The document provides a detailed analysis of related party transactions under the Companies Act 2013, including the requirements for disclosures by directors and the categories of related parties. It outlines the approval process needed for transactions involving related parties, the implications of ownership and influence, and the penalties for non-compliance. Furthermore, it defines key terms related to related party relationships and transactions, emphasizing the necessity for transparency and accountability in corporate governance.

1. Related Party Transactions
Detailed Analysis with examples
Under
The Companies Act, 2013 and
Clause 49 of Listing Agreement and
Accounting Standard -18
krishan@iolcp.com

2. Related Party Transactions under Companies Act , 2013
Disclosures of interest by Directors be shown to the Board
Section Responsibility Kind of disclosure Time when to be disclosed
184 (1) Every
director
1. Disclose his concern or interest in
any company(ies) or bodies
corporate, firms, or other
association of individuals
2. Change in the concern and interest
3. First meeting of
Board after
appointment
4. First meeting in
every financial year
5. First meeting after
change of interest
184 (2) Every
director
Disclosure of
direct or
indirect,
concern or
interest in a
contract or
arrangement or
proposed
contract or
arrangement
entered by the
company
1. With body
corporate in
which he or
along with
other directors
holds more than
2%
shareholding.
2. Or promoter ,
manager or
CEO of that
body corporate
3. Firm or other
entity in which
he is member,
owner or
partner
First meeting at which the
contract etc is being
discussed and will not
participate in the contract.
184(5) Nothing in this section—
(a) shall be taken to prejudice the operation of any rule of law restricting a
director of a company from having any concern or interest in any contract or arrangement
with the company;
(b) shall apply to any contract or arrangement entered into or to be entered into between
two companies where any of the directors of the one company or two or more of them
together holds or hold not more than two per cent. of the paid-up share capital in the
other company.

3. A. Approval, Board and Shareholders for contracts with related
parties ( provided in Table A ) in respect of the following
transactions is required as per company law :
Contracts for which approval is required with related party
188 (1) (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:
Condition Provided further that no member of the company shall vote on such special resolution, to
approve any contract or arrangement which may be entered into by the company, if such
member is a related party:
Exemption 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.

4. A. In respectof a company XYZ Ltd the followingwill be treated as relatedparty 2(76)as perthe
provisionsof CompaniesAct 2013;
S.no Particulars Detailsof
related
parties
Remarks
1. Directors of the company or of itsholding
companyand theirrelatives( spouse ,father,
mother,sonand daughterandtheirspouses,
brotherand sister,membersof HUF)
Relative defined2(77)
Directors
Mr A
Mr B
Mr C
and his
relatives
2. Key managerial personnel of the companyor
itsholdingcompanyandtheirrelatives( in
additionof whole time directors –CFOand
CompanySecretary)
KMP
and their
relatives
3. Any firm in whichanyof ourdirectors
or hisrelative
isa partner
ABC
CDE
PersumedafirmABC inwhichMr A isa
partner
PersumedafirmCDE in which brotherof
Mr A isa partner
4. Any private company in which any of our
directorsisa director
or member
of thatcompany
A Pvt Ltd
B Pvt Ltd
Persumedaprivate company inwhichMr A
isa director
Persumedaprivate company inwhichMr A
isa memberonly
5. Any publiclimitedcompany inwhichdirectoris
a directorand holdingalongwith his relatives
more than two percentof holding.
( fifth order of removing of difficulties has
substituted or with and )
C Ltd In whichMr A is a directorand holding 2.1%
shareholdingalongwith hisrelatives.
6. Any body corporate whose boardor MD is
accustomedto act on the directionof any
director.
D Ltd Suppose in D Ltd any directorholdsmore
than 50% that is 50.1% holding.

