 So, welcome friends, back after a short commercial break, let me put it that way and now we are on to the AS-18 related party disclosures. I can tell you from your perspective it may not be as important, but from the perspective of the private bodies, even private educational institutions, it is probably one of the most significant standards. If I have to ask a very simple question to you all, suppose there are two financials, two sets of financial statements which have been given to you. In one set of financial statements, it has been disclosed that 70 to 80% of the transactions of the enterprise are with the parties which are related with this enterprise. In the other one, there is no transaction, such transaction, in which financial statements will you like to place greater reliance? The answer is naturally where there is no such related party transaction because there is a concept called arm's length transaction. When you are transacting with the related party, the general presumption is that probably, I will not say that 100% it has happened, but probably it has happened that there could be some diversion of profit or losses here or there from one party to another party and the transactions may not be free and fair basically and could be really with a different intent altogether. This is one standard which requires disclosures of such transactions so that you are able to understand the financial statements better, you are able to understand and appreciate the transactions of this enterprise with its own related parties and also the quantum thereof, not only the transactions, but even the quantum thereof. You will be able to understand or you will be able to appreciate it much better in that particular sense. So this is called AS-18 that related party disclosures and if you ask me what are the related party disclosures, before that as I said this entire accounting standard goes on to explain you and establish the requirements for disclosure of related party relationship. Number one, you must be able to establish whether the other party is related to the enterprise or not, if yes what kind of a relationship it has got and secondly you must disclose the transactions between a reporting enterprise and its related parties. As you move on you will come through some of the very interesting features. This particular standard deals with the following related party relationships. See what is the related party relationship? Number one, I think you all understand the concept of subsidiary. I do not think anyone of you does not understand the concept of the subsidiary. A subsidiary is an enterprise wherein the holding enterprise owns 50% plus one share. It is not necessarily 51%. It is 50% plus one share that gives them the right to control you basically or it has the ability to govern to control the composition of the governing body. In your case I am not using the word board of directors, I am using the word to control the composition of the governing body basically and thirdly if there is a significant influence also. Now definition of the term subsidiary as per this particular standard is different from the definition of the term subsidiary as per AS 21 which deals with the consolidation of the financial statements. I will explain what that difference is later on. So this says enterprise, it deals with the related party relation, enterprises that directly or indirectly through one or more intermediaries control or are controlled by or are under the common control with the reporting enterprise this includes holding companies subsidiaries and fellow subsidiaries. What it is trying to say is suppose there is a company A, I can say there is a university A or there is an educational institution A which invests in another university or another educational institution either on its own or by a special purpose vehicle created by it so directly or indirectly because this SPV will become a special it will become an intermediary if you ask me if it does that and brings the other university or other educational institution under the common control then it is a related party relationship. In Hindi we sometimes call it Guja companies basically there are so many layers now in the companies act it has been said that you cannot have more than two layered subsidiary companies whereas earlier if you ask me you would forget the number of the subsidies which will be there subsidiary of a subsidiary, subsidiary of a subsidiary, subsidiary of a subsidiary and then holding company remains holding for each one of those companies probably one holding company might be having 50 or 100 of the subsidiary companies and you could have the multi layered but now under the companies act they have said that you cannot go beyond two layers and that is a very positive step because the trail of the money was not being known otherwise it was it was very difficult to establish the trail of the money where the money was going so that is why it has been now restricted to the to the two layers under the companies act now it could be a holding company and it could be a subsidiary I have already explained what is the definition of now fellow subsidiaries what I explained to you now if A has got B as a subsidiary and C as a subsidiary then B and C are the fellow subsidiaries basically if A has got B as a subsidiary and also C as a subsidiary then both of them become fellow subsidiaries amongst themselves basically that is what the relationship is which would mean that even if B and C will deal with each other these transactions will have to be reported as related party relationships that is the intent of this in the lighter way and I can say that a teacher was teaching because every time this logic does not work a teacher was teaching and he said that this glass is on the table the table is on the earth so logically the table is on the earth or the glass is on the earth and then he said that A is equal to B and B is equal to C so logically