information_related_party_transaction.pptx

Information pertaining to Related party Transactions captured in a presentation

1. Presented by:- CS Murli Manohar Purohit Vice President – Company Secretary & Compliance officer – Reliance Power Limited

2. Why Related Party Transactions ?? RPT are integral part of business in today’s world. The transactions between Related Parties are generally conducted at negotiated terms hence, RPT must be disclosed. Additionally, for an investor knowledge of RPT facilitates more informed decision to invest. For others also RPT disclosure presents a correct picture of risks and opportunities of the entity.

3. RPT Co m p a n i e s Act, 2013 A S / I N D - A S SEBI (LODR) R e g u l a t i o n s, 2015

4. Related Party under CA, 201 3 Definition :- Section 2(76): Related party with reference to a company means: a director or his relative; a KMP 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 or his relative is a member or director; a public company in which a director or manager is a director and holds along with his relatives, more than 2% 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:

5. any body corporate which is— (A) a holding, subsidiary or an associate company of such company; (B) a subsidiary of a holding company to which it is also a subsidiary; or (C) an investing company or the venturer of the company; a director  other than an 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.

6. Related Party under SEBI LODR , 2015 Related Party Reg. 2(1)(zb) Related party defined under S ection 2(76 ) of the CA, 2013 Applic able a ccounting standards ( AS 18 /IND-AS 24 ) Any person or entity belonging to the promoter or promoter group of the l isted entity and holding 20% or more of shareholding in the liste d entity

7. - Parties are considered to be related if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and/or operating decisions. “Control” has been defined in Para 10 of AS-18 Ownership of more than 50% of the Voting Power Control of composition of Board of Directors / Governing Body -a substantial interest in voting power and a power to direct, by statute ‘or agreement, the financial and/or operating policies of the enterprise. - As per clause 10.4 of AS 18 “Significant Influence ” means participation in the financial and/or operating policy decisions of an enterprise, but not control of those policies. - “Significant Influence” can be exercised in several ways. It may be gained by share ownership, statute or agreement. Significant influence through Share ownership can be manifested by the investing party holding, directly or indirectly through intermediaries , 20% or more of the voting power. Related Party as per AS-18

8. Related Party under IND-AS 24 :- [Clause 9(a)] A person or a close member of that person’s family is related to a reporting entity if that person: ( i ) has control or joint control of the reporting entity; or (ii) has signific ant influence over the reporting entity; or (iii) is a member of the KMP of the reporting entity or of a parent of the reporting entity.

9. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Joint control is the contractually agreed sharing of control over an economic activity Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is not control over those policies. Significant influence may be gained by share ownership, statute or agreement.

10. REPORTING ENTITY The entity is a post- employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity [cl 9(b)(v)] One entity is a joint venture of a third entity and the other entity is an associate of the third entity [cl 9(b)(iv)] [cl 9(b)(viii)] A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). [cl 9(b)(vii)] The entity is controlled or jointly controlled by a person who has control or joint control of the reporting entity [cl 9(b)(vi)] Entity and reporting entity are members of same Group (Same Group = Parent, Subsidiary & Fellow Subsidiary [cl 9(b)(i)] One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member) [cl 9(b)(ii)] Both entities are joint ventures of the same third party [cl 9(b)(iii)] [Clause 9(b)] says that “ an entity is related to a reporting entity if any of the following conditions applies”

11. RELATED PARTY RELATIONSHIP [ clause 9(b)( i ) ] Entity and R eporting E ntity are members of same Group (Same Group = Parent, Subsidiary & Fellow Subsidiary R e p orting Entity HOLDING COM P ANY SUBSIDIARY FELLOW SUBSIDIARY

12. RELATED PARTY RELATIONSHIP (clause 9(b)(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member) R e p orting Entity HOLDING COM P ANY SUBSIDIARY FELLOW SUBSIDIARY A SS OC I A TE or JV A SS OC I A TE or JV

13. RELATED PARTY RELATIONSHIP [ clause 9(b)(iii) & (iv ) ] Both entities are joint ventures of the same third party One entity is a joint venture of a third entity and the other entity is an associate of the third entity THIRD COM P ANY A LTD JV AX JV AY THIRD COM P ANY A LTD JV AX ASSOCIATE

14. RELATED PARTY RELATIONSHIP [ clause 9(b)(vi ) ] The entity is controlled or jointly controlled by a person who has control or joint control of the reporting entity P er s on “A” A LTD B PVT LTD R E PO R TING ENTITY

15. RELATED PARTY RELATIONSHIP (clause 9(b)(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). P er s on “A” A LTD B PVT LTD R E PO R TING ENTITY K M P SIGNIFICANT INFLUENCE CONTROL X LTD (HOLDING CO)

16. What are Related Party Transactions? SECTION 188 OF COMPANIES ACT, 2013 ACCO U NT I NG STANDARD 18 IND-AS 24 REGULATION 2(ZC) OF LODR

17. The Companies Act, 2013 does not define the expression “Related Party Transactions”. Section 188 refers the expression contract or arrangement to ‘related party transactions.’ As per AS-18 Related Party Transactions are defined as “a transfer of resources or obligations between related parties, regardless of whether or not price is charged.” As per IND AS -24 “A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.”

