CPT V24P7-Art1 (Content).pmd - Taxmann

invests in a fair manner. Generally, the director,
key managerial personnel, employees, an officer,
merchant banker, relatives of above personnel,
banker of the company are covered under these
regulations. SEBI prohibits dealing in or
counselling in securities by the above mentioned
persons having unpublished price sensitive
information. An insider must disclose some
information in the prescribed format like
acquisition of a share of more than 5%, Disclosure
of number of shares held and exceeding ` 5
lakhs or ` 25,000 worth of shares or 1% of the
total shareholding, whichever is lower. Also,
the company’s duty is to disclose Model Code
of Conduct, pre-clearance of certain trade,
adoption of concepts of “Chinese Wall” and
“Need to know” in respect of price sensitive
information.
2.4 New Companies Bill - The Central
Government placed New Companies Bill, 2011
in the winter session of the Parliament and for
the first time the Government clarified the
related party term in a detailed manner. Clauses
184, 185, 188, 189, 192 and 195 deal with the
transactions in which directors are interested
in and disclosure according to those clauses.
3. PROVISIONS OF RELATED PARTY
TRANSACTIONS
3.1 New Companies Bill, 2011 - In New
Companies Bill, 2011, the Central Government
has defined the terms “Relative”, “Interested
Director”, and “Related Party” specifically.
3.2 When is Board’s approval essential? - The
Board’s approval is essential if the company
enters into any contract or an arrangement
with a related party with respect to the
following:—
u sale, purchase or supply of any goods or
materials;
u selling or otherwise disposing of, or buying,
property of any kind;
u leasing of property of any kind;
u availing or rendering of any services;
u appointment of any agent for purchase or
sale of goods, materials, services or property;
u such related party’s appointment to any
office or place of profit in the company,
its subsidiary company or associate company;
and
u underwriting the subscription of any securities
or derivatives thereof, of the
company.
3.3 When is special resolution essential? - If
the company’s paid-up capital is more than
the prescribed amount, a special resolution in
the member’s meeting is essential for above
mentioned contracts. The member, who is covered
under definition of related party, shall not
vote on such special resolution or approve any
contract or an arrangement. Such clause does
not apply to transactions which are based on
an arm’s length.
3.4 Justification for entering into such a contract
- The duty of Board of Directors is to disclose
every contract or an arrangement entered into
under clause 188 which shall be referred to
in the Board’s report to the shareholders along
with the justification for entering into such a
contract or an arrangement.
3.5 Personnel prohibited from dealings in
securities - Directors and the key managerial
personnel of a company are prohibited from
forward dealings in securities of the company.
CONCLUDING REMARKS
4. A company should consider above mentioned
provisions at the time of preparation of its
financial statements. SEBI provisions apply only
to listed companies. Schedule 1A to Companies
Act, 1956 has list of 22 persons as relatives,
as per AS 18, the relatives include spouse, son,
daughter, mother, brother, father and sister.
The object of all of these provisions is to disclose
the transactions and events between the related
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