Policy on Related Party Transactions

BACKGROUND

The Board of Directors (the “Board”) of the Company has adopted the following policy and procedures with regard to Related Party Transactions.

The Audit Committee will review and amend this policy from time to time. This policy is to govern transactions between the Company and its Related Parties based on the laws and regulations that are applicable to the Company.

PURPOSE

This Policy is intended to put into place the mechanism for identifying, reviewing and approving transactions between the Company and Related Parties (defined hereinafter as “Related Party Transactions”). This Policy has been prepared on fundamental principle that the Company shall enter into only such Related Party Transactions that are in the best interests of the Company and its shareholders.

DEFINITIONS

“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.

“Audit Committee” means Audit Committee constituted by the Board of Directors of M/s. Pennar Industries Limited, from time to time, under Section 177 of the Companies Act, 2013 and the Listing Regulations.

“Associate Company” shall be as defined in Section 2(6) of the Companies Act, 2013.

“Board of Directors” or “Board” means the Board of Directors of Pennar Industries Limited, as constituted from time to time.

“Company” means Pennar Industries Limited.

“Key Managerial Personnel” means the Managing Director, the Company Secretary, the Chief Financial Officer and such other officers/employees of the Company as defined in section 2(51) of the Companies Act, 2013.

“Material Modifications” means any modification to the existing Related Party Transaction which has the effect of increasing or decreasing the value of original contract by 10% or more.

“Material Related Party Transaction” means a transaction with a related party as specified under SEBI (LODR) Regulations 2015 and as amended from time to time. Accordingly, transaction with a related party shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds Rs. 1,000 Crore or 10% of the annual consolidated turnover of the company as per the last audited financial statements of the company, whichever is lower.

Notwithstanding the above, a transaction involving payments made to related party with respect to brand usage or royalty shall be considered material, if the transactions to be entered into individually or taken together with the previous transactions during a financial year exceeds 5% of the annual consolidated turnover of the Company as per the last audited financial statement of the Company.

“Policy” means Policy on Related Party Transactions.

“Ordinary course of business” means the usual transactions, customs and practices undertaken by the Company to conduct its business operations and activities and includes all such activities which the Company can undertake as per its Memorandum of Association & Articles of Association, from time to time.

“Related Party”, means-

1. With reference to the Company:

   1. a director or his relative;
   2. a key managerial personnel or his relative;
   3. a firm, in which a director, manager or his relative is a partner;
   4. a private company in which a director or manager is a member or director;
   5. a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;
   6. 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;
   7. 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;

   8. any body corporate which is-

      1. a holding, subsidiary or an associate company of such company; or
      2. a subsidiary of a holding company to which it is also a subsidiary; or
      3. an investing company or the venturer of the company;
         “the investing company or the venturer of a company” means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate.

   9. any person or entity forming a part of the promoter or promoter group of the Company; or any person or any entity, holding equity shares of ten per cent or more, in the Company either directly or on a beneficial interest basis as provided under section 89 of the Companies Act, 2013, at any time, during the immediate preceding financial year; shall be deemed to be a related party.

      However, this shall not be applicable for the units issued by mutual funds which are listed on a recognised stock exchange(s).

   10. such other person/entity as may be prescribed by the Act and Listing Regulations;

2. 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 as defined in the Accounting Standard 18 or such other entity/entities as may defined in the applicable accounting standard from time to time.

   "Relative", with reference to any person, means anyone who is related to another, if—

   1. they are members of a Hindu undivided family;
   2. they are husband and wife;
   3. Father (including step-father);
   4. Mother (including step-mother);
   5. Son (including step-son);
   6. Son’s wife
   7. Daughter
   8. Daughter’s husband
   9. Brother (including step-brother);

   10. Sister (including step-sister);

       “Related Party Transaction” means any contract or arrangement with a Related Party with respect to:-

       1. sale, purchase or supply of any goods or materials;
       2. selling or otherwise disposing of, or buying, property of any kind;
       3. leasing of property of any kind;
       4. availing or rendering of any services;
       5. appointment of any agent for purchase or sale of goods, materials, services or property;
       6. such related party's appointment to any office or place of profit in the Company, its subsidiary company or associate company; and
       7. underwriting the subscription of any securities or derivatives thereof, of the Company.
       8. Related Party Transaction shall also include a transaction involving transfer of resources, services or obligations between the Company or any of its subsidiaries on one hand, and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the Company or any of its subsidiaries; regardless of whether a price is charged or not.

