This policy shall be called the ‘Policy on materiality of related party transaction and dealing with related party transactions’ (the “Policy”).
The Policy shall come in to force with effect from the date of listing of the equity shares of the face value of ₹ 2 each of Home First Finance Company India Limited (the “Company”) on BSE Limited and National Stock Exchange of India Limited (collectively referred to as the “Stock Exchanges”).
- Related party transactions have been one of the major areas of focus for corporate governance reforms being initiated in India. The changes introduced in the corporate governance norms through Section 188 of the Companies Act, 2013, as amended and the rules framed thereunder (the “Act”) and Regulation 23 of the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015, as amended (“SEBI Listing Regulations”) require companies to have enhanced transparency and due process for approval of the related party transactions. Pursuant thereto, Section 188 of the Companies Act and Regulation 23 of the SEBI Listing Regulations require the Company to formulate a policy on materiality of related party transactions and also on dealing with related party transactions including clear threshold limits duly approved by the Board.
- This policy is framed to endeavor to ensure due and proper compliance with the applicable provisions and provide guidance for entering into a transaction with a related party to ensure that proper procedure is defined and followed for approval/ratification and reporting of transactions as applicable, between the Company and any of its Related Parties. The Audit Committee of the Company will review this Policy on an annual basis and propose any modifications to the Board for approval.
1. “Act” or “The Act” shall mean the Companies Act, 2013 and the Rules made thereunder (as amended/modified/re-enacted from time to time).
2.“Arms’ length transaction” means a Transaction between two related parties that is conducted as if they were unrelated so that no conflict of interest.
Note: For determination of Arm’s Length basis, guidance may be taken from the provision of Transfer Pricing under Income Tax Act, 1956.
3. “Audit Committee” means the audit committee of the Board of the Company.
4. “Key Managerial Personnel” or “KMPs” means Key Managerial Personnel as defined under the Companies Act and includes:
managing director, or chief executive officer or manager;
the whole-time director;
chief financial officer;
such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
such other officer as may be prescribed
5. “Material Related Party Transaction” about the Company means a Related Party Transaction which individually or taken together with previous transactions with a Related Party during a financial year, exceeds ten percent of the annual consolidated turnover of the Company as per the last audited financial statements of the Company or such limit as prescribed or amended by the SEBI Listing Regulations or the Companies Act, 2013 or any other Statutory Bodies.
6. Notwithstanding the above, a transaction involving payments made to a Related Party concerning brand usage or royalty shall be considered material if the transaction(s) to be entered individually or taken together with previous transactions during a financial year, exceed two percent of the annual consolidated turnover of the Company as per the last audited financial statements of the Company such limit as prescribed or amended by the SEBI Listing Regulations or the Companies Act, 2013 or any other Statutory Bodies.
7. “Ordinary Course of Business” means all such acts and transactions undertaken by the Company, including, but not limited to sale or purchase of goods, property or services, leases, transfers, providing of guarantees or collaterals, providing loan to subsidiaries/joint ventures/obtaining a loan from holding companies in the normal routine in managing trade or business and is not a standalone transaction and includes any transaction carried out as per the Object Clause of Memorandum of Association and Articles of Association of the Company.
Note: The Company may take into account the frequency of the activity and its continuity carried out in a normal organized manner for determining what is in the ordinary course business.
“Relative” about a related party shall have the same meaning assigned to it in Section 2(77) of the Act and rules prescribed thereunder and as per Regulation 2(1) (ZD) of the SEBI Listing Regulations as amended from time to time, means anyone related to another, if
- they are members of a Hindu undivided family; or
- they are husband or wife; or
- one person is related to the another in the following manner, namely:
- father includes step-father
- mother includes step-mother
- son includes step-son
- son’s wife
- daughter’s husband
- brother includes step-brother
- sister includes step-sister
8. “Related Party” means a person or an entity, which is a related party under section 2(76) of the Companies Act, 2013 as amended from time to time or under applicable accounting standards.
Note: Reference and reliance may be placed on the clarification issued by the Ministry of Corporate Affairs, Government of India and other authorities from time to time on the interpretation of the term “Related Party”.
9. “Related Party Transactions” means a transfer of resources, services or obligations between a Company and a Related Party, regardless of whether a price is charged and a “transaction” with a Related Party shall be construed to include a single transaction or a group of transactions in a contract and includes transactions as defined as a “related party transaction” under the relevant provisions of the Companies Act or the SEBI Listing Regulations or any other related law, regulation or standard.
10. “Transaction” shall be construed to include a single transaction or a group of transactions in a contract.
Any words used in this Policy but not defined herein shall have the same meaning prescribed to it in the Companies Act, the Securities and Exchange Board of India Act, 1992, as amended, or rules and regulations made thereunder including the SEBI Listing Regulations, the applicable accounting standards or any other relevant legislation/law applicable to the Company.
