Policy on dealing with Related Party Transactions

Objectives:

1. To regulate and control related party transactions as intended under Companies’ Act/NHB Directions.
2. To ensure that there is a proper system of approval for related party transactions.
3. To ensure disclosure of the related party transactions entered between Vidhisha Group and its related parties.
4. To ensure transparency regarding such transactions; and
5. To improve corporate governance by providing required disclosures of related party transactions.

Definitions under the Policy:

Key definitions of the terms used in this policy are as under:-

1. “Board”: The `Board’ refers to the board of directors of the company.
2. “Audit Committee”: The ‘Audit Committee’ means the audit committee constituted by the Board under the provision of Section 177 of the Companies Act, 2013 and as per the directions of NHB vide Notification No.NHB.HFC.CG-DIR.1/MD&CEO/2016 dated 09.02.2017.
3. Key managerial personnel in relation to the company Vidhisha Group cover Managing Director/CEO, Executive Director, Company Secretary, CFO & such other officers as may be prescribed under NHB Directions or Companies’ Act, applicable accounting standard or policy adopted by the Board.
4. Related party: The term ‘Related Party’ has been defined under section 2 (76) of the Companies’ Act 2013 and the same is described under the head “Description of Related Party” here below:-
5. “Arm’s length transaction” means transaction between two related or affiliated parties that is conducted as if they were unrelated so that there is no conflict of interest.

Description of Related Party:-

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 director and holds along with his relative more than 2% of the Paid-up Capital of the said company.
5. 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.
6. any person on whose advice, direction or instructions, a Director or Manager is accustomed to act. However, this will not apply to the advice given in a professional capacity.
7. any company which is holding subsidiary or associate company or a subsidiary of a holding company to which it is also a subsidiary
8. such other person as may be prescribed.

Rule 3 of the Companies (Specification of Definitions Details) Rules, 2014 provides that a Director or key managerial personnel of the holding company or his relative with reference to a company shall also be deemed to be a related party.

Related Party Transactions:

In terms of definition ‘related party transaction’ means a transfer of resources, services or obligations between a company and a related party, regardless of whether a price is charged. Related Party Transaction” shall have the same meaning as defined under Section 188 (1) of the Companies Act, 2013. Related party transactions their coverage and illustrations are provided elsewhere in this policy.

Related Party Transactions considered Material:

Related Party Transactions considered material include related party transactions where the aggregate value of transactions entered or likely to be entered into with related party during the current financial year is likely to exceed 10% of the annual consolidated turn over of the company as per the last audited financial statement of the company. .

Relative:

In terms of Section 2 (77) of the Companies’ Act 2013 read with the Companies (Specification of Definitions Details) Rules, 2014 a person is said to be a relative of another, if

1. They are members of a Hindu undivided family;
2. They are husband and wife;
3. Father (including step father)
4. Mother (including step mother)
5. Son (including step son)
6. Sons’ Wife
7. Daughter (including step daughter)
8. Daughter’s Husband
9. Brother (including step brother)
10. Sister (including step sister)

Identification of Potential Related Party Transaction:

Every director and key managerial personnel is responsible for providing advance notice to the board or audit committee of any potential related party transaction involving himself or his relatives including any additional information about the transaction that the Board/Audit Committee may require. The Board/Audit Committee shall note the same and record disclosure of interest in this regard.

Approval of Related Party Transactions:

OMNIBUS Approval:-

All related party transactions require approval of the audit committee/board/shareholders as stipulated in this policy. However, audit committee/board may grant omnibus approval for such transactions subject to following conditions:-

1. Transactions which are repetitive in nature and transactions which conform to the criteria laid down for omnibus approval by the NHB/Companies’ Act/Board.
2. If such omnibus approval is in the interests of the company.
3. If need for related party transaction cannot be foreseen.
4. If value of such transaction does not exceed rupees 10 Lakh per transaction.

All related party transactions which are not under omnibus approval require specific approval by the approving authorities specified here below:-

Approving Authorties:

All related Party Transactions which are in the ordinary course of business and are on arm’s length basis up to an amount equivalent to 10% of the annual consolidated turn over of the company can be approved by the audit committee/Board. If the amount exceeds the said limit, then the same should come before the Board for consideration and the Board will take a view on the matter and make its recommendation to the shareholders and final approval will be by the shareholders in the Annual General Meeting through an ordinary resolution.

Related Party Transactions – Coverage:

Related Party Transactions may cover transactions of following types as per applicable accounting standard:-

1. Transfer of resources, services or obligations between the company and a related party regardless of whether price is charged and a transaction with a related party shall be construed to include a single transaction or a group of transactions in the contract.
2. Contracts or arrangements entered into with related party for the following:-

1. Sale, purchase or supply of any goods or materials
2. Selling or otherwise disposing of or buying property any kind.
3. Leasing of property of any kind or hire purchase arrangement
4. Availing or rendering of any services
5. Transfer of research and development
6. Appointment of any agent for purchase or sale of goods, materials, services or property
7. Appointment of related party to any office or position of profit in the company or its subsidiary or associate company
8. License agreements
9. Finance arrangements including loan and equity contribution in cash or kind
10. Guarantees and collaterals
11. Agency arrangements, management contracts including deputation of staff
12. Under-writing the subscription of any securities or derivatives thereof of the company.
13. Any other item not specifically defined herein which shall have the same meaning as defined in the companies’ Act, 2013 or applicable accounting standards or, guidelines, directions and instructions issued by National Housing Bank, from time to time.