5. 7. any person on whose advice,directionsor
instructionsadirectoror managerisaccustomed
to act:
Mr D Suppose Mr D is holdingmore than51%
shareholdinginXYZtd
8. Any company whichis
holding,
subsidiaryor
associate ofcompany
( holdingatleast20% of votingpowerof that
company 2(6))
C Ltd
D Ltd
E Ltd
( F Ltd comes
underthis
clause )
In case C Ltd isholding more than50% say
50.1% shareholdinginXYZLTd
In case XYZ Ltd is holding more than50% say
50.1 % shareholdingin DLtd
E Ltd isholding more than20% say 20.1 %
holdinginXYZLtd
In addition above , as per clause 49 of Listing Agreement , all Related Party Transaction
covering transfer of resources, services or obligations between a company and with following
related party relationships as defined under accounting standards AS -18 ( clause 3),
regardless, of whether a price is charged, the approval of the Audit Committee is also required:
S.no Particulars Detailsof
related
parties
Remarks
9. a. enterprises that
b. directly, or
indirectly through one or more
intermediaries,
control, or
are controlled by, or
are under common control with,
the reporting enterprise
(this includes holding companies, subsidiaries and
fellow subsidiaries);
F Ltd
G Ltd
H Ltd
I Ltd
J Ltd
K Ltd
L Ltd
M Ltd
In case F Ltd is holding 50.1% shareholding
inXYZ LTd
In case these all three are mentionedas
promoters of XYZ Limited .Promotersjointly
consideredcontrollingthe company
IN case J ltd inholding just even1%and K
Ltd holding other50 %,but J Ltd holding
more than 50% say 50.1% in K Ltd
In whichXYZis holding50.1% holding then
it becomesitssubsidiary.
In whichis F Ltd holding50.1%holding in
XYZ Ltd alsoholdingmore than50% say
50.1% inM Ltd , thenXYZ Ltd and M ltdwill
be consideredundercommoncontrol of F
Ltd . Then M Ltd will be consideredas
fellow subsidiaryof FLtd
10. (b) associates and
joint ventures
of the reporting enterprise and
E Ltd
G Ltd
H Ltd
I Ltd
E Ltd isholdingmore thansay 20.1% holding
inXYZ ltd beingassociate.
All promoterswill be consideredasjoint
venturesof XYZLtd

6. the investing party or
venturer
in respect of which the reporting enterprise is
an associate or
a joint venture;
J Ltd
K Ltd
In whichXYZltd isholdingmore than20%
say 20.1% inJ Ltd
In case K Ltd and XYZ ltdhas jointly
incorporatedanentity
11. (c) individuals owning,
directly or
indirectly,
an interest in the voting power of the reporting
enterprise that gives them
controlor
significant influence over the enterprise,
and
relatives of any such individual;
Mr D
Mr E
Relativesof
Mr D and Mr E
Suppose Mr D is isholdingmore than51%
shareholdinginXYZLtd
Suppose Mr E holding more than20% say
more than 20.1% shareholdinginXYZLtd
will be treatedasrelatedpartypresuming
have significantinfluence inthe company.
12. (d) key management personnel and relatives of
such personnel; and
KMP
and their
relatives
13. (e) enterprises over which any person described in
(c) or (d) is
able to exercise significant influence.
This includes enterprises owned by directors or
major shareholders of the reporting enterprise
and
enterprises that have a member of key management
in common with the reporting enterprise.
D Ltd
N Ltd
O Ltd
All enterprisesinwhichMrD or Mr E or KMP
or theirrelativesare holdingmore than20%
that is20.1% holdinginthatcompany.
In case D Ltd isownedby directors. or
In whichMr D while holdingmore than50%
say 50.1% shareholdingalsoholdsmore
than 50% say 50.1% thenthat companywill
underthisclause .
O ltdin whichanyKMP of XYZ ltdis a KMP
or he is only a director,eventhenhe will be
consideredasKMPin case he isable to
decide the decisionsinthe Boardof
Directorsof that company.