Disclosure by Directors
Every director shall at the beginning of the financial year provide information by way of written notice to the Company regarding his concern or interest in the entity with specific concern to parties which may be considered as Related Party concerning the Company and shall also provide the list of Relatives which are regarded as Related Party as per this Policy.
Directors are also required to provide the information regarding their engagement with other entities during the financial year which may be regarded as Related Party according to this Policy.
- Identification of related parties and related party transactions.
- Identification of related parties
The Company shall periodically identify and update the list of related parties as prescribed under Section 2(76) of the Act read with the Rules framed thereunder. Such periodicity shall not be more than 6 months.
2. Identification of related party transactions
The Company has formulated a process for identification of related party transactions under Section 188 of the Act. The Company has also formulated guidelines for determining whether the transaction is in the ordinary course of business and at arm’s length basis and for this purpose, the Company may seek an external professional opinion, if necessary.
Each Director and Key Managerial Personnel is responsible for providing notice to the Company or Audit Committee of any potential Related Party Transaction involving him or her or his or her Relative, including any additional information about the transaction that the Board/Audit Committee may reasonably request. Audit Committee will determine whether a transaction does constitute a Related Party Transaction requiring compliance with this Policy.
Each Director and Key Managerial Personnel shall make an annual declaration to the Company in the last month ending before the financial year and this declaration shall be placed before the Audit Committee and the Board at their first meeting held at the succeeding financial year.
Any change in the list of Relatives shall be intimated by the Directors and KMPs by way of a fresh declaration to the Company.
Determination of approval level based on the nature of the transaction
Audit Committee approval
- Related Party Transactions will be referred to the next regularly scheduled meeting of the Audit Committee for review and approval. Any member of the Committee or the Directors of the Board who has a potential interest in any Related Party Transaction in terms of Rule 15(2) of the Companies (Meeting of Board and its Powers) Rules, 2014 shall not be present at the meeting whether physically or by electronic mode during the discussions on the subject matter and shall recuse himself or herself and abstain from discussion and voting on the approval of the Related Party Transaction.
- All the transactions which are identified as Related Party Transactions should be preapproved by the Audit Committee before entering into such transaction.
- The Audit Committee shall consider the following factors while deliberating the Related Party Transactions for its approval:
- name of the party and details explaining the nature of the relationship;
- duration of the contract and particulars of the contract and arrangement;
- nature of the transaction and material terms thereof including the value, if any;
- manner of determining the pricing to ascertain whether the same is on Arm’s Length Basis;
- the business rationale for entering into such transaction; and
- any other information relevant or important for the Board to decide on the proposed transaction.
- In determining whether to approve a Related Party Transaction, the Committee will consider the following factors, among others, to the extent relevant to the Related Party Transaction:
- Whether the terms of the Related Party Transaction are fair and on Arm’s Length Basis to the Company and would apply on the same basis if the transaction did not involve a Related Party;
- Whether there are any compelling business reasons/rationale for the Company to enter into the Related Party Transaction and the nature of alternative transactions, if any;
- Whether the Related Party Transaction would affect the independence of an independent Director;
- Whether the proposed transaction includes any potential reputational risk issues that may arise as a result of or in connection with the proposed transaction;
- Whether the Company was notified about the Related Party Transaction before its commencement and if not, why pre-approval was not sought and whether subsequent ratification is allowed and would be detrimental to the Company; and
- Whether the Related Party Transaction would present an improper conflict of interest for any director or key managerial personnel of the Company, taking into account the size of the transaction, the overall financial position of the director, executive officer or other Related Party, the direct or indirect nature of the director’s, key managerial personnel’s or other Related Party’s interest in the transaction and the ongoing nature of any proposed relationship and any other factors the Board/Committee deems relevant.
- Board of Directors approval
All Related Party Transactions covered under Section 188 of the Act (which primarily excludes loans, investments and providing guarantee/security, etc.) that are:
- not in the ordinary course of business, or
- in the ordinary course of business but not at arms’ length or
- neither in the ordinary course of a business nor at arms’ length
shall require the prior approval of the Board of Directors at a meeting of the Board.
Further, the transactions which require the approval of the Board shall first be reviewed /approved by the Audit Committee. Where any director is interested in any contract or arrangement with a Related Party, such director shall not be present at the meeting during discussions on the subject matter of the resolution relating to such contract or arrangement.
This Policy shall be reviewed by the Board every year.
- Shareholders’ approval
All Related Party Transaction which falls under the first proviso to section 188 of the Act and exceeds the threshold limit as prescribed under rules made thereunder (as amended/modified from time to time) shall be approved by the shareholders in the manner prescribed thereunder. If a Related Party Transaction is not in the Ordinary Course of Business, or not at Arm’s Length Basis and exceeds certain thresholds as prescribed under Section 188 of the Companies Act, it shall require shareholders’ approval by a resolution. The Related Parties shall abstain from voting as shareholders in case of Related Party Transactions which require the approval of shareholders.