All Related Party Transactions other than those under OMNIBUS Approval, entered into in the ordinary course of business and transacted at arm’s length pricing basis also require approval of Audit Committee/Board.

All the Related Party Transactions which are material require approval by Audit Committee and Board and Board may recommend the same to shareholders for final approval by means of a resolution. All types of transactions as listed above including selling of property and leasing of property amounting to 10 per cent or more of net worth of the company or 10 per cent or more of turnover require approval by Board and shareholders. Also, availing of services amounting to 10 per cent or more of turnover of the company require approval by Board and shareholders. These limits apply for transactions entered into individually and or aggregate of transactions during a financial year. In the case of appointment to an office of profit in the company monthly remuneration/amount payable for service exceeding Rs.2.5 Lakhs in a financial year require approval of Board and shareholders.

Procedure for granting of Omnibus approval by the Audit Committee/Board:-

The Audit Committee/Board may grant Omnibus approval in terms of this policy based on the following criteria:-

1. Frequency of the transactions based on either the past record of similar transactions, or anticipated frequency of such transactions during the current financial year;
2. Volumes of transactions undertaken with such related party. The maximum value per transaction shall not exceed Rs.10 Lakhs (Rupees Ten Lakhs) or in the aggregate shall not exceed 1% (one pr cent) of the annual consolidated turn over of the company.
3. Disclosure of the following matters to the Audit committee at the time of seeking omnibus approval is necessary.

1. Projected growth rate in business with related party in the financial year for which omnibus approval is sought.
2. Contractual terms offered by other parties for similar transactions.
3. Adherence to any conditions on the contractual terms with such related parties, for instance, floor and cap on the pricing, credit terms, escalation in costs, quality checks, etc. The Audit Committee will carefully examine the proposal and satisfy itself the need for such omnibus approval and consider grant of such approval for the same in the interests of all development of business of Vidhisha Group.

The Omnibus approval to be granted by the Audit Committee will specify the following:-

1. Name of the related party, nature of transaction, period of transaction, maximum amount of transaction that can be entered into
2. Indicative base price or current contracted price and the formula for variation in the price if any.
3. The maximum transaction value and /or maximum period for which the omnibus approval shall be valid.
4. Such other conditions as the Audit committee may deem fit.

Also, in circumstances where the need for a related party transaction cannot be foreseen or predicted, the Audit committee may grant approval for such transaction also.

Review of Omnibus approval:

The Omnibus approval granted for a particular financial year will be reviewed in the first Audit Committee Meeting to be held in the first quarter of the succeeding financial year and the fresh omnibus approval to be granted in that meeting will be valid for the next full financial year. Similarly, the review will take place every year thereafter in the first meeting to be held in the first quarter of the year.

Related Party Transactions for which Audit Committee shall not grant omnibus approval:-

1. Transactions which are not in the ordinary course of business and which are not on arm’s length pricing basis.
2. Transactions in respect of selling or disposing of the undertaking of the company.
3. Transactions which are not in the interest of the company
4. Such other transactions specified under applicable law from time to time/policy decisions of the Board taken from time to time/ directions, guidelines and instructions issued by NHB from time to time, etc.

Procedure for approval of related party transactions not covered under omnibus approval:

1. The Audit Committee shall review all potential/proposed related party transactions to ensure that no conflict of interest exists and evaluate from the angle of arm’s length pricing.
2. Any member of the Audit committee who has an interest in the transaction under consideration shall abstain from voting on the approval of the related party transactions.
3. The Audit Committee shall have all the rights to call for information/documents in order to understand the scope of the proposed related party transactions and recommend an effective control system for verification of supporting documents.

The Audit Committee shall grant approval for such related party transactions as are within its power/jurisdiction in terms of value per transaction/total amount/nature of transaction, etc and refer all transactions which are not within its power to the Board for further consideration and decision.

Related Party Transactions which are not approved by the Audit Committee/Board

If any related party transactions which are not approved come to the notice of the company, the same has to be placed before the Audit Committee for review. The Audit Committee will examine the same and make its recommendation to the Board. The Board will take a view and evaluate all options which are available. The options may include any of the following:-

1. Ratification/approval
2. Revision and
3. Termination of the related party transaction.

Review of the Policy:

This policy will come into force with effect from 01.7.2017. This policy will be reviewed by the Audit Committee on an annual basis i.e. in its first meeting to be held in the first quarter of every financial year. Changes required if any in the light of the changes in the law, amendment to the company’s Act or NHB Directions and guidelines, etc will be recommended by the audit committee to the board. The Board will examine the recommendation and revise/modify the policy wherever required.