DrCompliance A related-party transaction is a business deal or arrangement between two parties who are joined by a special relationship prior to the deal.

1. AS PER SECTION 188 OF COMPANIES
ACT, 2013
(Applicable to both Public and Private
Companies)
RELATED PARTY TRANSACTION

2. Company shall enter into any contract or arrangement with a
Related Party only after passing a Board Resolution in the Board
Meeting seeking approval of Board of Directors.
 RELATED PARTY TRANSACTION:
1. Sale, purchase or supply of any goods or materials;
2. Selling or otherwise disposing of, or buying, property of any kind;
3. Leasing of property of any kind;
4. Availing or rendering of any services;
5. Appointment of any Agent for purchase or sale of goods, materials,
services or property;
6. Appointment to any office or place of profit in the Company, its
subsidiary Company or Associate Company;
7. Underwriting the subscription of any securities or derivatives thereof,
of the Company.

4. MEANING OF RELATED PARTY
 director or his relative;
 a key managerial personnel or his relative;
 a firm, in which a director, manager or his relative is a partner;
 a private company in which a director or manager is a member or
director;
 a public company in which a director or manager is a director or holds
along with his relatives, more than 2% of its paid-up share capital;
 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;
 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;
 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;
 a director or key managerial personnel of the holding company or his
relative

5. APPROVAL FROM MEMBERS
 In the following circumstances , in addition to approval of Board of Directors , prior
approval of members by means of a SPECIAL RESOLUTION must also be sought
before entering into any related party transaction:-
 Sale, purchase or supply of any goods or materials directly or through appointment of
agents exceeding 25% of the annual turnover as mentioned in clause (a) and clause (e)
respectively of sub-section (1) of section 188
 Selling or otherwise disposing of, or buying, property of any kind directly or through
appointment of agents exceeding 10% of net worth as mentioned in clause (b) and clause
(e) respectively of sub-section (1) of section 188
 Leasing of property of any kind exceeding 10% of the net worth or exceeding 10% of
turnover as mentioned in clause (c) of sub-section (1) of section 188
 Availing or rendering of any services directly or through appointment of agents exceeding
10% of the net worth as mentioned in clause (d) and clause (e) of sub-section (1) of
section 188
 Appointment to any office or place of profit in the company, its subsidiary company or
associate company at a monthly remuneration exceeding Rs. 2.5 Lakhs as mentioned in
clause (f) of sub-section (1) of section 188
 Remuneration for underwriting the subscription of any securities or derivatives thereof of
the company exceeding 1% of the net worth as mentioned in clause (g) of sub-section (1)
of section 188.

6. Points to Remember :-
 This Section shall not 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.
Every contract or arrangement entered into shall be referred
to in the Board’s report to the shareholders along with the
justification for entering into such contract or arrangement.
Every company shall maintain one or more registers in
Form MBP 4, and shall enter therein the particulars of
contracts or arrangements with a related party with respect
to transactions to which section 188 applies.

7. PENALTY FOR NON COMPLIANCE
 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 –
 (i) in case of listed company, be
punishable with imprisonment for a term which
may extend to 1 year or with fine which shall not
be less than Rs. 25,000/- but which may extend
to Rs. 5,00,000/-, or with both; and
 (ii) in case of any other company, be
punishable with fine which shall not be less than
Rs. 25,000/- but which may extend to Rs.
5,00,000/-