Review and Approval of Related Party Transactions:
- All Related Party Transactions or changes therein must be reported by the Head of Accounts/Finance and to the Company Secretary and referred for the approval/review by the Audit Committee following this Policy.
- Omnibus Approval:
- Notwithstanding sub-clause (b) above, the Audit Committee may grant omnibus approval for Related Party Transactions proposed to be entered into by the Company in respect of the transactions which are repetitive.
- The Audit Committee shall satisfy itself the need for such omnibus approval and that such approval is in the interest of the Company;
- Such omnibus approval shall specify (a) the name/s of the related party, nature of the transaction, a period of transaction, the maximum amount of transaction that can be entered into and (b) the indicative base price / current contracted price and the formula for variation in the price if any (for ex: +/- 5-10%).
In the case where the Related Party Transaction cannot be foreseen and aforesaid details are not available, Audit Committee may grant omnibus approval for those kinds of transactions, subject to a financial value not exceeding Rs.1 Crore per transaction or such other higher limit as may be prescribed under the applicable law from time to time.
- Such omnibus approvals shall be valid for a period not exceeding one year and shall require fresh approvals after the expiry of one year or immediately succeeding meeting of the Audit Committee.
- Audit Committee shall review periodically (half-yearly), the details of Related Party Transactions entered into by the company under each of the omnibus approval given.
- If prior approval of the Audit Committee / Board / Shareholders as the case may be, for entering into a Related Party Transaction is not feasible, then the Related Party Transaction shall be ratified by the Audit Committee and the Board / general meeting, if required, within 3 months of entering in the Related Party Transaction.
The Company shall disclose, in the Boards’ report, transactions prescribed in Section 188(1) of the Act with related parties, which are not in the ordinary course of business or not on arm’s length basis along with the justification for entering into such transaction.
- Related Party Transactions Not Approved Under This Policy
In the event the Company becomes aware of a transaction with a related party that has not been approved following this Policy before its consummation, the matter shall be reviewed by the Audit Committee. The Audit Committee shall consider all of the relevant facts and circumstances regarding the related party transaction, and shall evaluate all options available to the Company, including ratification, revision or termination of the related party transaction. The Audit Committee shall also examine the facts and circumstances about the failure of reporting such related party transaction to the Audit Committee under this Policy and failure of the internal control systems, and shall take any such action it deems appropriate.
In any case, where the Audit Committee determines not to ratify a related party transaction that has been commenced without approval, the Audit Committee, as appropriate, may direct additional actions including, but not limited to, discontinuation of the transaction or seeking the approval of the shareholders, payment of compensation for the loss suffered by the related party, etc. In connection with any review/approval of a related party transaction, the Audit Committee has the authority to modify or waive any procedural requirements of this Policy.
- Compliance with RPT Policy
- a) Every person associated with RPT shall be accountable for complying with this RPT Policy that may be in force from time to time.
- b) Director or KMP or any other employee, who had entered into or authorized the contract or arrangement in violation of the RPT policy and RPT framework shall be guilty of non-compliance
- c) In case of breach of this policy, the Audit Committee and/or the Board of Directors may intimate appropriate action against the person/s responsible.
- Administrative Measure
The Audit Committee of the Company, subject to the supervision of the Board, shall be the Competent Authority for investigating and taking appropriate actions/steps for prevention or remedy of any breach and/or default in complying with this Policy. Any disciplinary action taken by the Audit Committee shall be in addition to the penal provisions of the Regulation.
Subject to the superintendence of the Board, this Policy shall be interpreted and administered by the Audit Committee.
- Process or Standard Operating Process
The Head of Finance/Accounts form/adopt a Standard Operating Process (SOP) as guidance for related party transactions and all the employees and concern persons are required to follow the said SOP.
Transactions which are governed under the other applicable provisions of the Companies Act, 2013 like Section 185, 186 or 187 of the Companies Act, 2013, shall govern by the respectively applicable provisions of the Act.
- Policy Review
This Policy is established based on the provisions of the Companies Act, 2013 and as per the requirement of the NHB Notification No. NHB. HFC. CG-DIR.1/MD & CEO/2016 dated 9th February 2017. In case of any subsequent changes in the provisions of the Act and the Rules framed thereunder, the Act and its Rules would prevail over the Policy and the provisions in the Policy would be modified in due course to make it consistent with the law. The Board shall have the right to amend the Policy from time to time, based on recommendations of the Audit Committee. The Policy shall be reviewed as and when required, However, it shall be reviewed earlier if the need arises for the same and/ or under special circumstances, for example, a change in the law.
This Policy shall be posted on the website of the Company at www.homefirstindia.com