Executive Summary:
This document is a response to questions raised in Lok Sabha regarding penalties for Related Party Transactions (RPTs) under the Companies Act, 2013. It clarifies the rationale behind newsletters, distinctions between listed and unlisted companies, and measures for transparency in RPT disclosures. The response covers the period up to August 4, 2025, and includes details of investigations and awareness programs.
Key Points / Main Content:
Newsletter Information:
* The Ministry publishes a monthly newsletter that is informative.
Definition of Listed Company:
* A listed company is defined as one having securities listed on a recognized stock exchange as per Section 2(52) of the Companies Act, 2013.
* Specific types of public and private companies are excluded from being considered listed companies, even if they have listed certain debt or preference shares.
Transparency Measures in Related Party Transactions:
* The Companies Act, 2013 defines "related party" under Section 2(76), including directors, key managerial personnel, relatives, and associated entities.
* Section 188 and Rule 15 outline conditions for contracts or arrangements with related parties.
* Section 177(4)(iv) mandates Audit Committee approval for related party transactions.
* Section 134(3)(h) requires disclosure of related party contracts or arrangements in the Board's report.
* Compliance is ensured through approvals, Independent Directors' oversight, and actions based on inquiry reports, including adjudication and prosecution.
Dewas and Shajapur Districts:
* No investigations or penalties for fund diversion or non-disclosure of RPTs have been taken in Dewas and Shajapur districts in the last three years.
Awareness Programs:
* No specific awareness programs for MSMEs and industrial units have been organized by the Ministry.
Impact Analysis:
Companies:
* Impact: Must adhere to definitions and regulations concerning Related Party Transactions to ensure compliance.
* Action Required: Review and update internal controls and disclosures related to RPTs to align with the Companies Act, 2013.
Listed Companies:
* Impact: Subject to specific regulations and definitions regarding related party transactions and disclosures.
* Action Required: Ensure compliance with listing regulations and specific definitions for listed companies.
Independent Directors:
* Impact: Have increased oversight and approval responsibilities related to RPTs.
* Action Required: Exercise diligence in reviewing and approving RPTs within their respective committees (Audit, Nomination and Remuneration, Risk Management, CSR).
Ministry of Corporate Affairs:
* Impact: Responsible for enforcing regulations and conducting inquiries related to RPTs.
* Action Required: Continue monitoring compliance and taking appropriate action based on inquiry reports.
MSMEs and Industrial Units:
* Impact: Should be aware of RPT regulations, although no specific awareness programs are currently in place.
* Action Required: Proactively seek information and ensure compliance with RPT regulations, even without targeted government programs.
Key Entities Referenced
Related Party Transactions: Transactions between a company and its related parties, subject to specific regulations and disclosures under the Companies Act, 2013.
Companies Act, 2013: A law in India that governs company incorporation, regulation, and winding up, including provisions for related party transactions and transparency.
Ministry of Corporate Affairs: The government ministry responsible for administering the Companies Act, 2013 and regulating corporate affairs in India.
Nirmala Sitharaman: The Minister of Finance & Corporate Affairs at the time of the response to the Lok Sabha question.
Lok Sabha: The lower house of the Parliament of India, where the starred question regarding related party transactions was raised.
Dewas, Madhya Pradesh: A district in Madhya Pradesh, India, mentioned in the context of companies investigated or penalized for fund diversion or non-disclosure of related party transactions.
Shajapur, Madhya Pradesh: A district in Madhya Pradesh, India, mentioned in the context of companies investigated or penalized for fund diversion or non-disclosure of related party transactions.
SEBI Issue and Listing of Debt Securities Regulations, 2008: Regulations by the Securities and Exchange Board of India (SEBI) governing the issue and listing of debt securities.
GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
LOK SABHA
STARRED QUESTION NO. *203
ANSWERED ON MONDAY, AUGUST 04, 2025
PENALTIES FOR RELATED-PARTY TRANSACTIONS
QUESTION
*203. SMT. APARAJITA SARANGI:
SHRI PRATAP CHANDRA SARANGI:
Will the Minister of CORPORATE AFFAIRS be pleased to state:
(a) the rationale behind the April newsletter issued by the Ministry
highlighting penalties for Related-Party Transactions;
(b) the differentiation between listed companies and other companies;
(c) the measures taken by the Government to ensure transparency in
Related-Party Transactions disclosures;
(d) whether the Government has taken concrete steps to ensure
transparency in Related-Party Transactions disclosures and to curb fund
diversion and abuse of Related-Party transactions under the Companies
Act, 2013;
(e) if so, the details of such measures and their impact on companies
operating in industrial areas of Dewas and Shajapur Lok Sabha
Constituency;
(f) the number of companies in Dewas-Shajapur investigated or
penalised for fund diversion or non-disclosure of Related-Party
transactions during the last three years; and
(g) whether any local or regional compliance outreach programme have
been conducted to improve awareness among MSMEs and industrial units,
if so, the details thereof?
ANSWER
MINISTER OF FINANCE &
CORPORATE AFFAIRS (SMT. NIRMALA SITHARAMAN)
(a) to (g) : A statement is laid on the Table of the House.STATEMENT REFERRED TO IN REPLY TO LOK SABHA STARRED
QUESTION *203 FOR ANSWER ON 04.08.2025.
(a) Publication of newsletter is a monthly exercise and is informative
in nature only. The previous news letters published included topics such
as prevention of oppression and mismanagement, Corporate Insolvency
Resolution process (CIRP), Incorporation of Companies etc.
(b) Listed company means a company which has any of its securities
listed on any recognized stock exchange as per section 2 (52) of the
Companies Act, 2013 (the Act).
Following classes of companies shall not be considered as listed
companies in terms of proviso to clause (52) of section 2 of the Act read
with Rule 2A of Companies (Specification of Definitions Details) Rules,
2014 :-
(a) Public companies which have not listed their equity shares on
a recognized stock exchange but have listed their –
(i) non-convertible debt securities issued on private
placement basis in terms of SEBI (Issue and Listing of
Debt Securities) Regulations, 2008; or
(ii) non-convertible redeemable preference shares issued on
private placement basis in terms of SEBI (Issue and
Listing of Non-Convertible Redeemable Preference
Shares) Regulations, 2013; or
(iii) both categories of (i) & (ii) above.
(b) Private companies which have listed their non-convertible
debt securities on private placement basis on a recognized
stock exchange in terms of SEBI (Issue and Listing of Debt
Securities) Regulations, 2008;
(c) Public companies which have not listed their equity shares on
a recognized stock exchange but whose equity shares are
listed on a stock exchange in a jurisdiction as specified in sub-
section (3) of section 23 of the Act.
Further, any other category of company would be non-listed
company.(c) & (d) To provide transparency, the Companies Act, 2013 provides
for definition of Related-party and for various requirements in respect of
approval including disclosures in respect of related party transactions.
The details of the important provisions are as under: -
(1) Section 2(76) of the Act define "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 or his
relative is a member or director;
(v) a public company in which a director or manager is a
director and holds along with his relatives, more than
two per cent of its paid-up share capital;
(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 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.
Explanation.— For the purpose of this clause, "the
investing company or the venturer of a company" means
a body corporate whose investment in the company
would result in the company becoming an associate
company of the body corporate.
(ix) such other person as may be prescribed.(2) Section 188 of the Act read with Rule 15 of Companies (Meetings of
Board and its Powers) Rules, 2014 provides for various conditions for
entering into contract or arrangement with a related party.
(3) Section 177 (4) (iv) of the Act, functions of the Audit committee
include approval or any subsequent modification of transactions of the
company with related parties.
(4) The Board’s report u/s 134 (3) (h) of the Act requires disclosure in
respect of particulars of contracts or arrangements with related parties
referred to in sub-section (1) of section 188 in the prescribed form.
To ensure compliance of provisions pertaining to Related-Party
Transactions, approvals are required under the Companies Act, 2013
including oversight function to be performed by the Independent Directors
in various committees viz Audit Committee, Nomination and
Remuneration Committee, Risk Management Committee, CSR Committee
etc. Further, in case violations based on Inquiry, Inspection and
Investigation Reports are found, appropriate action as per law is taken
including adjudication, prosecution, winding-up, disgorgement of assets
etc.
(e)&(f) : In the last three years no such action has been taken for
companies in the districts of Dewas and Shajapur.
(g) : No specific awareness programme for MSME and Industrial units
have been organised by this Ministry.
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