Procedure for Related Party Transaction (RPT)

Nupur Rathore

Nupur Rathore

Published on: Dec 7, 2020 / Updated on: Feb 26, 2021

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Introduction

Related Party Transaction means a transfer of resources, services or obligations between a listed entity and a related party, regardless of whether a price is charged and a “transaction” with a related party shall be construed to include a single transaction or a group of transactions in a contract. [Regulation 2(zc) of SEBI (LODR) Regulations, 2015]

Mandatory Requirements

1. A Director of a Public Company who is interested in any contract or arrangement shall not be present in the meeting where these contract and arrangements are discussed upon.
2. Company shall obtain consent from the Board or Shareholders where any contract or arrangement is entered into by a director or any other employee.
3. Where such approvals are not taken then these contracts and arrangements must be ratified by the Board or 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 of the shareholders.
4. 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.

Following Procedure is to be followed

• Transaction is at Arm’s Length Basis and in Ordinary Course of Business
  Convene a meeting of Audit Committee
  • Where a Company is required to constitute an Audit Committee, then hold a meeting of Audit Committee to obtain approval for RPT. [For more details refer the Procedure for Conducting Audit Committee Meeting]
  • Audit Committee shall examine that whether the transaction is at arm’s length basis or in ordinary course of business.
  • Company shall obtain omnibus approval from Audit Committee for repetitive RPT.
• Transaction is in Ordinary Course of Business and within the prescribed limits
  1. Convene a meeting of Audit Committee
     • Where a Company is required to constitute an Audit Committee, then hold a meeting of Audit Committee to obtain approval for RPT. [For more details refer the Procedure for Conducting Audit Committee Meeting]
     • Audit Committee shall examine that whether the transaction is at arm’s length basis or in ordinary course of business.
     • Company shall obtain omnibus approval from Audit Committee for repetitive RPT.
  2. Convene a Meeting of Board of Directors [As per section 173 & Secretarial Standard-1 (SS-1)]
     • Company shall issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
     • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
     • Hold a meeting of Board of Directors of the Company and pass the resolution to consider and approve the related party transaction referred under Section 188(1) which is either not in the Ordinary Course of Business or not on Arm’s length basis.
     • Authorize CS or CFO or any Director of the Company to file the requisite Form and Return with ROC.
     • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation and Signing of Minutes of Board Meeting]
  3. Make necessary entries in Register of Contract and Arrangement with Registered Parties
     • Company shall make entries in the Register of Contract and Arrangement with a registered party in Form MBP-4 after receiving an approval from the Board.
     • Company Secretary or any other person duly authorized by the Board shall authenticate these entries in the Register.
     • Register of Contract or Arrangement with a registered party shall be kept in next Board Meeting and signed by all the Directors present in the Meeting.
• Transaction is in Ordinary Course of Business and exceeds the limit or the Related Party Transaction is a material RPT
  1. Convene a meeting of Audit Committee
     • Where a Company is required to constitute an Audit Committee, then hold a meeting of Audit Committee to obtain approval for RPT. [For more details refer the Procedure for Conducting Audit Committee Meeting]
     • Audit Committee shall examine that whether the transaction is at arm’s length basis or in ordinary course of business.
     • Company shall obtain omnibus approval from Audit Committee for repetitive RPT.
  2. Convene a Meeting of Board of Directors [As per section 173 & Secretarial Standard-1 (SS-1)]
     • Company shall issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
     • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
     • Hold a meeting of Board of Directors of the Company and pass the following resolutions
       • To consider and approve the related party transaction referred under Section 188(1) which is either not in the Ordinary Course of Business or not on Arm’s length basis.
       • To fix day, date, time and venue for holding General Meeting of the Company.
       • To approve the draft notice of General Meeting along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013.
       • To authorize the Director or Company Secretary to sign and issue notice of the General Meeting and to do such acts, deeds and things as may be necessary to give effect to the Board’s decision.
       • To authorize CS or CFO or any Director of the Company to file the requisite Form and Return with ROC.
     • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation and Signing of Minutes of Board Meeting]
  3. Make necessary entries in Register of Contract and Arrangement with Registered Parties
     • Company shall make entries in the Register of Contract and Arrangement with a registered party in Form MBP-4 after receiving an approval from the Board.
     • Company Secretary or any other person duly authorized by the Board shall authenticate these entries in the Register.
  4. Convene General Meeting [Section 96, 100 and SS-2]
     • Notice of General Meeting shall be given at least clear 21 days before the actual date of a General Meeting in writing, by hand or by ordinary post or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means or a Shorter Notice can be issued with the consent of at least majority in number and ninety five percent of such part of the paid up share capital of the company giving a right to vote at such a meeting in accordance with Section 101.
     • Notice will be sent to all the Directors, Members, Auditors of Company, Secretarial Auditor, Debenture Trustees and to others who are entitled to receive the notice of the General Meeting.
     • Notice shall specify the day, date, time and full address of the venue of the Meeting and contain a statement on the business to be transacted at the Meeting.
     • Hold the General Meeting on fixed day and pass an Ordinary Resolution for RPTs that are exceeding the limit.
     • Listed Companies shall disclose the proceedings of General Meeting to the Stock Exchange within 24 hours from the conclusion of General Meeting and same shall be posted on the website of the company within 2 working days. [Regulation 30 and 46(3) of the SEBI (LODR) Regulations, 2015]
     • Listed Companies shall submit to the stock exchange the details of the voting results within 48 hours from the conclusion of the meeting and post the same on the website of the Company. [Regulation 44 of the SEBI (LODR) Regulations, 2015]
     • Prepare the minutes of General Meeting, get them signed and compile accordingly. [Refer the Procedure for Preparation and Signing of Minutes of General Meeting].