Related Party Transactions - Compliance & Disclosures Special...
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Related party transactions : When to make disclosures
Criteria for Determination of Disclosure
Trigger limit....
Registers to be maintained...
Please read...
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Related Party Transactions-Series III-
Disclosing the Disclosures
Sundar, Co. Secy, Southern Spinners & Processors, Chennai
The Disclosures of
interest by a director is dealt under Sec 184 of the Companies Act,2013. The
section cast a duty on directors to disclose their interest in a
contract/arrangement at the meeting at which such contract/arrangement is being
discussed.
When to make the
disclosure:
Ø First Board Meeting in which he participates as
director.
Ø First Board Meeting in Every Financial Year.
Ø Whenever there is a change in the earlier
disclosures in the subsequent Board Meeting.
He has to
disclose his “concern or interest” and his shareholding in any of the below :
1)
Company
2)
Bodies
Corporate
3)
Firms
4)
Association
of Individuals
Criteria for Determination of Disclosure:
Ø “Concerned” or “Interested” in a contract or
arrangement or proposed contract or arrangement either directly or indirectly.
Trigger Limit for Disclosure :
Ø Holding 2% shareholding in a body corporate
along with any other director , or is a promoter, manager, chief executive
officer of that body corporate.
Ø With a firm or other entity in which such
director is a partner, owner or member as the case may be.
Format for
Disclosure:
As per draft rule 12.7 published on 09.09.2013, every director shall
disclose his concern or interest in Form No.12.1.
Notice given by directors to be kept and preserved for 8 years at the
registered office. It shall be at the custody of Company Secretary or any other
person authorized by the board for the purpose.
Catch Word
Ø “Interested Directors” as per Sec 2(49) of the
companies act,2013 (notified on 12.09.2013 by MCA) means a Director who is in
any way, whether by himself or through any of his relatives or firm, body
corporate or other association of individuals in which he or any of his
relatives is a partner, director or a member, interested in a contract or
arrangement, or proposed contract or arrangement, entered into or to be entered
into by or on behalf of a company;
The word “Interested” in sec 184 should be read in line with the
new definition under the new Act. So the Contract and arrangements in which he
is interested or concerned by himself or any of the persons mentioned above
shall be construed for determining the interest of a director in a contract or
arrangement and he shall have the responsibility to disclose his concern or
interest in such contract or arrangement.
Contract or arrangement entered into by a company without disclosure or
with participation by a Director who is concerned or interested shall be
voidable at the option of the company. The provisions of this section is not
applicable, if any of the Directors of the one company or two or more of them
holds or hold not more than 2% of the
paid-share capital in the other company.
Penalty:
Non-Compliance attracts Imprisonment for a term of 1 Year or fine not
less than Rs.50,000 –Rs.1,00,000 or both.
Registers to be maintained:
Registers to be
maintained as per Draft Rule 12.7 published on 09.09.2013 in Form
12.4 for entering the particulars of all contracts or arrangements as specified
under Sec 184(2) and Sec 188 and shall be placed at board meeting and signed by
all directors present at the meeting. Every Director or KMP shall, within a
period of 30 days of his appointment or relinquishment of, his office,
disclose to the company their concern or interest in that company. The Register
shall also be produced at every annual general meeting of the
company and shall remain open and accessible to any person having the right to
attend the meeting. A Proxy is entitled to inspect the register. The
company needs to provide extracts of such register to a member
on request within 7 days from the date of his request for a fee
prescribed in the Articles but not exceeding Rs.10 per page.
Conclusion:
There were considerable variations in RPT-related disclosure among
companies, which have made the regulators to think and bring in some broad
structure, clarity and transparency in the reporting requirements. The Only
question is the self conscience in disclosing or the willingness to disclose the
related party transactions which needs to be improved in order to bring in more
transparency in the reporting requirements. This will in turn bring in better
corporate governance among the organisations to be relied upon by its
stakeholders and shareholders at large.
These are my personal
views and interpretation on the above subject matter. however, professional or
other readers views are solicited.
rELATED PARTY SERIES
CONCLUDED.
