Asian Journal of Research in Business Economics and Management
Year : 2017, Volume : 7, Issue : 8
First page : ( 413) Last page : ( 428)
Online ISSN : 2249-7307.
Article DOI : 10.5958/2249-7307.2017.00154.2

Understanding Related Party Transactions: A Neglected Issue in Corporate Governance

Narang Minny

Assistant Professor, Sri Aurobindo College, University of Delhi, Delhi, India. minny.narang9@gmail.com

Online published on 21 August, 2017.

Abstract

Transactions between a company and its associates and related entities are called related party transactions. The focus in the past has been on identifying and explaining the role of directors, independent directors, and audit committee etc. in improving corporate governance in India. However, what got neglected in the process is the mechanism through which frauds and irregularities take place. One such aspect is the undertaking of and inadequate disclosure of related party transactions. This is one of the most crucial corporate governance issues especially in an emerging economy like India which is spreading its wings in the other parts of the globe establishing associations and relationships with firms there. Such associations pave way for irregularities and information asymmetry when there exist deficiencies in the related party disclosure requirements. Since, good corporate governance system aims at monitoring and controlling the opportunistic behaviour of managers and large shareholders, appropriate rules and guidelines are needed to eliminate expropriation of shareholders’ and others’ wealth through related party transactions. This paper seeks to provide a detailed understanding with respect to the legal framework (the law governing, disclosure requirements and penalties for contravention etc.) of the related party transactions in India to discourage and prevent abusive related party transactions.

Top

Keywords

Related party transactions, Corporate governance, Companies Act, 2013, Corporate governance disclosures, Good corporate governance.

Top