7. 3. This accounting standard AS -18 deals only with related party relationships described in
(a) to (e) below:
(a) enterprises that directly, or indirectly through one or more intermediaries, control, or are
controlled by, or are under common control with, the reporting enterprise (this includes holding
companies, subsidiaries and fellow subsidiaries);
(b) associates and joint ventures of the reporting enterprise and the investing party or
venturer in respect of which the reporting enterprise is an associate or a joint venture;
(c) individuals owning, directly or indirectly, an interest in the voting power of the reporting enterprise
that gives them control or significant influence over the enterprise, and relatives of any such
individual;
(d) key management personnel and relatives of such personnel; and
(e) enterprises over which any person described in (c) or (d) is able to exercise significant influence.
This includes enterprises owned by directors or major shareholders of the reporting enterprise and
enterprises that have a member of key management in common with the reporting enterprise.
10. For the purpose of this Standard, the following terms are used
with the meanings specified:
10.1 Related party - parties 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 decisions.
10.2 Related party transaction - a transfer of resources or obligations between related parties,
regardless of whether or not a price is charged.
10.3 Control – (a) ownership, directly or indirectly, of more than one half of the voting power of an
enterprise, or
(b) control of the composition of the board of directors in the case of a company or of the
composition of the corresponding governing body in case of any other enterprise, or
(c) a substantial interest in voting power and the power to direct, by statute or agreement, the
financial and/or operating policies of the enterprise.
10.4 Significant influence - participation in the financial and/or operating policy decisions of an
enterprise, but not control of those policies.
10.5 An Associate - an enterprise in which an investing reporting party has significant influence
and which is neither a subsidiary nor a joint venture of that party.

8. 10.6 A Joint venture - a contractual arrangement whereby two or more parties undertake an
economic activity which is subject to joint control.
10.7 Joint control - the contractually agreed sharing of power to govern the financial and operating
policies of an economic activity so as to obtain benefits from it.
10.8 Key management personnel - those persons who have the authority and responsibility for
planning, directing and controlling the activities of the reporting enterprise.
10.9 Relative – in relation to an individual, means the spouse, son, daughter, brother, sister, father
and mother who may be expected to influence, or be influenced by, that individual in his/her dealings
with the reporting enterprise.
10.10 Holding company - a company having one or more subsidiaries.
10.11 Subsidiary - a company:
(a) in which another company (the holding company) holds,either by itself and/or through one or
more subsidiaries, more than one-half in nominal value of its equity share capital; or
(b) of which another company (the holding company) controls, either by itself and/or through one or
more subsidiaries, the composition of its board of directors.
10.12 Fellow subsidiary - a company is considered to be a fellow subsidiary of another company if
both are subsidiaries of the same holding company.
10.13 State-controlled enterprise - an enterprise which is under thecontrol of the Central Government
and/or any State Government(s).
12. An enterprise is considered to have a substantial interest in another enterprise if that enterprise
owns, directly or indirectly, 20 per cent or more interest in the voting power of the other
enterprise. Similarly, an individual is considered to have a substantial interest in an enterprise, if that
individual owns, directly or indirectly, 20 per cent or more interest in the voting power nof the
enterprise.
13. Significant influence may be exercised in several ways, for example, by representation on
the board of directors, participation in the policy making process, material inter-company
transactions, interchange of managerial personnel, or dependence on technical information. Significant
influence may be gained by share ownership, statute or agreement. As regards share ownership, if
an investing party holds, directly or indirectly through intermediaries, 20 per cent or more of the
voting power of the enterprise, it is presumed that the investing party does have significant influence,
unless it can be clearly demonstrated that this is not the case. Conversely, if the investing party holds,
directly or indirectly through intermediaries, less than 20 per cent of the voting power of the
enterprise, it is presumed that the investing party does not have significant influence, unless such
influence can be clearly demonstrated. A substantial or majority ownership by another investing party
does not necessarily preclude an investing party from having significant influence.
Explanation
An intermediary means a subsidiary as defined in AS 21, Consolidated Financial Statements.
As per AS 21, a subsidiary is an enterprise that is controlled by another enterprise (known as the parent).