A is equal to C and then he asked a student from the back he said can you give me an example of this kind of a logic and the student got up and said sir I love you and you love your daughter what a beautiful logic he gave so sometimes the logic may work sometimes the logic may not work but the fact remains that people can apply logic very innovatively also so fellow subsidiaries if A B and C as I said even if they will transact anything way amongst themselves that would become a transaction between the related party associates and joint ventures joint venture is something which is under the joint control you float something now if you start a particular entity for the purpose of specialized courses I am not you are not running the specialized courses under you but along with another one you start something by your specialized courses and you have a joint control with the other person concerned it is your joint venture with an economic objective that you want to make profits out of it basically the assets can be controlled by you the operations can be controlled by you so it will become your joint venture and associate is one which is not a joint venture which is not a subsidiary but you have a significant influence and significant influence is generally presumed the moment you have 20 percent or more of the share capital in the other entity it is presumed that you have the significant influence it is a presumption let me be very clear I will come to the other part because that is a rebuttable presumption at the end of the day but if there is an associate of yours or there is a joint venture of yours whatever transactions you carry out with them those transactions will be treated as related party transactions then comes the individuals there are certain individuals with whom you will deal these will be considered to be related party transactions there could be individuals who by virtue of their share holding not otherwise by virtue of their share holding they may or may not be directors by virtue of their share holding they are able to control the operations in that particular case also they will also be considered to be the related party or their relatives further how their relative is defined to that we will come little later even their relatives will be considered to be a related party without which this particular enterprise. So if this particular person individual owning directly or indirectly an interest in the voting part of the reporting enterprise that gives them control or significant influence it means if he has got 20 percent or more or 50 percent or more in both the circumstances he will be considered to be a related party but he must have the voting part that is very important if you have the share capital which does not carry the voting part in that particular case that control is lost because today you can have shares with the disproportionate voting rights in the companies in the educational institutions you may not be having that kind of situation but in the companies that situation is there the key managerial personnel. Now the key managerial personnel will mean basically MDs and the managing director and the whole time directors as per the definition here because as I move along but before I move along I will just define two of the terms here one is the term relative. Relative under this particular standard has been defined seven direct relationships mother father brother sister son daughter spouse just seven relationships there is no other relationship which is considered to be relative as per this particular accounting standard I am repeating again seven relationships are considered to be relatives of individuals mother father son daughter brother sister spouse who may who can influence or may have the ability to influence your decisions that is very important to note if an individual who is a relative of yours cannot influence your decision he will not be considered to be related party if husband and wife are in court of law they are contesting a case for separation they have not divorced so far the relationship still exists husband and wife but they cannot influence each other so they will not be considered to be related parties brother if the two brothers are fighting with each other in the court of law for the property or for any other matter can they influence each any of the decision making the answer is no because it says who may have the ability to influence that is very important then only you will be considered to be a relative who can real with whom the transaction can be considered to be a related party transaction you may continue to be a relative in the definition of the relative but if you are unable to influence or you do not have the capacity to influence the decision of the other then you lose out that particular prerogative of being considered as a related party transaction that is very very important and I can tell you right now we are dealing with the Indian law the moment IFRS comes in international financial reporting standards will come in we have the terms spouse they do not have the terms spouse at all they have the term domestic partner and they have the term and how they say your children children of the domestic partner and children of both this is the cultural difference which makes difference in the accounting standards they do not use the word spouse they say domestic partner and then when they talk about children they said children of the domestic partner your children and children of both as and when IFRS will be implemented in India this definition will undergo a change so far as the relative is concerned from spouse the definition will be domestic partner and we all I always say jocularly I always say jocularly that somewhere or the other we have not been influenced by the serials of Ekta Kapoor otherwise we could have said spouse is not spouse basically because you look at you watch any of our TV serials what happens is I do not have