MCA continues to make a bigger mess of ‘related party transactions'

MCA’s latest order burdens private limited companies with even more stringent compliance, in case of related party transactions


The Ministry of Corporate Affairs (MCA) is leaving no stone unturned to make matters pertaining to related party and transactions clear. But is it succeeding? On 24 July 2014, the MCA, vide its Companies (Removal of Difficulties) Sixth Order, 2014 (Present Order), amended clause (iv) of Section 2(76) of Companies Act, 2013 (Act of 2013). The Present Order is most likely to create outcry from companies.

It seems that the Ministry is determined to issue weekly clarifications regarding related parties. MCA first issued Companies (Removal of Difficulties) Fifth Order, 2014, dated 9 July 2014 , amending clause (v) of Section 2(76) of the Act of 2013 by replacing ‘and’ with ‘or’. This was followed with clarifications on matters relating to related party transactions vide general circular no. 30/2014 dated 17 July 2014. The MCA further amended the definition of a related party by amending Companies (Specification of definition details) Rules, 2014 vide notification dated 17 July 2014, which came into force from the date of its publication in the official gazette.

Section 2 (76) (iv) of the Act of 2013 has been amended to insert words ‘or his relative’. The amended rule post amendment will stand as under:

2(76) (iv) Related Party:  a private company in which a director or manager or his relative is a member or director;

This is done with the intent to expand the purview of related parties, while dealing with private companies. Earlier Section 297 of Companies Act, 1956 (old Act 1956) restricted the scope of related parties to a private company, of which the director is a member or director. However, under the new Act of 2013 there has been an inclusion of 'manager appointed' in such private company and now, vide Ministry’s present order, relative of a director or manager of a private company where such relative is a member or director has also been added.

The MCA had issued a draft notification on 24 June 2014, on the in-applicability/ partial/ modified applicability of certain provisions of the Act of 2013 to private companies, in exercise of powers under section 462 of the Act 2013. Public comments were invited on the same by 1 July 2014. The same was to be placed before both the houses of parliament. The notification altogether exempted private companies from the applicability of Section 188.

However, the draft notification obtained from the Rajya Sabha office has a slight modification in the terms of applicability of Section 188. The entire exemption from applicability of Section 188 was replaced with exemption only from applicability of the second proviso of Section 188 (1) of the Act of 2013. This means that if the related party is a member of the Company, then he shall not be dis-entitled from voting on such resolutions at the general meeting.

The MCA, without realizing the extent of compliance required in case of related party transactions has simply expanded the scope of definition. This means any company entering into a transaction with a private limited company in which relatives of director or manager is a member or director will be a related party transaction. This means it will require prior approval of the Audit committee, wherever applicable. Further, if the transaction is not in the ordinary course of business and not being done on arms length basis, the same will require approval by the Board. Further, if such a transaction exceeds the limits specified under Rule 15 of Companies (Meetings of Board and its Powers) Rules, 2014, prior approval of shareholders will also be required.

The present order will lead to everything but removal of any difficulty!

(Debolina Banerjee is an associate at Vinod Kothari & Company)



Dayananda Kamath k

2 years ago

may be they want to creat a mess of regulations so that the mess created by private companies may be corrected.

Suraj Arora

2 years ago

Minority Protection?
Restriction on powers of Board?

Restriction on smooth functioning of Companies?

One Idea leads to another confusion and mess.......!

Are patient privacy laws being misused to protect medical centres?

A 1996 law known as HIPAA has been cited to scold a mother taking a picture of her son in a hospital, to keep information away from police investigating a possible rape at a nursing home, and to threaten VA whistleblowers


This story was co-published with NPR's "Shots" blog.

In the name of patient privacy, a security guard at a hospital in Springfield, Missouri, threatened a mother with jail for trying to take a photograph of her own son.

In the name of patient privacy , a Daytona Beach, Florida, nursing home said it couldn't cooperate with police investigating allegations of a possible rape against one of its residents.

