{"id":5137,"date":"2021-05-14T05:44:07","date_gmt":"2021-05-14T05:44:07","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=5137"},"modified":"2023-03-17T10:40:30","modified_gmt":"2023-03-17T10:40:30","slug":"sebi-guidance-note-on-disclosure-of-related-party-transactions","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/sebi-guidance-note-on-disclosure-of-related-party-transactions\/","title":{"rendered":"SEBI Guidance Note on disclosure of Related Party Transactions"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Section 188 was enacted under the Companies Act, 2013, which began to regulate few kinds of transactions that occur between companies and its \u201crelated parties\u201d and it also provides that if it exceeds a specified monetary threshold then approval by non-related parties of such transactions is required. <\/p>\n\n\n\n<p>It is mandatory for the Companies to follow the requirement of listing regulations and other appropriate regulations that are amended time to time. Hence, SEBI came up with a guidance note on disclosure of related party transactions and in this blog we will know about it in details. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3abb8b52495\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3abb8b52495\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-guidance-note-on-disclosure-of-related-party-transactions\/#Who_are_related_parties\" title=\"Who are related parties?\">Who are related parties?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-guidance-note-on-disclosure-of-related-party-transactions\/#What_are_Related_Party_Transactions\" title=\"What are Related Party Transactions?\">What are Related Party Transactions?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-guidance-note-on-disclosure-of-related-party-transactions\/#What_is_the_SEBI_Guidance\" title=\"What is the SEBI Guidance?\">What is the SEBI Guidance?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-guidance-note-on-disclosure-of-related-party-transactions\/#Reporting_Disclosures\" title=\"Reporting &amp; Disclosures \">Reporting &amp; Disclosures <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-guidance-note-on-disclosure-of-related-party-transactions\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_are_related_parties\"><\/span>Who are related parties?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The list of persons and entities that are considered related parties by the law is very long. The <strong>Companies Act, 2013<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Companies_Act_2013\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup> states that a related party with respect to a company, means:<\/p>\n\n\n\n<ul><li>A director and includes a key managerial personnel or their relatives;<\/li><li>a firm, in which manager, director, or his relative is a partner;<\/li><li>a private company in which a manager, director or his relative is a director or a member;<\/li><li>a public company in which a director or manager is a director and is holding more than two per cent of its <a href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-difference-of-authorised-capital-and-paid-up-capital\/\" class=\"text-primary\"><strong>paid-up share capital <\/strong><\/a>together with his relatives;<\/li><li>anybody corporate whose managing director, Board of Directors, or manager is familiar to act according to the advice, instructions or directions of a director or manager;<\/li><\/ul>\n\n\n\n<p>Any\nperson on whose recommendation, directions or commands a director or manager is\nhabituated to act.<\/p>\n\n\n\n<p>Any corporate\nbody which is:<\/p>\n\n\n\n<p>&nbsp;(a) A holding, associate or subsidiary company\nof such company;<\/p>\n\n\n\n<p>(b) A subsidiary\nof the holding company to which that company is also a subsidiary;<\/p>\n\n\n\n<p>&nbsp;(c) Any investing company and the venture of that company.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_Related_Party_Transactions\"><\/span>What are Related Party Transactions?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Related Party Transactions shall be entered by the Companies after taking into consideration the following provisions.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"605\" height=\"350\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/05\/image-19.png\" alt=\"Related Party Transactions\" class=\"wp-image-5138\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/05\/image-19.png 605w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/05\/image-19-300x174.png 300w\" sizes=\"(max-width: 605px) 100vw, 605px\" \/><\/figure><\/div>\n\n\n\n<p>Related\nParty Transactions (RPT) are the transactions that a company does with the parties\nthat are related to it. A company entering into arrangements and contracts with\nthe related party is as follows:<\/p>\n\n\n\n<ul><li>sale, supply or purchase of any materials or goods;<\/li><li>disposing, selling or otherwise buying property of any kind;<\/li><li>leasing of any kind of property;<\/li><li>availing or render any services;<\/li><li>appointing any agent for the sale or purchase of goods, services, materials, or property;<\/li><li>the appointment of the related party to any office or place of profit in the company, its subsidiary company or in the associate company; and<\/li><li>Underwrite the subscription of the securities or the derivative of the company.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_SEBI_Guidance\"><\/span>What is the SEBI Guidance?