Dharmam Chara

CA. K. G. ACHARYA
acharya@kgacharya.com

Overview Chapter XII Meetings of Board & its Power

Meetings of Board

2013

1956

173

285/286

Quorum for meetings of Board

174

287/288

Passing of resolution by circulation

175

289

Defects in appointment of directors not to invalidate actions taken

176

290

Audit Committee

177

292A

Nomination & Remuneration Committee & Stakeholders Relationship

178

--

Powers of Board

179

291/292

Restrictions on powers of Board

180

293

Co., to contribute to bonafide & charitable funds, etc

181

293(1)(E)

Prohibitions & restrictions regarding political contributions

182

293A

Power of Board & other persons to make contributions to national defence fund, etc

183

293B

Disclosure of interest by director

184

299

Loan to directors, etc

185

295

Loan & investment by Co.,

186

372A

Investments of Co., to be held in its own name

187

49

Related Party Transaction

188

297/314

Register of contracts or arrangements in which directors are interested

189

301

Contract of employment with managing or WTD

190

302

Payment to director for loss of office, etc., in connection with transfer of undertaking, property or shares

191

391/320

Restriction on non-cash transactions involving directors

192

--

Contract by OPC

193

--

Prohibition on forward dealings in securities of Co., by director or KMP

194

--

Prohibition
CA
K G Acharya on

195

--

insider trading of securities

1956
TITLE

S. 297

Board's sanction to be required for

certain C/A in which particular
directors are interested

2013

S. 188
Related Party Transactions

Notified on 26/03/2014 WEF 1/4/14

S. 314
Director, etc. not to hold Office
or Place of Profit

Board + CG for Cos. with PUC > 1 Cr.

ACB? + Board + SR for RPT beyond

RELATED PARTY

Not Defined

Defined & enlarged

LIST OF RELATIVES

Large [23 nos.]

Small [9 nos.]

IMPACT

Transparency

Increased Transparency

RP TRANSACTIONS

Narrow

Wide

APPROVAL

ARMS LENGTH PRICE

PENAL PROVISIONS

(Immovable property transactions included)

Not distinguished

Distinguished & Defined

General U/s. 629A

Specific U/s.188(5)

Cash @ prevailing market prices.

(upto Rs. 5,000 + 500 / day of default)

K.G. ACHARYA & CO.,

specified limits.

(25K to 5 L + Prosecution + Director

disqualified U/s.164 for 5 years)
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RPT FLOW CHART

Co. entering into Contract / Arrangement with Related Party?

(All Cos, incl. Pvt. Ltd. Cos)

YES

Ordinary Course of Business

+
@ Arms Length (#)

YES

No Action u/s. 188

but disclose in
Directors report

NO

Related Party Transaction

stipulated?
YES

NO

NO

Board consent

Limits Breached ?
YES

Board consent
+
Prior Special Resolution

Other Provisions

Elaborate disclosure in

- Notice of BM & Expln. Statement of GM.

- Directors report.

Interested Director/member not to vote at BM / SR.

Default C/A voidable at boards option.

(#) If Co has ACB then ACB to approve All RPT [S.177(4)(iv)]

ACB reqd. for All listed Cos. & Public Cos. with PUC > 10crs, Borrowings / Deposits > 50crs or TO > 100 Crs.
K.G. ACHARYA & CO.,

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RPT COS ACT

RELATED PARTY

[S. 2(76)]

with reference to a Co., means

a.

Director or his Relative (1);

b.

Key Managerial Personnel (2) or his Relative

c.

Firm, in which Director, Manager or his Relative is a Partner;

d.

Pvt. Co. in which Director or Manager is a Member or Director;

e.

Public Co. in which Director / Manager is Director OR AND holds (along with
relatives) > 2% of its PUC;

f.

Any Body Corporate whose BOD / MD / Manager is accustomed to act in

accordance with the Advice, Directions or Instructions of Director / Manager;

g.

Any Person on whose Advice, Directions or Instructions a Director or

Manager is accustomed to act (NA to directions/instructions given in professional capacity)

h.

Holding Co. / Subsidiary Co. / Associate Co. / Fellow Subsidiary.

i.

Director other than ID / KMP of Holding Co. or his relative (Rule 1.3)

K.G. ACHARYA & CO.,

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RELATED PARTY AS 18

RELATED PARTY (RP) AS PER PARA 10.1 TO AS 18

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.

Who are not Related Parties under AS-18 .

