RELATED PARTY


The Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations 2015 was notified on 2nd September 2015 and will come into force from 1st December 2015. In this post we will discussion definition of Holding, Subsidiary, Associates, Relative, Related Party, and Related Party Transactions.

Holding Company

“Holding Company” means a holding company as defined in sub – section (46) of Section 2 of the Companies Act, 2013. [Regulation 2(1)(m) of the SEBI (LODR) Regulations, 2015]

“Holding Company” in relation to one or more other companies, means a company of which such companies are subsidiary companies. [Section 2(46) of Companies Act, 2013]

Subsidiary Company

“Subsidiary Company” means a subsidiary as defined under sub – section (87)  of Section 2 of the Companies Act, 2013. [Regulation 2(1)(zm) of the SEBI (LODR) Regulations, 2015]

“Subsidiary Company” or “Subsidiary”, in relation to any other company (that is to say the holding company), means a company 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:

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.

Explanation.—For the purposes of this clause,—

(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;

(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company 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. [Section 2(87) of the Companies Act, 2013]

In the definition of subsidiary company, company includes body corporate but not in definition of holding company. Therefore, holding company may not be a body corporate. Therefore, a company incorporated outside India may not be a holding company of an India company under the Companies Act, 2013 and the SEBI (LODR) Regulations, 2015.

Associate

“Associate” shall mean any entity which is an associate under sub-section (6) of section 2 of the Companies Act, 2013 or under the applicable accounting standards. [Regulation 2(1)(b) of the SEBI (LODR) Regulations,2015]

“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. [Section 2(6) of the Companies Act, 2013]

“Any entity which is an associate other than associate company” shall be as defined under applicable accounting standards.

Companies Act, 2013 does not define “a joint venture company”. It also need reference to accounting standards.

This definition shall not be applicable for the units issued by mutual fund which are listed on a recognised stock exchange(s) for which the provisions of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 shall be applicable. [1st Proviso to Regulation 2(1)(b) of the SEBI (LODR) Regulations,2015]

Relative

“Relative” means relative as defined under sub-section (77) of section 2 of the Companies Act, 2013 and rules prescribed there under. [Regulation 2(1)(zd) of the SEBI (LODR) Regulations, 2015]

‘‘Relative’’, with reference to any person, means any one who is related to another, if—

  • they are members of a Hindu Undivided Family;
  • they are husband and wife; or
  • one person is related to the other in such manner as may be prescribed. [Section 2(77) of the Companies Act, 2013]

For the purpose of Section 2(77)(iii), a person shall be deemed to be the relative of another, if he or she is related to another in the following manner, namely:-

  • Father: [including step – father]
  • Mother: [Including step – mother]
  • Son: [Including step – son]
  • Son’s wife.
  • Daughter’s husband.
  • Brother: [Including step – brother]
  • Sister: [Including step – sister] [Rule 4 of the Companies (Specification of Definitions Details) Rules 2014]

This definition shall not be applicable for the units issued by mutual fund which are listed on a recognised stock exchange(s). [Proviso to Regulation 2(1)(zd) of the SEBI (LODR) Regulations, 2015]

Interestingly, this definition does not include step – sister as sister. Spouses of brother and sisters are also not included.

Related Party

“Related Party” means a related party as defined under sub-section (76) of section 2 of the Companies Act, 2013 or under the applicable accounting standards. [Regulation 2(1)(zb) of the SEBI (LODR) Regulations 2015]

“Related Party”, with reference to a company, means—

  • a 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 two per cent. 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—
    1. a holding, subsidiary or an associate company of such company; or
    2. a subsidiary of a holding company to which it is also a subsidiary;
  • such other person as may be prescribed. [Section 2(76) of the Companies Act, 2013]

For the purposes of sub-clause (ix) of clause (76) of section 2 of the Act, a director {other than independent 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. [Rule 3 of the Companies (Specification of Definition Details) Rules, 2014]

Independent director of holding ceased to be related party with effect from 17th July 2014 as par the Companies (Specification of Definition Details) Amendment Rules, 2014.

This definition shall not be applicable for the units issued by mutual funds which are listed on a recognised stock exchange(s). [Proviso to Regulation 2(1)(zb) of the SEBI (LODR) Regulations 2015]

Related Party Transaction

“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(1)(zc) of the SEBI (LODR) Regulations 2015]

This definition shall not be applicable for the units issued by mutual funds which are listed on a recognised stock exchange(s). [Proviso to Regulation 2(1)(zc) of the SEBI (LODR) Regulations 2015]

This Definition of related party transaction is different from definition of related party transaction given in Section 188 of the Companies Act, 2013.

Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.

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One response to “RELATED PARTY

  1. Pingback: Definitions: Chapter IV of LODR | AishMGhrana

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