9. Section 184 and 188 of the Companies Act 2013 deals with the Disclosure of interest and
related party transactions which is reproduced below:
184. (1) Every director shall at the first meeting of the Board in which he participates as a
director and thereafter at the first meeting of the Board in every financial year or whenever there
is any change in the disclosures already made, then at the first Board meeting held after such
change, disclose his concern or interest in any company or companies or bodies corporate, firms, or
other association of individuals which shall include the shareholding, in such manner as may be
prescribed.
(2) Every director of a company who is in any way, whether directly or indirectly, concerned or
interested in a contract or arrangement or proposed contract or arrangement entered into or to be
entered into—
(a) with a body corporate in which such director or such director in association with any other director,
holds more than two per cent. shareholding of that body corporate, or is a promoter, manager,
Chief Executive Officer of that body corporate; or
(b) with a firm or other entity in which, such director is a partner, owner or member, as the case
may be,
shall disclose the nature of his concern or interest at the meeting of the Board in which the
contract or arrangement is discussed and shall not participate in such meeting:
Provided that where any director who is not so concerned or interested at the time of entering into
such contract or arrangement, he shall, if he becomes concerned or interested after the contract or
arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or
interested or at the first meeting of the Board held after he
becomes so concerned or interested.
(3) A contract or arrangement entered into by the company without disclosure under sub-section (2)
or with participation by a director who is concerned or interested in any way, directly or indirectly, in
the contract or arrangement, shall be voidable at the option of the company.

10. (4) If a director of the company contravenes the provisions of sub-section (1) or subsection (2), such
director shall be punishable with imprisonment for a term which may extend to one year or with fine
which shall not be less than fifty thousand rupees but which may extend to one lakh rupees, or with
both.
(5) Nothing in this section—
(a) shall be taken to prejudice the operation of any rule of law restricting a
director of a company from having any concern or interest in any contract or arrangement with the
company;
(b) shall apply to any contract or arrangement entered into or to be entered into between two
companies where any of the directors of the one company or two or more of them together holds or
hold not more than two per cent. of the paid-up share capital in the other company.
Provisions of section 188 of Companies Act , 2013, Rule 3 and 4 of
Companies (Specification of definitions details) Rules, 2014 , Rule 15
Companies (Meetings of Board and its Powers) Rules, 2014
188. (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 special resolution:
Provided further that no member of the company shall vote on such special resolution, to approve
any contract or arrangement which may be entered into by the company, if such member is a
related party:

11. 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.
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 special 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 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 authorized the
contract or arrangement in violation of the provisions of this section shall,—

12. (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.
189. (1) Every company shall keep one or more registers giving separately the particulars of all
contracts or arrangements to which sub-section (2) of section 184 or section 188 applies, in
such manner and containing such particulars as may be prescribed and after entering the particulars,
such register or registers shall be placed before the next meeting of the Board and signed by all the
directors present at the meeting.
(2) Every director or key managerial personnel shall, within a period of thirty days of his
appointment, or relinquishment of his office, as the case may be, disclose to the company the
particulars specified in sub-section (1) of section 184 relating to his concern or interest in the
other associations which are required to be included in the register under that sub-section or such
other information relating to himself as may be prescribed.
(3) The register referred to in sub-section (1) shall be kept at the registered office of the
company and it shall be open for inspection at such office during business hours and extracts may be
taken therefrom, and copies thereof as may be required by any member of the company shall be
furnished by the company to such extent, in such manner, and on payment of such fees as may be
prescribed.
(4) The register to be kept under this section shall also be produced at the commencement of
every annual general meeting of the company and shall remain open and accessible during the
continuance of the meeting to any person having the right to attend the meeting.
(5) Nothing contained in sub-section (1) shall apply to any contract or arrangement— (a) for the
sale, purchase or supply of any goods, materials or services if the value of such goods and materials
or the cost of such services does not exceed five lakh rupees in the aggregate in any year; or
(b) by a banking company for the collection of bills in the ordinary course of its business.
(6) Every director who fails to comply with the provisions of this section and the rules made
thereunder shall be liable to a penalty of twenty-five thousand rupees.

