Ansal Properties & Infrastructure LimitedChecklist on Section 188 of Companies Act, 2013 - Related Party Transactions

(Corresponding Sections- 297 & 314 of Companies Act, 1956)

Section Provisions of Sections Checklist188(1) Except with the consent of the Board

of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed, 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.

Provisions of Section 188 shall apply if any of the sub points within point no. 2 plus any of the sub points within both points No. 3 and point No 4 is “YES”

YES NO1. Whether there is

contract or arrangement

2. whether the Contract or arrangement is in relation to:-

Sale, purchase or supply of any goods

Sale, purchase or supply of any materials

Selling or otherwise disposing of property of any kind

Buying property of anykindLeasing of property ofany kindAvailing of any service

Rendering of any service

Appointment of any agent for purchaseof goods, materials, services or property

Appointment of any agent for 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;

Explanation:-The expression “office or place of profit” means any office or place-(i) where such office or place is held

by a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

(ii) where such office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

g) underwriting the subscription of any securities or derivatives thereof, of the company

YES NORelated party’s appoint-ment to any office or place of profit in thecompany.

Related party’s appoint-ment to any office or place of profit in the subsidiary company

Related party’s appoint-ment to any office orplace of profit in the associate Company

Underwriting the subs-cription of any securit-ies or derivatives.

Resolution of the Board should be passed only in a duly convened Board Meeting and not otherwise {i.e. not by way of Resolution by Circulation/Directors committee meeting}

YES NO3.Whether the contract or

As per Section 2(76)“related party”, with reference to a company, means—

(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager is a member or director;

(v) 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;

arrangement entered by the company with :

(i) a director or his relative

(ii) a key managerial personnel or his relative;

(iii) a firm in which director or his relative is a partner(iv)a firm in which Manager or his relative is a partner

(v) a pvt. Co. in which director is a member(vi) a pvt. Co. in which director is a director(vii) a pvt. Co. in which Manager is a member

(vii) a pvt. Co. in which Manager is a Director

(vii) a public Co. in whichdirector of the company is a Director; or(viii) a public Co. in whichdirector of the companyholds along with his relativesmore than 2% of its paid up share capital

(ix) a public Co. in which Manager of the Company is a Director; or(x) a public Co. in whichManager of the company holds along with his relativesmore than 2% of its paid up share capital 3.Whether the contract or

arrangement entered by the company with:

(vi) 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;

(vii) 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;

(viii) any company which is—(A) a holding, subsidiary or an associate company of such company; or

(B) a subsidiary of a holding company to which it is also a subsidiary;

(ix) such other person as may be prescribed;

Provided also that nothing in this sub-section shall apply to any transactions entered into by the company in the ordinary course of business other than transactions which are not on arm’s length basis

Provided that no contract or

YES NO (xi)any BODY CORPORATE whose BOD/MD/Manager is accustomed to actin accordance with theadvice, directions or instructions of a director/manager of the company;

(xii)any PERSON on whose advice/ directions/ instructions the director/ manager of the company is accustomed to act;(excludes advice/ directions/ instructions given aforesaid in professional capacity)

(xiii) its holding, subsidiary or an associate company

(xiv) its fellow subsidiary/chain subsidiary

(xv) any other person as prescribed by way of rules

4. whether the transaction has NOT been entered into by the Company in its ordinary course of business AND on arm’s length basis

[ YES NO

5. In case of Related Party Transactions compliance has to be done on above points and further where any of the following sub points is “YES”

Third Proviso to section 188(1)

Proviso to Section 188(1)

arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed, shall be entered into except with the prior approval of the company by a special resolution

Text of the Draft Rules(1) For the purposes of first proviso

to sub-section (1) of section 188,

(i) a company having a paid-up share capital of rupees one crore or more shall not enter into a contract or arrangement with any related party; or

(ii) a company shall not enter into a transaction or transactions, where the transaction or transactions to be entered into:

(a) individually or taken together with previous transactions during a financial year, exceeds five percent of the annual turnover or twenty percent of the net worth of the company as per the last audited financial statements of the company, whichever is higher, for contracts or arrangements as mentioned in clauses (a) to (e) of sub-section (1) of section 188;

or

(b) relates to appointment to any office or place of

SPECIAL RESOLUTION is required for entering contract /arrangement with related party(in terms of the Draft Rules) :-

(i) company has a

paid-up share capital of rupees 1 crore or more

(ii) where the transaction or transaction(s) individually or taken together with previous transactions during a financial year:a. exceeds 5% of the annual turnover. OR b. 20% percent of the net worth of the company as per the last audited financial statements of the company; whichever is higher

YES NO

(iii)Related party is appointed to any office or place of profit in the company its subsidiary/associate

Second Proviso to section 188(1)

Section 188(2)

Section 188(3)

profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding one lakh rupees as mentioned in clause (f) of sub-section (1) of section 188; or

(c) is for a remuneration for underwriting the subscription of any securities or derivatives thereof of the company exceeding ten lakh rupees as mentioned in clause (g) of sub-section (1) of section 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:

Every contract or arrangement entered into under sub-section (1) shall be referred to in the Board’s report to the shareholders along with the justification for entering into such contract or arrangement.

Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a special resolution in the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into,

at a monthly remuneration exceeding 1 lakh rupees

(iv) Remuneration

for underwriting the subscription of any securities or derivatives thereof of the company exceeding 10 lakh rupees

A Shareholder who is a related party is not allowed to vote on such special resolution

For the purposes of second proviso to sub-section (1) of section 188, in case of wholly owned subsidiary, the special resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between wholly owned subsidiary and holding company.

Contract / arrangement mentioned in 188(1) should be referred in Board’s Report along with its justification.

Contract/ arrangement entered into by director/employee of the company should be approved by the Board/ shareholders as the case may be or should be ratified by the Board/ shareholders within three months from the date of contract/ arrangement.

Otherwise such contract/ arrangement is voidable at the option of Board and if entered with related party to any director/ authorised by any other director, the concerned director shall indemnify the loss to the company.

Section 188(4)

Section 188(5)

such contract or arrangement shall be voidable at the option of the Board and 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.Without prejudice to anything contained in sub-section (3), it shall be open to the company to proceed against a director or any other employee who had entered into such contract or arrangement in contravention of the provisions of this section for recovery of any loss sustained by it as a result of such contract or arrangement.Any director or any other employee of a company, who had entered into or authorised the contract or arrangement in violation of the provisions of this section 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.

Penal Provisions:-Company may recover any losses incurred by the Company from the director or any other employee who had entered into the contract/arrangement in contravention of the provisions of this section. (Where the Company has avoided the Contract/arrangement which was voidable)

Imprisonment upto 1 yr or fine between Rs. 25000 and Rs. 500,000 or with both in case of listed companies

Fine between Rs. 25000 and Rs. 500,000 in case of unlisted companies

PLEASE NOTE THAT PROHIBITIONS ARE ABSOLUTE AND NO RATIFICATION OR APPROVAL OF CENTRAL GOVERNMENT IS PERMITTED.

Date : 30th December, 2013