Definition of Related Party Under Company Act, 2013

Company once incorporated becomes legal entity which has existence separate from its promoters. It means after registration of company, company and promoters become two separate parties having separate existence in eyes of laws. Any transaction with related party is needed to be identified, approved, and disclosed in the books as per accounting standard in India. Therefore, it becomes necessary to understand the meaning of related party as defined in Company Act, 2013.

Related Party with reference to a company

A. “Related party”, with reference to a company, means—

1. A director or his relative;
2. A key managerial personnel or his relative;
3. A firm, in which a director, manager or his relative is a partner;
4. A private company in which a director or manager is a member or director;
5. A public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;
6. 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;
7. 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 company which is—
(a) A holding, subsidiary or an associate company of such company; or
(b) A subsidiary of a holding company to which it is also a subsidiary;
ix. Such other person as may be prescribed;

Related Party with reference to Director of the company

B. ‘‘Relative’’, with reference to any person, means anyone who is related to another, if—

1. They are members of a Hindu Undivided Family;
2. They are husband and wife; or
3. If that person is related as father, including step-father;
4. If that person is related as mother, including step- mother;
5. If that person is related as son, including step-son;
6. If that person is related as son’s wife;
7. If that person is related as daughter, including daughter’s husband;
8. If that person is related as brother, including step-brother;
9. If that person is related as sister, including step-sister; or
10. One person is related to another in such a way as may be prescribed.

 
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