IDENTIFICATION, APPROVAL AND REVIEW OF RELATED PARTY TRANSACTIONS

The Company shall follow the following for the purpose of identification, approvals and review of all
Related Party and/or Related Party Transactions (irrespective of the value / materiality of the same):

1. IDENTIFICATION OF RELATED PARTIES

   All Directors/Manager/KMP are responsible for informing the Company of their interest as under (including interest of their Relatives) in other companies, firms or concerns at the time of appointment, at the beginning of every financial year and any change in such interest during the year:

   1. Names of his/her Relatives;
   2. Partnership firms or any other firm/ entity in which he/she or his/her Relative is a partner/ member;
   3. Private Companies in which he/she or his/her Relative is a member or a Director;
   4. Public Companies/ body corporate in which he/she is a Director and holds along with his/her Relatives more than 2% of paid up share capital;
   5. Any Body Corporate whose Board of Directors, Managing Director or Manager is accustomed to act in accordance with his/her advice, directions or instructions; Persons on whose advice, directions or instructions, he/she is accustomed to act (other than advice, directions or instructions obtained from a person in professional capacity);
   6. Name of Bodies Corporate(s), in which he/she is a promoter, manager, CEO; and

   7. Any other information as may be relevant.

      Every Key Managerial Personnel (KMP) of the Company will be responsible for providing a declaration containing the following information to the Company Secretary at the time of appointment, at the beginning of every financial year and within 30 days of any change in such interest during the year:

      1. Names of his/her Relatives;
      2. Partnership firms in which he/she or his/her Relative is a partner;

2. IDENTIFICATION OF RELATED PARTY TRANSACTIONS

   All Directors, KMPs, Officers authorised to enter into contracts/arrangements will be responsible for providing prior Notice to the Company Secretary of any Related Party Transaction, including any additional information about the transaction that the Audit Committee/Board may request. The Board shall record the disclosure of interest and the Audit Committee will determine whether the transaction is in the ordinary course of business and on an arm’s length basis. Besides the above, the Company will also identify any other Related Party as required under the Act and Rules thereunder and the Listing Regulations as may be applicable.

3. PROCEDURE FOR APPROVAL OF RELATED PARTY TRANSACTION

   1. Prior approval of Audit Committee

      1. All related party transactions (excluding the exempted transactions) and subsequent material modifications thereof shall require prior approval of the Audit Committee of the Company. Provided that only those members of the Audit Committee, who are independent directors, shall approve related party transactions
      2. All Related Party Transactions of a subsidiary(ies) and subsequent material modifications thereof shall require prior approval of Audit Committee, if the value of such transaction whether entered into individually or taken together with previous transactions during a financial year, exceeds 10% of the annual standalone turnover, as per the last audited financial statements of such subsidiary. The Audit Committee may provide omnibus approval for such related party transaction.
      3. All remuneration and sitting fees paid by the Company or its subsidiary to its director, key managerial personnel or senior management, except who is part of promoter or promoter group shall require approval of the Audit Committee only if it is a material related party transaction.

      4. The members of the Audit Committee, may ratify related party transactions within three months from the date of the transaction or in the immediate next meeting of the Audit Committee, whichever is earlier, subject to the following conditions:

         1. the value of the transaction(s) with a related party, whether entered into individually or taken together, during a financial year shall not exceed rupees one crore;
         2. such transaction shall not be a material related party transaction;
         3. rationale for inability to seek prior approval for the transaction shall be placed before the Audit Committee at the time of seeking ratification; and
         4. any other condition as specified by the Audit Committee.