to tell you that and another thing that we have been very very clear about is that laws are very complex and in laws are the most complex so we have kept them out of this particular definition in the accounting standard but at the same time what has happened is that now the relative has been defined under companies act the new companies act there the definition is much wider compared to this and we in on the accounting standard itself have said that wherever the statute which governs you has a different definition than that definition has to be followed there probably some in-laws relationships will come in because today I have been talking all in all my seminars I have been out talking do not deal with mother deal with mother in law it is not to be reported do not deal with your father deal with father in law the transaction is not to be reported do not deal with brother deal with your brother in law the transaction is not to be reported but in the companies act probably you will be caught somewhere so it is not all that simple basically and another thing that you have to be very very clear about is when it comes to the definition of key managerial personal that is the KMP KMPs have been defined as under this particular accounting standard those individuals who have the authority and responsibility please mind my words who have the authority and responsibility for planning directing and controlling the operational and financial policies of the enterprise so in your cases you might be the GM but you may not be able to govern any of the policy you may be probably the top man in finance but you cannot govern the policy what is important is you must have the authority and responsibility both if either of the two limbs is missing you have the authority but you do not have the responsibility then you are out of the definition of key managerial personal and if you have the authority and responsibility but you cannot but you do not have the control then also you are out of it basically so what is very very important to be understood is you cannot be considered to be a key managerial personal for the purpose of related party transactions unless you have the authority and responsibility for planning directing and controlling the activities in the case of a bank a GM in the bank will be considered to be a very very high post but because after that is only ED and CMD he is amongst the top 20 employees out of 50,000 employees in the company in the bank if you ask me but he is not a key managerial personal from the angle of this particular standard because he cannot have the authority he has the responsibility he does not sit on the board but every director also does not have the authority because if he has the authority he does not have the responsibility but a non-executive director an independent director on the board may have the authority to sit on the board and to decide but he does not have the responsibility in the day to day activities to carry on to discharge any of the obligations so that is very important please be very very clear so far as the definition under this particular standard is concerned it defines key managerial personal as one who has the authority and responsibility for planning directing and controlling the activities of the policies of the organization but fortunately or unfortunately now and the companies act the key managerial personal definition has been changed altogether even a GM who may not have any authority will still become the key managerial personal why I am trying to emphasize on these definitions is because whatever transactions you carry on with these people and the relatives of these people those will have to be reported as the related party transactions earlier in the accounting standard now you are no more a company so you can still be away from it and this particular standard again is applicable only to the level one entities which we have already talked but if you are a company then it is applicable to you if you are not a company in that particular case it is not applicable to you unless you are a level one company level one enterprise that is 50 crore and 10 crore I am not expecting you to be a company in any case but if you have a turnover of 50 crore above or you have a borrowing of 10 crore above in that case it becomes applicable to you you are not a company I am very clear about it so it is in any case you are not covered by that particular definition so what is important to me is that the moment you have a key managerial personal now to you since you are not a company the definition under companies act cannot apply to you the definition which is given in the accounting standard will continue to apply so your chief accountant may be chief accountant but he does not sit on the governing body he has the responsibility but not the authority so he will not be a key managerial personal so any transaction carried out with him or his relative will not be considered to be a related party transaction any questions on this why I am trying to bring to your knowledge is you may people may have a perception that he is a very high level officer and any transaction with him will be a related party transaction but that is not the case or with his relative may be a related party transaction but it may not if you are if you are saying that accounting standards are applicable to you then it becomes applicable to you how we will apply no I am I am I am I am only talking about that basically you see in your case it will not be applicable from the view point of subsidiaries yes from the view point of joint venture from the view point of associate associate but joint venture is possible I am telling you particularly in the case of joint venture if you float a joint venture or you create an associate it might be it might become applicable but if you are a key managerial personal you sit on the governing body you are the chairman of the governing body you are definitely