Related Party Contracts

  • Act/Rule/Legislation

  • Online Link to Act/Rule/Legislation

  • Initial Setup or Ongoing Maintenance

    Ongoing compliance requirement

  • Filing and Maintenance Requirements

    Section 188 read with Rule 15 of Meeting of Board Rules provides that except with the consent of the Board of Directors given by a resolution at a meeting of the Board no company shall enter into any contract or arrangement with a related party with respect to--
    (a) sale, purchase or supply of any goods or materials;
    (b) selling or otherwise disposing of, or buying, property of any kind;
    (c) leasing of property of any kind;
    (d) availing or rendering of any services;
    (e) appointment of any agent for purchase or sale of goods, materials, services or property;
    (f) such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and
    (g) underwriting the subscription of any securities or derivatives thereof, of the company:

    Where any director is interested in any contract or arrangement with a related party, such director shall not be present at the meeting during discussions on the subject matter of the resolution relating to such contract or arrangement.

  • Penalty

    Any director or any other employee of a company, who had entered into or authorized the contract or arrangement in violation of the provisions shall,—
    (i) in case of listed company, be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both; and
    (ii) in case of any other company, be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.

  • Application Guidelines / Responsible Persons / Comments

    A company shall enter into any contract or arrangement with a related party subject to the following conditions, namely:-

    The agenda of the Board meeting at which the resolution is proposed to be moved shall disclose-
    (a) the name of the related party and nature of relationship;
    (b) the nature, duration of the contract and particulars of the contract or arrangement;
    (c) the material terms of the contract or arrangement including the value, if any;
    (d) any advance paid or received for the contract or arrangement, if any;
    (e) the manner of determining the pricing and other commercial terms, both included as part of contract and not considered as part of the contract;
    (f) whether all factors relevant to the contract have been considered, if not, the details of factors not considered with the rationale for not considering those factors; and
    (g) any other information relevant or important for the Board to take a decision on the proposed transaction.