Identification of Related Parties under the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

In corporate governance, identifying related parties is crucial to maintaining transparency, avoiding conflicts of interest, and ensuring accurate financial reporting. Under The Companies Act, 2013 ("Act") and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI Listing Regulations"), related party transactions ("RPTs") are stringently regulated to prevent unfair advantages to specific entities or individuals. Let’s break down the key steps to identifying related parties under these laws.

1. Definition of Related Parties

Both the Companies Act, 2013, and SEBI Listing Regulations define a "related party" similarly but with some nuances. Broadly, a related party includes individuals and entities that can exert control or influence over a company. The definition of Related Party under the Act and the SEBI Listing Regulations is provided below:

Under the Companies Act, 2013 (Section 2(76)):

2(76)	"related party", with reference to a company, means
2(76)(i)	Director or his Relatives
2(76)(ii)	Key Managerial Personnel or his Relatives
2(76)(iii)	Firms in which Director, Manager or his relative is Partner
2(76)(iv)	Private Company in which a Director or Manager or his relative is a Member or Director
2(76)(v)	Public Company in which a Director or Manager is a Director and holds along with his relatives, more than two percent of its paid-up share capital
2(76)(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, excluding the advice, directions or instructions given in a professional capacity
2(76)(vii)	Any person on whose advice, directions or instructions a director or manager is accustomed to act, excluding the advice, directions or instructions given in a professional capacity
2(76)(viii)	Holding, Subsidiary or an Associate Company of such Company, or a subsidiary of a holding company to which it is also a subsidiary, or an investing company or the venturer of the company
2(76)(ix)	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.

Further, Section 2(77) of the Companies Act, 2013 defines the relatives as:

"relative", with reference to any person, means any one who is related to another, if—

(i) they are members of a Hindu Undivided Family;

(ii) they are husband and wife; or

(iii) one person is related to the other in such manner as may be prescribed;

Further, Rule 4 of the Companies (Specification of Definition Details) Rules, 2014

A person shall be deemed to be the relative of another, if he or she is related to another in the following manner, namely:-

(1) Father, including step-father

(2) Mother, including step-mother

(3) Son including step-son

(4) Son’s wife.

(5) Daughter.

(6) Daughter’s husband.

(7) Brother, including step-brother

(8) Sister, including step-sister

Under SEBI Listing Regulations:

The definition of Related Parties under Regulation 2(zb) of the SEBI Listing Regulations, aligns with the Companies Act but expands to include:

• Related Parties under the Companies Act, 2013 and applicable accounting standards

• Any person or entity forming part of the promoter or promoter group

• Any person holding 10% or more voting power, either directly or indirectly, in the listed company

  
  

2. Use our template to identify the list of related parties as per the Companies Act, 2013 and SEBI Listing Regulations.