fee, commission, perquisites, any rent-free accommodation, or otherwise;
(ii) where such office or place is held by an individual other than a director
or by any firm, private company or other body corporate, if the individual,
firm, private company or body corporate holding it receives from the
company anything by way of remuneration, salary, fee, commission,
perquisites, any rent-free accommodation, or otherwise;
(b) the expression “arm’s length transaction” means a transaction between two
related parties that is conducted as if they were unrelated, so that there is no conflict
of interest.
(2) Every contract or arrangement entered into under sub-section (1) shall be referred to in
the Board’s report to the shareholders along with the justification for entering into such
contract or arrangement.
(3) Where any contract or arrangement is entered into by a director or any other employee,
without obtaining the consent of the Board or approval by a resolution in the general
meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be,
by the shareholders at a meeting within three months from the date on which such contract
or arrangement was entered into, such contract or arrangement shall be voidable at the
option of the Board or, as the case may be, of the shareholders and if the contract or
arrangement is with a related party to any director, or is authorised by any other director,
the directors concerned shall indemnify the company against any loss incurred by it.
(4) Without prejudice to anything contained in sub-section (3), it shall be open to the
company to proceed against a director or any other employee who had entered into such
contract or arrangement in contravention of the provisions of this section for recovery of
any loss sustained by it as a result of such contract or arrangement.
(5) Any director or any other employee of a company, who had entered into or authorised
the contract or arrangement in violation of the provisions of this section shall,—
(i) in case of listed company, be punishable with imprisonment for a term which
may extend to one year or with fine which shall not be less than twenty-five
thousand
rupees but which may extend to five lakh rupees, or with both; and
(ii) in case of any other company, be punishable with fine which shall not be less
than twenty-five thousand rupees but which may extend to five lakh rupees.

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PROVISIONS RELATED TO RELATED PARTY

Definition-2(76) “related party”, with reference to a company, means—

188. Related party transactions

Explanation.— In this sub-section,—

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