whatever transactions take place between you whatever fees even you get of sitting fee whatever conveyances paid to that has to be disclosed as a related party transaction so you explain the definition of the relatives it includes father mother son daughter sister and wife and in IFRS it is a domestic partner now there is a specific question forget about domestic partner anyway you should not be interested no I am I I just want to know that son definition of the son or daughter whether adopted son or adopted daughter absolutely absolutely not genetically absolutely the time he writes that he is your son this he writes that for my father is so and so and you write in your family he is my son he is your son as simple as that our accounting standard does not answer the question of illegitimate relationships very frankly in the company's act even that is considered to be a relationship I am answering that because you can ask that question if it is proved today N. D. Tiwari if it is asked the question he will have to declare him as a son it is a related party transaction the son born out of illegitimate relationship is considered as a son that is what I am so my humble submission to you is the moment you have gone through the adoption route and you have been writing everywhere that is my son and he has been writing that you are his father it is a son relationship be clear and it does not distinguish between married daughter or unmarried daughter whether it is a married daughter or unmarried daughter the relationship remains the same sir in the case of Sunday University vice chancellor will be the key personal vice chancellor or certain other people sitting on the governing body the executive council all members yes all members then it will be very difficult except except the nominated members who do not have the responsibility to perform down but it is very difficult to get the particulars whether they are related to vice chancellor or executive that is what I am trying to tell you my friends whatever is your executive council today or whatever is the governing body of the colleges start obtaining the list of their relatives as per this particular accounting standard and if there is any transaction with them that has to be disclosed as a related party transaction but more importantly but more importantly you know how much you have paid to them that has to be disclosed provided provided again I am saying you cross the threshold limit of 50 crore or 10 crore borrowing only then not otherwise some of the professors who are executive council members their wards are employed in the university on contractual employment that should also be disclosed again I am saying if you have taken somebody on a contractual basis which is part timer yeah he does not have the authority that is why I was trying to define it very clearly authority and responsibility for planning directing and controlling that's I am saying some of the professors who are executive council members they are taking the responsibility and they are taking the policy decisions then they are they are their wards are employed on contractual employment they are definitely covered by this they are definitely covered by this that should be disclosed absolutely sure see the point is if you say that they are in the executive council they have been deployed or their son is deployed or their daughter is deployed whatever payments are made to them or their relatives those will have to be disclosed but my biggest question is whether you are covered by that threshold limit of 50 crore or 10 crore borrowing that's all if you are covered there then you are covered here if you are not covered there then there is no need I have a question please in case of NITs and IITs there are nominated members on the board the chairman itself is a nominated member and there are other nominated members from the ministry as well as the state government whether transactions made with them will be again I am repeating my basic question to you whether the chairman is a working chairman or only a chairman just for the purpose of the board meeting there is a difference because then he doesn't have the responsibility he has only the authority vice chairman vice the vice chancellor has both the authority and responsibility you see in the companies also there are chairman who are executive chairman who are non-executive chairman non-executive chairman is not a related party executive chairman is a related party so they are only decorative pieces basically if you ask me so if they are decorative pieces then they are not the related part to be covered by the related parties but what is important you have to understand is there are no specific transactions which are to be covered even if you pay them conveyance you pay them salary everything will be covered there whatever payments you make to them once he falls in the category of the related party as a key managerial personal or otherwise all those payments will have to be covered so these are the definitions of relatives now there can be some purchase decisions when purchase are made by the company those purchase can be from one of the relatives or their companies or they are you have made a purchase from the relative of a key managerial personal you have to disclose it as a related party transaction irrespective of the fact whether it is arm length or not how to know this information because there that is the system that you have to devise that is what I am asking you whosoever falls within the definition of key managerial personal please start taking a declaration from them who are their relatives and what business is there running and whether they are having any transaction with this particular entity or not you will have to take it in the companies also at the beginning of the year we are supposed to confirm who all are our relatives which are the organizations in which we have got the interest and if at all any transaction takes