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>For Listed Companies:<\/em><\/strong><\/p>\n\n\n\n<p>In accordance with the&nbsp;Regulation\n2(1) (zc) of SEBI (Listing Obligation and Disclosure Requirement) Regulations,\n2015 (\u201cListing Regulations\u201d): \u2018Related\nParty Transaction\u2019 shall&nbsp;mean that there is transfer of services,\nor obligations, or resources between any of the listed entity and a related\nparty, despite of whether if there is any price charged and any transaction\nwith the related party shall be considered to include the single transaction\nand the group of transactions in a contract.<\/p>\n\n\n\n<p>As per&nbsp;Regulation 23(1) of\nListing Regulations: A transaction with the related party shall be construed as\nmaterial if the transaction is entered into either individually or taken jointly\nwith the previous transactions for the duration of the financial year, and goes\nbeyond 10% of the consolidated annual turnover of the listed entity according\nto the previous audited financial statement of the given listed entity.<\/p>\n\n\n\n<p>In accordance with the&nbsp;Regulation\n23(1A) of Listing Regulations: A transaction concerning payments that are made\nto the related party with reference to the royalty or brand usage shall be construed\nas material if the transaction are entered individually and also taken together\nwith the preceding transactions during that financial year,&nbsp;exceeding five percent of the consolidated annual\nturnover of the listed entity&nbsp;in accordance with the previous audited\nfinancial statement of that listed entity.<\/p>\n\n\n\n<p>In\naccordance with the Accounting Standard (AS)\u201318: \u2018Related Party\nTransactions\u2019 is the transfer of obligations or resources between the related\nparties, despite of whether the price is charged or not.<\/p>\n\n\n\n<p>As stated by Ind AS-24:&nbsp;Related Party Transactions is a transfer of services, resources or obligations between a related party and reporting entity, despite of whether the price is charged or not.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Reporting_Disclosures\"><\/span>Reporting &amp; Disclosures <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>SEBI\nhas specified the reporting and disclosure requirements at different places in\nthe Listing Regulations connected to \u201cQuarterly Compliance Report on the\nCorporate Governance, where it is required by the listed company to submit the\nreport (in specified format as mentioned by SEBI) to the stock exchange within\n15 days from the close of the quarter. The Report shall include the details of\n\u2018all the material transactions with related parties\u2019 and must be signed either\nby Chief Executive Officer or Compliance Officer<\/p>\n\n\n\n<p>&nbsp;<strong>(1) Website:<\/strong> Regulation 46 of Listing Regulations says that the listed company is mandated to maintain a functional website that shall contain the essential information and the website will propagate \u201cPolicy on dealing with the Related Party Transactions\u201d.<\/p>\n\n\n\n<p><strong>(2) Corporate Governance Report:<\/strong> In the corporate Governance Report which is included in the Annual Report, the company is obligated to disclose the \u2018materially significant\u2019 RPT\u2019s that may have impending conflict with the benefit of listed entity at large. The corporate Governance Report shall also give a web link with reference to the policy on dealing with RPTs.<\/p>\n\n\n\n<p><strong>(3) Annual Report: <\/strong>with respect to Regulation 53 of the listing Regulations, the Annual Report shall contain the RPT disclosure on<\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (4.1) Holding Company<\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (4.2) Subsidiary Company<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The SEBI Clause 49 has certain regulatory requirements for the related party transactions. Hence, related party transactions shall include the transfer of resources\/services\/obligation and has to be approved by the shareholder by passing a special resolution. Therefore, the rules of SEBI must strictly be observed as non compliance of the same attracts penalties.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/learning\/preferential-allotment-of-equity-shares\/\">Preferential Allotment of Equity Shares: A Complete Guide\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Section 188 was enacted under the Companies Act, 2013, which began to regulate few kinds of transactions that occur between companies and its \u201crelated parties\u201d and it also provides that if it exceeds a specified monetary threshold then approval by non-related parties of such transactions is required. It is mandatory for the Companies to follow [&hellip;]<\/p>\n","protected":false},"author":7,"featured_media":5149,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[64],"tags":[641],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/5137"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=5137"}],"version-history":[{"count":21,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/5137\/revisions"}],"predecessor-version":[{"id":12661,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/5137\/revisions\/12661"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/5149"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=5137"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=5137"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=5137"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}