18. Related Party Transa ctions (RPTs) :- R P T ‘s under C ompanies A ct , 2013 R P T s u/s 188 (Pursua nt to section 188 and approval of ACM under section 177) Other R P T s (Pursua nt to respective section and approval of ACM under section 177)

19. Related Party Transactions ( Section 188 ) RELATED PARTY TRANSACTIONS Sale, purchase or supply or any goods or materials Selling , buying property of any kind Leasing of property of any kind Availing or rendering of any services Appointment of agent for purchase or sale of goods, materials, services or property Appointment to any office or place of profit in the company/A ssociate /Subsidiary Underwriting of securities RELATED PARTY as defined in Section 2(76) Prior approval by members required if: Value of transaction during a FY exceeding specified sum Related Party not entitled to vote on Members’ Resolution If 90% of members are either related parties or relatives of Promoters, RPs can vote on Resolution. Section not to apply to transactions entered in ordinary course of business and are on Arm’s length basis. 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 Related Party Transactions

20. Two conditions have to be satisfied to avail of the exemptions from the provisions of Related party u/s 188 by a Company in respect of any transaction with a related party : It must be entered into by the Company in the ordinary course of its business; It must be an arm’s length transaction.

21. Arm’s Length Price Arm’s L e n g th Price a transa ction between two related parties c o nd u c t e d as if they were unrelated no conflict of interest.

22. Approval Procedure under Companies Act, 2013 A company shall not enter into a contract or arrangement with any related party except with the prior approval of company by Ordinary Resolution (Rule 15(3 ) of Companies (MBP) Rules, 2014 ) FOR sale, purchase or supply of any goods or materials directly or through appointment of agents 10% or more of Turnover of the company selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents 10% or more of Networth of the company. leasing of property of any kind 10% or more of turnover of the company availin g o r renderin g o f an y service s directly or through appointment of agents 10% or more of turnover of the company appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding two and half lakh rupees remuneration for underwriting the subscription of any securities or derivatives thereof of the company exceeding one percent. of the net worth Turnover or Net Worth shall be on the basis of the Audited Financial Statement of the preceding Financial year. (Expn 1) Approval of Audit Committee of transactions with related parties or their subsequent modifications.’ Committee may grant Omnibus approvals for RPTs as per Rules. All RPTs u/s 188 require approval by Board of Directors of the Company. All t ransaction( s ) exceeding specified value require prior approval of shareholders by way of Ordinary Resolution. No shareholders approval necessary for transactions entered into between a HC and its WOS whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval APPROVAL P ROCE D URE

23. RPT s under SEBI ( LODR ), 2015 Regulation 2(1)(zc): R elated P arty T ransactions means A transfer of resources, s ervices ; or obligations between a listed entity and a related party, regardless of whether a price is charged and a " transa ction " with a related party shall be construed to include a single transa ction or a group of transa ctions in a contra ct

24. Material R P T s under SEBI LODR , 2015 Material RPT s under LODR (Reg. 23) A transa ction with a related party exceeds 10% of the annual consolida ted turnover of the liste d entity. (Previous and proposed transa ctions during FY) A transa ction involving payments with respect to brand usage /royalty exceed 5% of the annual consolida ted turnover of the liste d entity. (Previous and proposed transa ctions during FY)

25. APPROVING A UTH O R I T Y RE GN NO COMPLIANCE REQUIREMENT AUDIT COMMITTTEE 23(2) All related party transactions shall require prior approval of the A udit C ommittee . 23(3) Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity subject to the following C onditions :- shall lay down the criteria for granting the omnibus approval in line with the policy on RPTs of the listed entity and such approval shall be applicable in respect of transactions which are repetitive in nature. satisfy itself regarding the need for such omnibus approval and that such approval is in the interest of the listed entity; SHAREHOLDERS 23(4) All material related party transactions shall require approval of the shareholders All entities falling under the definition of related parties shall not vote to 23(7) approve the relevant transaction irrespective of whether the entity is a party to the particular transaction or not. EXEMPTIONS 23(5) Transactions entered into between two government companies; Transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval. Compliance under SEBI ( LODR ), 2015

26. DISCLOSURE RE Q UIRE M E NTS

27. PROVISION REQUIREMENT 188(2) 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. 129 Financial Statements to Comply with Accounting Standards - Disclosure o f Related Party Transactions i n Financial Statements o f a company to b e made as per Applicable Accounting Standard 134(3)(h) Board’s Report to include Particulars of Contracts or Arrangements with Related Parties referred to in Sec 188(1) in AOC-2 RULE 15(2) Where any Director i s interested i n any contract w ith Related Party, such director shall not be present at meeting during discussion Disclosure/Reporting Requirements under Companies Act

28. Other Disclosures under Companies Act Agenda of Board Meeting (Rule 15(1)) Explanatory Statement of GM (Expln 3 to Rule 15(3)) Name of the Related Party and nature of relationship Name of the related party Nature, duration of the contract and particulars of the contract or arrangement Name of the Director/KMP who is related Material terms of the contract including the value Nature of relationship Any advance paid or received for the contract Nature, material terms, monetary value and particulars of contract The manner of determining the pricing and other commercial terms, both included as part of contract and not considered as part of the contract; Any other r information relevant or important for members to take a decision 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; Any other information relevant or important for the Board to take a decision on proposed transaction

29. Disclosure/Reporting Requirements under SEBI ( LODR), 2015 REGULATION REQUIREMENT 23(9) The listed entity shall submit within 30 days from the date of publication of its standalone and consolidated financial results for the half year, disclosures of related party transactions on a consolidated basis, in the format specified in the relevant accounting standards for annual results to the stock exchanges and publish the same on its website. 34(3) read with SCH V Annual report shall contain RPT disclosures as specified in Para A of Schedule V of these regulations 46(2)(g) Listed Entity to disseminate on its Website Policy on dealing with RPTs. SCH V p a r a C Disclosure 10 (a ) Report on Corporate Governance shall disclose disclosures on materially significant related party transactions that may have potential conflict with the interests of listed entity at large S CH V p a r a C Disclosure 10 (f) Report on Corporate Governance shall disclose web link where policy on dealing with related party transactions is disclosed.