Two companies having a common director
influence the mutual dealings;

who cannot

Relationship where there is a Common customer, distributor,

Provider of finance, Trade union
State controlled enterprises
K.G. ACHARYA & CO.,

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RELATED PARTY AS 18

RELATED PARTY Descriptive explanation (Para 3)

a) Enterprises that directly or indirectly control or are
controlled by or are under common control [H /S & Fellow Subsidiaries]
b) Associates and JVs
c) Individuals & their relative, owning an interest in voting
power of reporting enterprise, giving them control or
significant influence over the enterprise
d) KMP & their relatives; and
e) enterprises over which any person described in (c) or (d) is
able to exercise significant influence. Includes enterprises
owned by directors or major shareholders of the reporting
enterprise & enterprises that have a member of KMP in
common with the reporting enterprise.
K.G. ACHARYA & CO.,

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RPT-COS. ACT

(1)

RELATIVE
UNDER S. 2(77) OF COS ACT 2013

(i) Husband / Wife

(ii) Father (incl. Step father)
(iii) Mother (incl. Step Mother)
(iv) Son (incl. Step Son)
(v) Daughter
(vi) Brother (incl. Step Brother)
(vii) Sister (incl. Step Sister)

PARA 10.9 OF AS 18

Relatives if in relation to
an individual, (i) to (vii)
may be expected to
influence / be influenced
by, that individual in his
dealings with reporting
enterprise.

(viii) Sons Wife

(ix) Daughters Husband
(x) Members of a HUF
K.G. ACHARYA & CO.,

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RPT COS ACT.

(2)

KEY MANAGERIAL PERSONNEL (KMP)

UNDER S. 2(51) OF COS ACT 2013

1. CEO / MD / Manager;
2. CS
3. WTD
4. CFO

K.G. ACHARYA & CO.,

PARA 10.8 OF AS 18

Those persons who have the

authority and responsibility
for planning, directing and
controlling the activities of
the reporting enterprise.

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RPT

RELATED PARTY TRANSACTIONS MEANS

Contracts or Arrangements (C/A) with Related Parties w.r.t
188(1) (a) Sale, Purchase or Supply of Goods / Materials;
188(1) (b) Selling / Disposing / Buying property of any kind;

NEW

188(1) (c) Leasing of property of any kind;

NEW

188(1) (d) Availing / Rendering of Services;

188(1) (e) Appt. of Agent for Purchase / Sale of Goods / Materials / Services / Property;

NEW

188(1) (f) Appt. to any office or place of profit in CSA;

188(1) (g) Underwriting Subscription of Securities / Derivatives of Co.

NEW

Note: Transactions reg. Loans / Guarantees/ Securities to Directors / Any other person in whom
director is interested are prohibited with certain exceptions u/s. 185 Hence not covered u/s. 188.

RELATED PARTY TRANSACTION (RPT) AS PER PARA 10.2 TO AS 18

A transfer of Resources or Obligations b/w RP, regardless of whether or not a Price is charged.
K.G. ACHARYA & CO.,

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LIMITS REQUIRING SPECIAL RESOLUTION . . .

(a) & (e)

(b) & (e)

(c)

(d) & (e)

Prior SR required if

Type of RPT u/s. 188 (1)

[Rule 12.15(3) as amended 14.08.2014]

SALE / PURCHASE / SUPPLY OF GOODS / MATERIALS

10% Turnover OR Rs. 100 Cr.

(DIRECTLY OR THROUGH APPOINTMENT OF AGENTS)

SELLING / DISPOSING / BUYING PROPERTY OF ANY KIND

(DIRECTLY OR THROUGH APPOINTMENT OF AGENTS)

Cumulatively more than (#)

(Whichever is Lower)

10% NW OR Rs. 100 Cr.

(Whichever is Lower)

LEASING OF PROPERTY OF ANY KIND

10% of NW OR 10% of T/o OR Rs.

100 Cr. (Whichever is Lower)

AVAILING / RENDERING OF SERVICES

10% of NW OR Rs. 50 Cr.

(DIRECTLY OR THROUGH APPOINTMENT OF AGENTS)

(Whichever is Lower)

(f)

APPOINTMENT TO ANY OFFICE OR PLACE OF PROFIT IN CSA Monthly Remuneration Rs. 2.5L

(g)

UNDERWRITING SUBSCRIPTION OF SECURITIES / DERIVATIVES

(#) Note:

Remuneration 1% of NW

1. TURNOVER or NW As per Audited FS of preceding FY.

2. For WOS: [R. 12.15 Expl. (2)] - SR by H is sufficient for entering into RPT between WOS & H.
3. All SR incl. S.188 requires MGT-14 to be filed11
with
RoC.
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OFFICE OR PLACE OF PROFIT.