13. 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;
(ix) such other person as may be prescribed;
2(77) ‘‘relative’’, with reference to any person, means any one who is related to
another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed;
2(6) “associate company”, in relation to another company, means a company in which that other
company has a significant influence, but which is not a subsidiary company of the company having
such influence and includes a joint venture company.
Explanation.—For the purposes of this clause, “significant influence” means control of at least twenty
per cent. of total share capital, or of business decisions under an agreement;

14. Rule 3 and 4 of Companies (Specification of definitions details) Rules,
2014
3. Related party.- For the purposes of sub-clause (ix) of clause (76) of section 2 of the Act, a
director or key managerial personnel of the holding company or his relative with reference to a
company, shall be deemed to be a related party.
4. List of relatives in terms of clause (77) of section 2.- A person shall be deemed to be the
relative of another, if he or she is related to another in the following manner, namely:-
(1) Father: Provided that the term “Father” includes step-father.
(2) Mother: Provided that the term “Mother” includes the step-mother.
(3) Son: Provided that the term “Son” includes the step-son.
(4) Son’s wife.
(5) Daughter.
(6) Daughter’s husband.
(7) Brother: Provided that the term “Brother” includes the step-brother;
(8) Sister: Provided that the term “Sister” includes the step-sister.
Rules 15 of Companies (Meetings of Board and its Powers) Rules, 2014
15. Contract or arrangement with a related party.- A company shall enter into any contract or
arrangement with a related party subject to the following conditions, namely:-
(1) The agenda of the Board meeting at which the resolution is proposed to be moved shall
disclose-
(a) the name of the related party and nature of relationship;
(b) the nature, duration of the contract and particulars of the contract or arrangement;
(c) the material terms of the contract or arrangement including the value, if any;
(d) any advance paid or received for the contract or arrangement, if any;
(e) the manner of determining the pricing and other commercial terms, both included as part of
contract and not considered as part of the contract;
(f) whether all factors relevant to the contract have been considered, if not, the details of factors not
considered with the rationale for not considering those factors; and

15. (g) any other information relevant or important for the Board to take a decision on the proposed
transaction.
(2) Where any director is interested in any contract or arrangement with a related party, such
director shall not be present at the meeting during discussions on the subject matter of the
resolution relating to such contract or arrangement-
(3) For the purposes of first proviso to sub-section (1) of section 188, except with the prior
approval of the company by a special resolution-
(i) a company having a paid-up share capital of ten crore rupees or more shall not enter into a
contract or arrangement with any related party; or
(ii) a company shall not enter into a transaction or transactions, where the transaction or transactions
to be entered into –
(a) as contracts or arrangements with respect to clauses (a) to (e) of sub-section (1) of section 188
with criteria, as mentioned below -
(i) sale, purchase or supply of any goods or materials directly or through appointment of agents
exceeding twenty five percent. of the annual turnover as mentioned in clause (a) and clause (e)
respectively of sub-section (1) of section 188;
(ii) selling or otherwise disposing of, or buying, property of any kind directly or through appointment
of agents exceeding ten percent. of net worth as mentioned in clause (b) and clause (e)
respectively of sub-section (1) of section 188;
(iii) leasing of property of any kind exceeding ten percent. of the net worth or exceeding ten
percent. of turnover as mentioned in clause (c) of sub-section (1) of section 188;
(iv) availing or rendering of any services directly or through appointment of agents exceeding ten
percent. of the net worth as mentioned in clause (d) and clause (e) of sub-section (1) of section
188;
(b) appointment to any office or place of profit in the company, its subsidiary company or associate
company at a monthly remuneration exceeding two and half lakh rupees as mentioned in clause
(f) of sub-section (1) of section 188; or
(c) remuneration for underwriting the subscription of any securities or derivatives thereof of the
company exceeding one percent. of the net worth as mentioned in clause (g) of sub-section (1) of
section 188.
Explanation.- (1) The Turnover or Net Worth referred in the above sub-rules shall be on the basis of
the Audited Financial Statement of the preceding Financial year.
(2) In case of wholly owned subsidiary, the special resolution passed by the holding company shall be
sufficient for the purpose of entering into the transactions between wholly owned subsidiary and
holding company.

16. (3) The explanatory statement to be annexed to the notice of a general meeting convened pursuant to
section 101 shall contain the following particulars namely:-
(a) name of the related party ;
(b) name of the director or key managerial personnel who is related, if any;
(c) nature of relationship;
(d) nature, material terms, monetary value and particulars of the contract or arrangement;