Lok Sabha Question No. 203 (STARRED), answered on 2025-08-04
Subject: Penalties for Related-Party Transactions
Ministry: CORPORATE AFFAIRS
Asked by: Shri Pratap Chandra Sarangi, Smt. Aparajita Sarangi

## 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
- non-convertible redeemable preference shares issued on private  placement  basis  in  terms  of  SEBI  (Issue  and Preference
- (ii) Listing of Non-Convertible Redeemable 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 subsection (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.

- such other person as may be prescribed.
- (ix)

(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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