X Ltd., the holding company of B Ltd. (having 51% of its shareholding in B Ltd.), wants to appoint A as Chief Finance Officer over there. A is related to one of the Directors of the holding company. Will it be considered

As per the provisions of Section 2(76), 'related party', with reference to a company, includes - (i) a director or his relative; (ii) key managerial personnel or his relative; (iii) a firm, in which a director, manager or his relative is a partner; (iv) a private company in which a director or manager or his relative is a member or director; (v) a public company in which a director or manager is a director or and holds along with his relatives, more than two per cent of its paid-up share capital; (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; (vii) 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; Further, as per section 188, the following transaction is deemed to be related party transaction: (f) related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and where the expression 'office or place of profit' includes any office or place- (ii) where such office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise; In the given scenario, relative of director of X Ltd. is going to be appointed as CFO in subsidiary company of X Ltd. and hence as per the above provisions, the same is a related party transaction under the Act. Procedure to be followed by X Ltd. Consent of Board of Directors to be taken at a meeting of the Board of Directors; The agenda of the Board meeting at which the resolution is proposed to be moved shall disclose- (a) the name of the related party and nature of relationship; (b) the nature, duration of the contract and particulars of the contract or arrangement; (c) the material terms of the contract or arrangement including the value, if any; (d) any advance paid or received for the contract or arrangement, if any; (e) the manner of determining the pricing and other commercial terms, both included as part of contract and not considered as part of the contract; (f) whether all factors relevant to the contract have been considered, if not, the details of factors not considered with the rationale for not considering those factors; and (g) any other information relevant or important for the Board to take a decision on the proposed transaction. The director who is interested in the contract or arrangement with a related party, shall not be present at the meeting during discussions on the subject matter of the resolution relating to such contract or arrangement. Where the transaction is for appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding two and a half lakh rupees as mentioned in clause (f) of sub-section (1) of section 188, prior consent of members by means of a resolution should also be obtained. Any member of the company who is a related party shall not vote on such resolution, to approve any contract or arrangement which may be entered into by the company: The explanatory statement to be annexed to the notice of a general meeting convened pursuant to section 101 shall contain the following particulars, namely:- name of the related party; name of the director or key managerial personnel who is related, if any; nature of relationship; nature, material terms, monetary value and particulars of the contract or arrangements; any other information relevant or important for the members to take a decision on the proposed resolution. Every contract or arrangement entered into under sub-section (1) of Section 188 shall be referred to in the Board's report to the shareholders along with the justification for entering into such contract or arrangement. The requirement of seeking approvals as above shall not apply to any transactions entered into by the company in its ordinary course of business other than transactions which are not on an arm's length basis. The requirement of passing the member's resolution shall not be applicable for transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval. In case of wholly owned subsidiary, the resolution passed by the holding company shall be sufficient for the purpose of entering into the transaction between the wholly owned subsidiary and the holding company. For associate company, no specific difference from above procedure has been prescribed.