EXPLN. (a) TO S. 188

OFFICE OR PLACE OF PROFIT (OoP) means any office or place

where such OoP is held by a director, if he receives from Co. by
way of remuneration over and above remuneration to which
he is entitled as director, by way of salary, fee, commission,
perquisites, any RFA, or otherwise;
where such OoP is held by individual other than a director, or
by any firm, private company or other body corporate, if they
receive from Co. anything by way of remuneration, salary, fee,
commission, perquisites, any RFA, or otherwise;
K.G. ACHARYA & CO.,

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ARMS LENGTH TRANSACTION . . . .

COS ACT 2013

EXPLN. (B) TO S. 188

INCOME TAX
ACT,
1961 S. 92C(1)

AS - 18

RELATED PARTY
DISCLOSURES
K.G. ACHARYA & CO.,

ARMS 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.
ALP in relation to International Transaction or SDT [also for
S.40A, 80A/IA] shall be determined by any of following methods,
being Most Appropriate, having regard to Nature or class of
transaction or class of Associated Persons or Functions
performed or other relevant factors, viz.:
(a) Comparable Uncontrolled Price Method - CUP;
(b) Resale Price Method - RPM;
(c) Cost Plus Method Cost +;
(d) Profit Split Method- PSM;
(e) Transactional Net Margin Method- TNMM;
(f) Any Other Method.
Fair Market Value & Fair Value

Next
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ARMS LENGTH TRANSACTION . . . .

AS - 10

FMV is the price that would be agreed to in an open &

unrestricted market between knowledgeable & willing parties
dealing at arms length who are fully informed and are not
under any compulsion to transact.

AS 13 & 14

Fair value is the amount for which an asset could be exchanged

between a knowledgeable, willing buyer and a knowledgeable,
willing seller in an arms length transaction.

AS 15, 16,
19 & 20

Fair value is the amount for which an asset could be exchanged

or a liability settled between knowledgeable, willing parties in
an arms length transaction.

AS 26

Fair value of an asset is the amount for which that asset could
be exchanged between knowledgeable, willing parties in an
arms length transaction.

K.G. ACHARYA & CO.,

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ARMS LENGTH TRANSACTION . . . . ISSUES

Whether RPT is at arms length would be a Subjective decision.

Cos to demonstrate what is arm's length. This would need

to be in sync with Transfer Pricing Requirements, as well.

What the Board may regard to be at arms length may not

be so to others, such as a TPO.

No clarity whether Boards / Committees decision should be

Final or whether Subsequent Development will result in
transaction being treated as violation of S. 188.

K.G. ACHARYA & CO.,

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RPT- OTHER PROVISIONS

OTHER PROVISIONS
Agenda of BM to disclose [R. 12.15 (1)] o Name & nature of relationship;
o Nature, duration, particulars & material terms of C/A (incl. value);
o Advance paid/received for C/A.
o Manner of determining pricing & other commercial terms.
o Whether all factors relevant to contract have been considered?
(if not, details of factors not considered with the rationale) &
o Any other info. relevant for decision making.
Explanatory Statement annexed to Notice calling GM to contain [R. 12.15 Expl. (3)]
o Name of Related Party ;
o Name of Director / KMP who is related,
o Nature of Relationship;
o Nature, Material Terms, Monetary Value and Particulars of C&A;
o Other info. Relevant for members to decide on Proposed Resolution.
K.G. ACHARYA & CO.,

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RPT- OTHER PROVISIONS

Interested Directors not to participate / be present at BM

during discussions on C/A. S.184(2) & R.12.15.
Applies to Private Ltd. Cos. also.

NEW

S.167 (1)(c) (s.283 1956) Vacation of Office of director IF

He contravenes S.184 relating to entering into C/A in which he is interested.

S.184(1): Every

director to disclose his interest in any other Co., firm or any

other association of Individuals along with share holding Pattern in:
First BM in which he participates, AND

First BM of every FY, or

Whenever there is any change in disclosure already made.
Disclosure required
Whether or not any transaction with such entity is done.
in Form MBP-1 and Co. to file this fact in MGT-14 with RoC.