place in the next board meeting we have to say that this is the transaction which has taken place with this in every complete happens he can he can recuse himself there will be conflict of interest so he can be a loop from the decision recusing is a must in any case that is be very clear but at the same time he has to disclose and this disclosure has to be made in the financial statements his recusing does not help the non-disclosure transaction itself is not questionable that is why we are not saying that the transaction will be questioned please try to understand what we are trying to tell you is I gave you an example to begin with if there is a company in which 80 percent of the transactions are with the related party it may or may not be arms length but the let the reader of the financial statement no we are not saying determine arm length we are only saying please look into this particular part and disclose it though if I go to the paragraph 23 of the standard it stops of something else also to that I will come later later vice chancellor has both authority and responsibility now vice the wife of the vice chancellor is a dean of the university she becomes a member of the executive council by dint of her capacity as dean does it also come under both both are key managerial personal in any case so I can only tell you even if she had not become a dean whatever payments were being made to her if at all any payment was being made to her that that would have been disclosed as a transaction related party transaction and if she has become a dean and vice chancellor is there both are the key managerial personal in any case in their capacity so the transactions with both will have to be disclosed may I again argue with you in one point in the in the case of companies the owners and these persons have a ownership but in case of universities these by dint of their relation do not have any ownership does it not have any impact please try to appreciate here we are not asking for a disclosure in the case of a shareholder alone if you were exercising that control or significant influence then that would have a damaged under three you see first one was subsidiary second one was joint venture associate third one was the shareholder who was having the control or the significant influence the fourth one was the key managerial personal key managerial personal need not be owner or shareholder after all an MD of a company is generally not the shareholder education and universities are coming under that fourth cross under the fourth they will they will get hit by the fourth and fifth because fifth says relatives of such individuals at the category three and the relatives of the people at the category four you see A says again I am repeating A says holding subsidiary B says joint venture associate C says your individual holding control or significant influence four says key managerial personal fifth says relatives of such individuals or key managerial personal so you get hit by fourth and fifth not by the third that that is the point so what is important for you to understand is that if you are in any of these five categories in that particular case the transactions with you have to be reported the only solace that you can draw is probably one aspect you will not have to disclose to which probably one will come little bit later parties are considered to be related if at any point during this is please read it very very careful carefully parties are considered to be related if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and or operating decisions control a toby or if you can really influence the decision making with regard to the financial and operating policies then also you will be considered to be the related party at any point of time ownership directly or indirectly or more than this I have already talked of substantial interest I have already said substantial interest will mean 20 percent or more of the share capital basically which is not applicable to you when do you say that controlling the composition now here it is possible that in your universe in your universities that might be there if you create further sub segments now if you control the governing the composition of the other governing body suppose an I am creates another subset of a body and the directors or the governing body is only to be non-minuted by I am then you will be considered to be controlling the composition of that particular governing body if the power lies with you to nominate majority of the directors on that by single director it does not make any difference if out of three every time two have to be nominated by you and no other decision can be taken by anybody in that case that control lies with you so it is not a control merely by the share capital it is a control which you can derive by way of an agreement to nominate the people on the governing body and that is very important have a substantial interest in other enterprises woman I already boldly a key managerial personal I have already said see this standard requires but before I go to that disclosure part I will go later this standard says what is the related party transaction so far we have only covered the related party but what is the related party transaction that we need to understand related party transaction is something where there is a transfer of resource or obligation by one party to another by with between the two related parties again I am repeating transfer of a resource or obligation with or without consideration this is the most important aspect most important aspect with or without consideration what does it mean if as a university you will just say okay my this particular person will be coming to you and will be delivering lectures and that is a related party to you the other party is a related party to you suppose it is your joint venture or associate this particular person a is on your payroll but he goes there and delivers the lectures and you