Policy on Related Party Transactions
Introduction & Purpose
The Board of Directors of the Company, on recommendation of the Audit Committee, has adopted this policy to- a) regulate transactions of the Company with it's related parties (as defined and identified under the Companies Act, 2013 (the "Act"); b) ensure high standards of Corporate Governance while dealing with related parties; and c) ensure optimum compliance with various applicable laws prescribed for related party transactions ("RPT").
- Related Party Transaction (RPT): A Related Party Transaction means any contract or arrangement entered into by the Company with any of its related under section 188 (1) of the Companies Act, 2013.
- Materiality: The materiality of any RPT will be ascertained as per the thresholds prescribed under the Act.
- Arm's Length Basis: Terms will be treated as on 'Arm's Length Basis' if the commercial and key terms are comparable and are not materially different with similar transactions with non-related parties considering all the aspects of the transactions such as quality, realizations, other terms of the contract, etc. In case of contracts with related parties for specified period / quantity / services, it is possible that the terms of one off comparable transaction with an unrelated party are at variance, during the validity of contract with related party. In case the Company is not doing similar transactions with any other non-related party, terms for similar transactions between other non-related parties of similar standing can be considered to establish 'arm's length basis'. Other methods prescribed for this purpose under any law can also be considered for establishing this principle.
- Ordinary Course of Business: Transactions will be considered in ordinary course if they are entered in pursuance of the business objective of the Company and necessary for Company's operations or related financial activities, including the fixed assets transactions, except:
- Transactions involving transfer/demerger/acquisition/ business restructuring transaction of a business or a unit thereof;
- Lending/ borrowing/ providing or receiving guarantees to/ from entities other than the entities which are consolidated in the Company's Consolidated Financial Statements;
- Investing in equity or instruments convertible in equity of the entities other than the entities which are consolidated in the Company's Consolidated Financial Statements as per approved budget or divesting any such investment for an amount exceeding Rupees Ten Crore or five percent of Company's net worth, whichever is lower;
- Any other items which are required to be reported as 'Exceptional Item' in the Company's annual financial statements
- The RPTs should be in conformity with the prevailing rules and regulations prescribed by law.
- All RPTs shall be placed before Audit Committee for approval of the Audit Committee, as required under the provisions of the Act.
- The Audit Committee may grant omnibus approval for RPTs which are repetitive in nature, provided that such approval shall remain valid for period not exceeding one year, during which period the commercial terms of approved RPTs may change, provided that arm's length criterion shall be ensured at the time of each such change. Where the need for RPTs cannot be foreseen and requisite details are not available, any two officials of the Company namely the Manager, Chief Financial Officer and Company Secretary shall be authorized to review the requirement and grant their approval for such transactions provided that value of each such transaction shall not exceed Rs. 1 crore.
- The RPTs should be in the interests of the Company and its terms should be based on commercial prudence/generally accepted commercial practices.
- The Company will give priority to transactions with related party entities whose Financial Statements are consolidated in the Company's Consolidated Financial Statements, provided all other criteria set by this Policy are met.
- Subject to sub clause (g) below, any RPT which is not in the ordinary course of business of the Company or not at arm's length shall be effected only with prior approval of the Board of Directors of the Company, on recommendation of Audit Committee.
- The RPTs which cross the Materiality thresholds shall be entered by the Company only with prior approval of shareholders of the Company through special resolution, as per applicable provisions of the Act, as may be amended from time to time.
- Subject to the applicable laws, the Audit Committee shall have the power to ratify, revise or terminate the RPTs, which are not in accordance with this Policy.
- Exclusions: The following shall not be deemed as a RPT :
- Any transaction that involves the providing of compensation to a director by way of salary, fee, commission, perquisites, rent free accommodation or otherwise, in connection with his or her duties to the Company;
- Contributions made by the Company to a charitable organization, trust, foundation or university at which a related party is a trustee, director or employee other than an key managerial personnel (or comparable position), provided that the each such contribution, made in a particular financial year, does not exceed two per-cent (2%) of the Company's average net profit for the preceding three financial years;
- Any transaction in which the related party's interest arises solely from ownership of securities issued by the Company and all holders of such securities receive the same benefits pro rata as the related party.
The Company's management shall institute appropriate administrative measures to ensure that all RPTs entered into by the Company are in compliance with applicable laws and this Policy. All persons dealing with the related party(ies) shall, irrespective of their level, be responsible for compliance with this Policy. All Unit Heads and Finance & Commercial Heads shall certify compliance with this Policy, on a quarterly basis, to the Audit Committee. The detailed processes relating to implementation of this Policy, as may be approved by the Audit Committee from time to time, shall be followed by all concerned. The Internal Auditors of the Company shall review the RPTs entered into by the Company on a periodic basis and report their observations to the Audit Committee. The Company Secretary shall be responsible to maintain/update the list of related parties (as required by applicable laws) and provide the same to all concerned. It is the duty of all employees of the Company to ensure that they do not deal with related parties under any kind of influence or coercion. The cases involving any unwarranted pressure should be promptly reported as per mechanism provided under the Whistle Blower Policy of the Company.
In any circumstance where the provisions of this Policy differ from any existing or newly enacted law, rule, regulation or standard governing the Company, the relevant law, rule,
regulation or standard will take precedence over this Policy until such time as this Policy is changed to conform to the said law, rule, regulation or standard. In case of any clarification
required with respect to this Policy, kindly contact the Company Secretary of the Company.
The Policy shall be made available at Aditya Birla Finance Limited website www.adityabirlafinance.com and a web link thereto shall be provided in the Company’s Annual Report.