In the name of patient privacy, the U.S. Department of Veterans Affairs allegedly threatened or retaliated against employees who were trying to blow the whistle on agency wrongdoing.

When the federal Health Insurance Portability and Accountability Act passed in 1996, its laudable provisions included preventing patients' medical information from being shared without their consent and other important privacy assurances.

But as the litany of recent examples show, HIPAA, as the law is commonly known, is open to misinterpretation – and sometimes provides cover for health institutions that are protecting their own interests, not patients'.

"Sometimes it's really hard to tell whether people are just genuinely confused or misinformed, or whether they're intentionally obfuscating," said Deven McGraw, partner in the healthcare practice of Manatt, Phelps & Phillips and former director of the Health Privacy Project at the Center for Democracy & Technology.

For example, McGraw said, a frequent health privacy complaint to the U.S. Department of Health and Human Services Office of Civil Rights is that health providers have denied patients access to their medical records, citing HIPAA. In fact, this is one of the law's signature guarantees.

"Often they're told [by hospitals that] HIPAA doesn't allow you to have your records, when the exact opposite is true," McGraw said.

I've seen firsthand how HIPAA can be incorrectly invoked. In 2005, when I was a reporter at the Los Angeles Times, I was asked to help cover a train derailment in Glendale, California, by trying to talk to injured patients at local hospitals. Some hospitals refused to help arrange any interviews, citing federal patient privacy laws. Other hospitals were far more accommodating, offering to contact patients and ask if they were willing to talk to a reporter. Some did. It seemed to me that the hospitals that cited HIPAA simply didn't want to ask patients for permission.

The incident at the Missouri hospital, Mercy, began after Mandi Wilson took her son to an audiologist to get his hearing tested, according to the Springfield News-Leader. The paper went on to say:

Wilson was taken to an office where she was questioned by a security guard. The video of the incident, which she later posted on YouTube,records him asking for her phone to verify that the pictures she took had been deleted. The video, which Wilson took secretly, doesn't show faces but includes audio.

The secretly recorded video shows that when Wilson refused to hand over her phone, the officer told her she would be barred from returning to Mercy property and could be taken to the Greene County Jail if she came back.

"You're being trespassed for violation of HIPAA," the officer said, referring to the federal regulation governing privacy rights for patients. "...I'm informing you now that you're being trespassed. If you come back on the property, you will be detained and taken to the Greene County Jail."

"Because I took a picture of my son?" Wilson asked.



A hospital spokesperson told the newspaper that it is reviewing how its photo and video policy is being enforced.

The Daytona Beach police chief filed a complaint to the Florida Agency of Health Care Administration saying that, based on HIPAA, "his detectives have been impeded from investigating a possible sexual battery of a 75-year-old resident at a local healthcare facility," the Daytona Beach News-Journal wrote.

Brian Lee, a director of Tallahassee-based Families for Better Care, said he has never known medical privacy laws to inhibit a criminal investigation in Florida.

"That's unheard of that they would bar police from the nursing home," said Lee, who advocates for nursing home residents and their families. "They should be working to get this investigated as quickly as possible, using any agency they can to get answers to what happened."

Lawyers for the nursing home, Daytona Beach Health and Rehabilitation Center, told the paper that privacy laws prevented them from turning over information without a subpoena. An attorney hired by the home's parent company told the paper he found no evidence of any sexual assault.

The HIPAA issues involving the VA emerged as the department grappled with a scandal in which employees were accused of falsifying records to disguise how long veterans were waiting for appointments, drawing ire from veterans groups and lawmakers and prompting the ouster of senior leaders.

The Washington Post reported that the top lawyer for the American Federation of Government Employees cited several cases in which the VA invoked patient privacy restrictions to "stifle whistleblowers."