K.G. ACHARYA & CO.,

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RPT- OTHER PROVISIONS

Interested Members to abstain from voting on SR approving C/A with RP.

NEW

2nd Provisio to S. 188

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
GC No. 30/2014

K.G. ACHARYA & CO.,

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RPT- OTHER PROVISIONS

RPT to be disclosed in Board Report with justification in AOC-2 [S.188(2)]

NEW

Form No. AOC 2

(Pursuant to clause (h) of sub-section (3) of section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014)

1.

DETAILS OF C/A OR TRANSACTIONS 2.

NOT AT ARMS LENGTH BASIS

DETAILS OF MATERIAL(#) C/A OR

TRANSACTIONS AT ARMS LENGTH BASIS

(i) Name(s) of RP & Nature of Relationship

(i) Name(s) of RP & Nature of Relationship

(ii) Nature of C/A or Transactions

(ii) Nature of C/A or Transactions

(iii) Duration of C/A or Transactions

(iii) Duration of C/A or Transactions

(iv) Salient Features of C/A/T, incl. Value

(iv) Salient Features of C/A/T, incl. Value

(v) Justification for entering into C/A/T

---

(vi) Date(s) of approval by Board

(v) Date(s) of approval by Board, if any

(vii) Amount paid as advances, if any

(vi) Amount paid as advances, if any

(viii) Date on which SR passed in GM

---

(#) Material Not defined in Cos Act.

Under SEBI - If aggregate transactions in FY > 10% of Annual Consolidated TO.
K.G. ACHARYA & CO.,

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AS 18

Disclosure as per AS-18

IF there are NO Related Party transactions:
If relationship is due to control
Name of the related party
Nature of related party relationship
If relationship is due to significant influence
No Disclosure is required
cont.
K.G. ACHARYA & CO.,

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AS 18

Disclosure as per AS-18

If there are Related Party Transactions :
(in case of control or of significant influence)

Name of the related party

Description of relationship
Description of Nature of transaction
Volume of transactions [Amount-wise or as appropriate proportion]
Outstanding items and provision for doubtful debts
Amount written off/ written back in respect of debts

Above DISCLOSURE REQUIRED even if it is an Arms

Length Transaction.
K.G. ACHARYA & CO.,

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RPT- OTHER PROVISIONS

S. 189: Register of C/A in which directors are interested. [1956: S.301]

Maintained - containing prescribed particulars.
Placed before next BM, after entering particulars & signed by all directors present at BM.
Kept at Regd. office and open for inspection.
Produced at every AGM and shall remain open & accessible during the meeting to any
person having right to attend the meeting.

Particulars related to sale / purchase or supply of goods, material & services

for < Rs. 5 lacs in a year
entered

K.G. ACHARYA & CO.,

[as opposed to Rs.1000/- in 1956 Act],

not required to be

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RPT- OTHER PROVISIONS

RPT C/A entered into by Director / Other employee, without

obtaining Boards Consent / SR and if not ratified by BOD / SH at a
meeting within 3 Months(#), such C/A shall be voidable at Boards
option.
(#)

PROBABLY FOR URGENT CASES WHICH WAS CLEARLY TOLD IN 1956 ACT

Violation - Director / other Employee

- To indemnify loss sustained by Co. [S. 188(4)]
- Penal Consequences [S. 188(5)]
Fine

Imprisonment

Listed Co.

Rs. 25,000 to 5 Lacs

Upto 1 year

Other Co.

Rs. 25,000 to 5 Lacs

[Director to be disqualified if convicted of offence dealing with RPT u/s 188

at any time during last preceding 5 yrs S. 164(1)(g)] with immediate effect U/s.167.
K.G. ACHARYA & CO.,

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RPT- CHALLENGES

RELATED PARTY TRANSACTIONS . . . CHALLENGES

Identifying Related Parties, updating/ maintaining the database of

such persons / entities
(Scope of related parties > AS-18 - Related Party Transaction and IT Act, 1961)

Identifying ordinary course of business of the company.

Identifying Related Party Transactions

Obtaining prior internal approvals & documentations for entering into

any transaction with such persons / entities

Documenting Arms Length transaction including pricing

K.G. ACHARYA & CO.,

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STEPS TO MANAGE THE CHANGE

GUIDANCE

DOCUMENTATION

SYSTEMS & CONTROLS

K.G. ACHARYA & CO.,

To explain requirements & ensure real-time synergies with

finance & tax teams

To comply with arms length requirements

To identify one-time documentation

documentation, aligned with pricing policy.