do not charge them any anything to the other to the joint venture you will still have to disclose this as a related party transaction you will have to say a goes to the go for goes for delivering of the lecture these many lectures he is delivered there no charge has been made to the joint venture in respect there of why it has very serious implication it has the implication that tomorrow income tax officer can turn around and say why should I treat the expense of this particular man's salary as your expense as is your business expenditure says I do not agree with it I disallow this particular expenditure to you suppose you bought something suppose you bought the computer systems because it is a resource also not a source after all physical resource can be there human resource can be there any kind of a resource can be there no you bought out something you you bought something and you allowed them the use of this computer system free of cost the entire system of yours free of cost and you had borrowed the funds you are paying interest there on tomorrow the assessing officer will say why should I allow this particular interest expense as your expense business expense because you have not gained you have allowed your joint venture to take benefit of it I disallow this particular expenditure it is very much on cards you can be sure about it so it is not important that you should be charging and then only you have to report even if you do not charge something and it is your source or obligation if you stand guarantee for somebody someone else has to take a loan and you say okay I stand guarantee for it this is also a transaction which has to be reported so it is not very simple very frankly so people say how do how do we really do it it is it is absolutely clear that whenever there is a transfer of resource or obligation by one party to another party which are related parties amongst themselves it will be considered to be a related party transaction and that is related party transaction has to be reported irrespective of the fact whether you have tried anything in respect of this or you have not tried anything in respect of this and not charging anything in respect of any such item is more dangerous no it is very much possible that you have got a name suppose you as a university you as an institution built up a name and you allow somebody to use that particular name at rupee one per annum the income tax officer is going to be after you how can you do it you built a goodwill over the years it means it is not an arms length transaction what is an arm length transaction arm length transaction it is which has to be at a fair value a transaction which should be undertaken by the two willing sellers or buyers at a rate which is market rate and these buyers and sellers should be knowledgeable buyers and sellers both must be knowing the market conditions all together now if you transfer something at rupee one as a franchise as a brand to someone tomorrow somebody is going to be after you that is the related party transaction and particularly if you are a private company if you are a private institution and you have gone for a public issue also some people will go after you how can you do it there is no way that you should have done it so my humble submission to you is do not consider that when you do not charge anything it is not to be reported even when you do not charge anything from a related party you have to report it when there is a transfer of a resource or obligation but that is important there should be a transfer of resource or obligation the definition of the control under this particular standard is different from the definition given under AS 21 that is the consolidation in one way AS 21 talks of control through the capital that is 50% plus one control through the composition of the board that is also but it that does not talk of anything else but here it talks of another thing where you have the significant influence either through the agreement or otherwise it is very much possible that the two institutions combine and you say that you will not be able to appoint CFO or the chairman of governing body without my permission you will not be able to introduce any other course without my permission it is a related party transaction because there is an in say there is a significant influence which is being exercised by way of an agreement if there is an agreement in which one can veto the decisions of the others it becomes a related party it becomes a case of significant influence and in that particular case any related party transaction between the two has to be reported yeah please I have mentioned knowledgable partners knowledgable buyers yes I will tell you knowledgable partnership I knowledgable partnership I said knowledgable seller and buyer yes knowledgable seller what can happen is the person is sitting in London and he wants to sell a property in Delhi and he does not know what is the actual rate of the property and he sells it no that is not a knowledgable buyer or seller you may be a knowledgable buyer but he is not a knowledgable seller because that is not an arm length transaction both should be knowledgable both should be knowledgable must be having the knowledge of the market conditions sir sir most of the organizations have signed MOU with different institutes and organizations and they have collaborative projects also where resources are shared and obligations are also shared in that situation whether it is required to be disclosed or it is only just MOU if it is a joint venture for the purpose of making certain economic benefits it is a related party transaction 100 percent it is a related party transaction if you have told somebody ok we will find out we will do some research together and the benefits of this research will be shared by both of us so it is an economic gain which you want to share now whatever is sources you transfer amongst yourselves that has to be treated