Related party transactions

Section 19 of the National Bank for Financing Infrastructure and Development Act, 2021 deals with related party transactions. Except with the consent of the Board and subject to such conditions as may be prescribed, the Institution shall not enter into any contract or arrangement with a related party with respect to-- (a) sale, purchase or supply of any goods or materials; The Act was enacted on 28 Mar 2021.

(1) Except with the consent of the Board and subject to such conditions as may be prescribed, the Institution shall not enter into any contract or arrangement with a related party with respect to--

(a) sale, purchase or supply of any goods or materials;

(b) selling or otherwise disposing of, or buying, property of any kind;

(c) leasing of property of any kind;

(d) availing or rendering of any services;

(e) appointment of any agent for purchase or sale of goods, materials, services or property;

(f) such related party's appointment to any office or place of profit in the Institution, its subsidiaries or joint ventures or associate companies;

(g) underwriting the subscription of any securities, or derivatives thereof, of the Institution:

Provided that no contract or arrangement involving transactions exceeding such sums as may be specified by regulations, shall be entered into except with the prior approval in the general meeting of the shareholders:

Provided further that no shareholder shall vote in such general meeting to approve any contract or arrangement which may be entered into by the Institution, if such shareholder is a related party:

Provided also that nothing in this sub-section shall apply to any transactions entered into by the Institution in its ordinary course of business, other than transactions which are not on an arm's length basis:

Provided also that the requirement of approval under the first proviso shall not be applicable for transactions entered into between the Institution and its wholly owned subsidiary, if any, whose financial statements are consolidated with the Institution and placed before the shareholders at the general meeting for adoption.

Explanation.--In this sub-section,--

(a) the expression "office or place of profit" means any office or place--

(i) where such office or place is held by a director, if the director holding it receives from the Institution anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

(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 Institution anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

(b) the expression "arm's length transaction" means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.

(2) Every contract or arrangement entered into under sub-section (1) shall be referred to in a report made by the Board to the shareholders, along with the justification for entering into such contract or arrangement.

(3) Where any contract or arrangement is entered into by a director or any employee, without obtaining the consent of the Board or approval by a resolution in the general meeting of the shareholders under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board or, as the case may be, of the shareholders and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the Institution against any loss incurred by it.

(4) Without prejudice to anything contained in sub-section (3), it shall be open to the Institution to proceed against a director or any other employee who had entered into such contract or arrangement in contravention of the provisions of this section for recovery of any loss sustained by it as a result of such contract or arrangement.

(5) Any director or employee of the Institution who had entered into or authorised a contract or arrangement in violation of the provisions of this section, shall be liable to pay penalty of a sum of up to twenty-five lakh rupees.

Section 19, The National Bank for Financing Infrastructure and Development Act, 2021 (Act 17 of 2021).