Related Party Transactions - Compliance & Disclosures Special...

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.