as a related party transaction without fail I think this will be there particularly IIMs will be there but there are foreign collaborative projects whatever it is where the resources are shared between the organization in India and other countries also provided there is an MOU as a joint venture I am again saying or it is an associate in that case whatever resources you share either with consideration or without consideration that will have to be disclosed if our scientist or the academician goes abroad gives lecture yeah and there is an MOU and collaborative project going on yeah then also it is to be yes if you do not charge then also and if you charge then also no no please no no please I think you are missing out the point one is that you have the arrangement that you will send your person on exchange program under the exchange then it is not a joint venture please try to appreciate some project is there if there is a project in which there are certain research is being carried out and the findings of that research will be used by both of you for your economic gains 100 percent it will fall under that category you cannot avoid the government sector universities have social mandate so they need need not be necessarily for economic gain I will only tell you one thing because of that social mandate I will only tell you one thing this standard provides certain exceptions yes which are not there as a part of the slides but I wanted to tell you one is that if there are transactions between the two government departments state or central yes but if it is a foreign one then it is no more between two governments also because science and technology agreements between two different countries but very frankly it does not talk off foreign government department and Indian government department it only talks of the Indian government department if you ask me but if you particularly I can say that if I look at the interpretation issue if you are dealing with the Indian government with the foreign government you can still says both are the governments and we cannot influence somebody to pay more or less so it can be still treated as arm length and probably you can claim exemption even if by way of interpretation you have to really claim it but if it is not a government department and if it is a party or if it is a company abroad then what do you do in that case it is a joint venture nothing more nothing less this particular standard provides the exemption where there are transactions between one department one central government department with another central government department one central government department with the state government department one state government department with the state government department then you need not disclose the related party transaction because otherwise what is going to happen is that president of India owns shares in IOC. IOC deals with ONGC then those transactions are not to be disclosed because in both the cases it is the government which is involved basically both are government companies. So you need not disclose that. But if Indian oil deals with jindals which is happening today if you ask me ONGC deals with jindals, NTPC deals with JP then that will be considered to be a joint venture and the transactions will have to be disclosed listed. But then both are government companies still the auditors are appointed by C&AG more than 50% shares are held by the government these are government companies. But shareholders have the right that exception has been provided by the standard I can't help you cannot help let us be clear. And if it is a case of trade union trade union may be able to influence your decision but it is not considered to be a related party. Provider of finance bank may be able to influence your decision but he is not considered to be your related party. You might be purchasing the entire material from a one particular supplier he will not be considered to be related party. You might be supplying everything to one customer he will not be considered to be your related party. These are the exceptions which are built in within the accounting standard for that purpose. What one is trying to tell you is that in those cases whichever cases one has given you you need to go ahead with this and the disclosers have to be made. There are certain things which you have to keep in mind. I said if it is 20% more then it is considered to be significant influence but it is a rebuttable presumption. You can very well say that I hold 20% shares but I am not even getting a seat on the board not even a single seat on the board. So how can I influence the decision and if you can prove it you will not be considered to be a related party transaction. On the other side of it now I am going to give you a very good example. On the other side of it you have less than 20% of the holding but nothing moves without you. In that case it will be considered to be a related party transaction. There are groups in India in corporate world where they don't have 20% holding. They only have about 8 to 13% of the holding but without them nothing moves in their group companies. I don't want to name anybody. I think if you look at Tata's. Tata's are a class example. They don't control by 51%. I don't think in any of the companies they have 21%. But look at their holdings through the Tata's and what is the level of holdings in the different companies but they will be considered to be related parties. So what is important to be understood is that there are cases where you may hold less than 20% and still it will be a related party transaction. In certain cases you may hold more than 20% and still it will not be considered to be a related party transaction. Depending upon how you are able to argue out your case. And the other thing which is not applicable to you. If it is a relationship of a holding and subsidiary in that case irrespective of the fact whether there is a transaction carried out