"We routinely hear from our members who wish to make disclosures about problems with the patient care system and other conduct within the VA," the union's lawyer wrote in a June letter to the VA's general counsel. "Most are reluctant to do so both because of a history of reprisals by VA management, and because of recent experience with laws designed to protect patients which are instead being used as a sword against employees by VA management."

The letter cited how two employees were unable to get a written HIPAA waiver in order to report information to the Office of Inspector General.

"VA routinely uses HIPAA as an excuse to punish into submission employees who dare to speak out," Rep. Jeff Miller (R-Fla.), chairman of the House Committee on Veterans' Affairs, told the Post.

McGraw said that HIPAA has specific allowances for police officers investigating crimes and for whistleblowers sharing information with government authorities.

"You certainly can disclose patient information for health oversight activities, including government oversight over government benefit programs," she said. "You certainly can disclose when a police officer comes and is investigating a crime. …There are provisions in HIPAA that allow them to make a disclosure about a victim of crime as long as the victim has agreed or they're incapacitated."



Mahanadi Coalfields shows the way for increasing productivity
Mahanadi Coalfields, a unit of Coal India, has set a precedent that should encourage other subsidiaries of the state-run company, to increase their productivity in coal mining and thermal power
In the last Annual General Meeting of Mahanadi Coalfields Ltd, chairman and managing director (CMD), AN Sahay, was able to convey details of several interesting project moves that the company had undertaken during the year under review.
Mahanadi Coalfields is a jewel in Coal India Ltd's crown and has set a precedent that should encourage others to follow:
(a) Mahanadi Coalfields is setting up a coal-based thermal power plant (2 x 800) 1600 MW with super critical technology
(b) It has formed Mahanadi Basin Power Ltd (MBPL) which will utilise the coal deposits at Basundhara and Sundargarh 
(c) It has received coal linkage approvals from the Ministry of Coal (MoC).  The Ministry of Environment and Forests (MoEF) has already accorded 'Terms of Reference' clearance to go ahead with the power project
(d) Water Resources Department (WRD) has agreed to provide 25 cusecs water and the balance 25 cusecs needed is under active consideration
(e) Mahanadi Coalfield's Board has already given in principle approval for 100% equity participation in the project
(f) Mahanadi Coalfield has ventured into the power transmission business and a joint venture with Orissa Power Transmission Co Ltd has resulted in the setting up of Neelanchal Power Transmission Pvt Ltd.
(g) Mahanadi Coalfields is planning to install 2 MW photovoltaic Solar Power plants at Anand Vihar, Burla, Sambalpur in the first quarter of 2014-15, so as to "mark its presence in renewal energy sector"
In the meantime, Mahanadi Coalfields recorded a marginal increase (2.36%) in its output, to mine 110.40 million tonnes of coal in 2013-14.  However, due to unusual rains, the production may fall during 2014-15. This is in addition to the loss of production that may be caused by a strike at Talcher.
According to press reports, 122 villagers of Hensmul at Talcher coalfields have refused to vacate their land for Mahanadi Coalfields to carry on mining operations. These villagers were given employment, in lieu of the land they were expected to vacate. A strike has been called by these villagers and this may have immediate repercussions on production at the Bhubaneswar and Ananta fields.
If this matter is not sorted out immediately, it is likely to affect the generation of 2,000 MW of power in the Southern States. On top of this strike threat, rains have also come to play a negative role.
Due to scanty or no rainfall in some areas, and delays in arrival of rains, Mahanadi Coalfield was able to produce some 4 million tonnes of coal, without interruption. But the onset of rains has slowed down the production, which had increased almost to double in the last 10 days or so. This will hit production. Mining is unlikely to resume till around the October-November period.
CMD Sahay has stated that some contingency plans are being prepared. But it is imperative that the root cause of the problem with 122 villagers be settled, particularly when Mahanadi Coalfield has such ambitious plans ahead to complete. It is also hoped that the orders for machinery requirements for the power plant are placed immediately, if not done already, so that project work goes on schedule.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


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