To track related parties & transactions (recurring as well as non-routine)

Automating pricing policy implementation & documentation

requirements to ease burden & ensure compliance.

Regular system audits critical to strengthen processes

&

ongoing

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S. 188 VIS--VIS AS 18

RELATED PARTY TRANSACTIONS

RELATED PARTY DISCLOSURES

S. 188 OF COS ACT 2013

AS 18

Specific Definition

Broad Principles

Objective

Subjective

Disclosures in Form AOC 2

annexed to Board Report
Compliance + Disclosure
No Disclosure required if no RPT
entered into
Subsidiary:
>Half of Total Shares

(Paid up Eq. + Conv. Preference Share Capital)

Associates Includes JV over which

significant influence is exercised

K.G. ACHARYA & CO.,

Disclosure in Gen.
Financial Statements

Purpose

Disclosure
Disclosure required if control
exists irrespective of RPT
Subsidiary:
> Half of Equity Shares
Associate Excludes JV
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Success is Relative
The more the successful you are The more the relatives, you have.
CA K. Gururaj Acharya
acharya@kgacharya.com

www.kgacharya.com

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ACCOUNTS CH. IX
Subsidiary co. S. 2(87) in relation to any other company (that is to say the holding
company), means a co. in which the holding company
i.

controls the composition of the Board of Directors; or

ii. exercises or controls more than one-half of the total share capital (*) either at its
own or together with one or more of its subsidiary companies:
(*) [AS-18 refers only Eq. Share capital like in 1956 Act]

Provided that such class or classes of holding companies as may be prescribed shall
not have layers of subsidiaries beyond such numbers as may be prescribed.
Total Share Capital, means the aggregate of the (a) paid-up equity share capital; and
(b) convertible preference share capital;

Rule 1.2(r)

Explanation.For the purposes of this clause,

a. a co. shall be deemed to be a subsidiary co. of the holding co. even if control referred
to in sub-clause (i) or (ii) is of another subsidiary co. of the holding co.;
b. the composition of a co.s BoD shall be deemed to be controlled by another co. if that
other co. by exercise of some power exercisable by it at its discretion can appoint or
remove all or a majority of the directors;
c. the expression company includes any body corporate;
d. layer in relation to a holding company means its subsidiary or subsidiaries;
K.G. ACHARYA & CO.,

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ACCOUNTS CH. IX
S. 2(46)

Holding company, in relation to one or more other companies,

means a company of which such companies are subsidiary companies;

S. 2(27) Control shall include the right to appoint majority of the directors

or to control the management or policy decisions exercisable by a person or

persons acting individually or in concert, directly or indirectly, including by
virtue of their shareholding or management rights or shareholders agreements
or voting agreements or in any other manner;
AS 18 Para 10.3 - Control -

a.

Ownership (Directly or indirectly) > 50% voting power, or

b.

control over composition of BODs of the Co., or

c.

a substantial interest (Generally > 20%) in voting power AND power to

direct, financial and/or operating policies of enterprise.

K.G. ACHARYA & CO.,

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ACCOUNTS CH. IX

S. 2(6) Associate company, in relation to another co., means

a co. in which that other co. has a significant influence, but

which is not a subsidiary co. of the co. having such influence
and includes a joint venture company.

AS 18 Para 10.5

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.

K.G. ACHARYA & CO.,

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ACCOUNTS CH. IX
Expln. to S. 2(6) Cos. Act 2013

Significant influence means control of at least 20% of total share capital, or of

business decisions under an agreement;

Significant influence (AS 18) participation in financial and/or operating

policy decisions of an enterprise, but not control of those policies.
Significant Influence is presumed:
By representation on the BODs,
Participation in the policy making process,
Material inter-company transactions,
Interchange of managerial personnel, or
Dependence on technical information.
Share ownership / voting power of > 20% [Rebuttable either way]
K.G. ACHARYA & CO.,

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ACCOUNTS CH. IX

PROMOTER [S. 2(69)]

(a) who has been named as such in a prospectus or is identified by the
company in the annual return referred to in section 92; or
(b) who has control over the affairs of the company, directly or indirectly
whether as a shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board
of Directors of the company is accustomed to act.
Provided that nothing in sub-clause (c) shall apply to a person who is
acting merely in a professional capacity;

K.G. ACHARYA & CO.,

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