between the two you still have to disclose the names of the two. Holding company will disclose the name of its subsidiaries. No transaction has taken place but still they will disclose the names of the subsidiaries. And the subsidiary will disclose the name of the holding company irrespective of the fact whether any transaction has taken place or not. But in the case of the joint venture associate key managerial personal and the relatives you will disclose not the names till the time the transaction has taken place. In the holding subsidiary relationship you will disclose the names even if no transaction is there. But in the case of the others you will disclose only when the transactions have taken place. So this part you should be able to remember very clearly. And the other part that you have to be very clear is you look at the paragraph 23, 25 what it requires you to disclose. If you look at the disclosure it says please disclose the names of the related parties. Transactions the nature of the transactions with the related parties purchase has sale whatever it is please disclose that. But you should not be able to camouflage what people were doing recently was that they sold out certain goods and they included the sale of even asset in that sale you cannot do that. Purchase of the general merchandise is different when purchase of a fixed asset is different these are two different categories. If you purchase a fixed asset it is different if you purchase the general merchandise it is different. You have to give what is the percentage what is the amount and percentage of the total sale. If out of hundred you have purchased 80 from the same party it is serious now everyone should be looking at it with some kind of suspicion why and whether they say 80 is a fair value or not. And particularly if there is a bad debt in the related party what is the bad debt. If you are unable to recover certain amount from a related party that has to be disclosed. Even if you create a provision in respect of a bad debt in respect of the related party that has to be disclosed separately. But it is possible in case of vertical combination of companies when a company has the vertical combination it has production unit it has raw material in it and all. Then they have to purchase the raw materials from their vertical. Vertical combination is in your own company then it is not related party then it is inter group rather you can say segmental transfer. I think what you are talking is but if it is a case of forward integration backward integration. Tata set up something as Tata tele services and Tata also set up a particular company for purchase and sale of the mobile sets. But if these two companies deal with each other these are related party transactions let us be clear about it. Vertical or horizontal is not important. And if Tata if X and Y are related parties and X in its books of account says that bad debt written off and it is in respect of Y the public must know. That is a camouflaging. You just cannot write off something from your own related party where you control. That is manipulation of the company. So manipulation similarly even if you create a provision for a doubtful debt it has to be told. Not only that it says suppose you had earlier written off a bad debt and in this year you have affected the recovery of a bad debt that has also to be disclosed. That impact on tax money. Naturally the reader should be able to understand what has happened in the financial statements that that is the reason. And more importantly paragraph 23.5 probably talks of something which is very important it says and any transaction the element of which needs to be understood. And then the example it gives in paragraph 25 and what does it say? It says if an asset was having a book value of 100 and it has been transferred to a related party at 75 that needs to be disclosed. This is very significant. If an item which was having a book value of 100 has been transferred at 70 or 75 that needs to be. But what I am only able to tell you is if 100 rupee item is transferred at less than 100 to a related party it needs to be disclosed as per the requirements of the accounting standard. More in multiple 100 rupees is transferred at 1000. At 1000 that also because what will happen is the person who is purchasing and if actually its value is 100 and he has purchased it for 1000 it needs to be disclosed by him now as a related party transaction. So all that needs to be done. This is what this standard is. There is nothing else in this standard. And this standard I have done fully. I have not left anything so far as this standard is concerned. Why it is that 100 rupee 100 cost item that is sold at less than 100. In that case will that party be considered as knowledgeable party or not? And knowledgeable party or not? Knowledgeable party. Knowledgeable party. Why not? Because earlier you have said that the person living in the. Please try to appreciate. What I said was I define arms length transaction. I define arms length transaction. Here we will say it is not arm length transaction. But earlier a person living in the UK he wanted to. There is a difference. There is a difference. Here what I am saying is if knowingly I am purchasing 100 rupees item at 75 or I am transferring 100 rupees item at 75. In any case the person who is transferring 100 rupees item at 75 he knows it in the books. See here who is sufferer? Sufferer is seller and seller knows that the book value is 100. In that case also the person living at UK is also a sufferer. The person selling in UK did not know what is the price. Please that is what I said. But something I think something has to be. No, no. Suppose he thought that the price is a crore but actually the price was 3 crores. That is why his knowledge was poor. But here the seller knows that my book value is 100. There is a difference. So thank you very much friends for a very very patient hearing. My gratitude to you.