      Provided that failure to seek ratification of the Audit Committee shall render the transaction voidable at the option of the Audit Committee and if the transaction is with a related party to any director, or is authorised by any other director, the director(s) concerned shall indemnify the listed entity against any loss incurred by it.

      Further, Audit Committee shall consider and provide its recommendation to the Board for :

      • Any related party transactions as referred in section 188 of the Act and which are not at Arm’s Length and not in the ordinary course of business;
      • Any related party transactions, other than transactions referred to in section 188 of the Act, and where Audit Committee does not approve the transaction; and

      • Any material related party transaction.

        Audit Committee may grant omnibus approval for related party transactions proposed to be entered into by the Company or by its subsidiary, subject to compliances with the following conditions :

        1. The Audit Committee shall, specify the criteria for granting the omnibus approval in line with the Policy and such approval shall include the following:

           1. Maximum value of the transaction, in aggregate, which can be allowed under the omnibus route in a year;
           2. The maximum value per transaction which can be allowed;
           3. Extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus approval;
           4. Review, at such intervals as the Audit Committee may deem fit, of related party transaction entered into by the Company pursuant to each omnibus approval;
           5. Transactions which cannot be subject to the omnibus approval by the Audit Committee.

        2. The Audit Committee shall consider the following factors while specifying the criteria for making omnibus approval:-

           1. repetitiveness of the transactions (in past or in future);
           2. justification for the need of omnibus approval.

        3. The Audit Committee shall satisfy itself regarding the need for such omnibus approval for transactions of repetitive nature and that such approval is in the interest of the Company. Further, Omnibus approval is categorized into two parts :

           1. Identifiable transactions :

              For identifiable transactions, the omnibus approval shall provide details of
               the name/s of the related party, nature of transaction, period of transaction, maximum aggregated value of the particular type of transaction that can be entered into,
               basis of arriving at the indicative base price / current contracted price and the formula for variation in the price if any and
               such other conditions as the Audit Committee may deem fit.

           2. Unidentifiable transactions :

              Unidentifiable transactions are those transactions where the need for related party transactions cannot be foreseen and aforesaid details are not available. Audit Committee may grant omnibus approval for such transactions subject to their value not exceeding Rupees 10 million per transaction.

        4. The Audit Committee shall review, at least on a quarterly basis, the aggregated value and other details of related party transactions pursuant to the omnibus approval;
        5. Such omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh approval after expiry of such financial year.
        6. Omnibus approval shall not be made for transactions in respect of selling or disposing of the undertaking of the Company.
        7. Any other conditions, as the Audit Committee may deem fit.

   2. Approval of Board of Directors

      Related Party Transactions which are (a) not at Arm’s Length or not in the ordinary course of business; and (b) within the thresholds laid down in Act or Listing Regulations (or elsewhere) required to be approved by the Board of the Company under the provisions of the Act and Listing Regulations.

      Any related party transaction as referred in Section 188 of the Act, entered into by a director or any other employee of the company without obtaining the approval of the Board, in the ordinary course of business or on an arm length basis/ price, may be ratified by the Board within three months from the date of the transaction.

   3. Approval of Shareholders

      All material Related Party Transactions and subsequent material modifications, shall require prior approval of Shareholders of the Company (as required by the Act or Listing Regulations) and Related Parties shall not vote to approve such resolution whether the entity is Related Party to particular transaction or not (as required by the Act or Listing Regulations).

      In addition to the above, all kinds of transactions as specified in Section 188 of the Act which (a) are not at Arm’s Length or not in the ordinary course of business; and (b) exceed the thresholds, if any laid down in Act or Listing Regulation (or elsewhere) shall be placed before the Shareholders of the Company for their approval.

      Any related party transaction entered into by a director or any other employee of the company without obtaining the approval of the Shareholders, may be ratified by the shareholders within three months from the date of the transaction.

      The Board of Directors shall provide its recommendation to the shareholders.

4. EXEMPTED RELATED PARTY TRANSACTIONS

   The following transactions shall not require approval of Audit Committee or Board or Shareholders:

   1. Any transaction that involves the providing of reimbursements or advances to a director or KMP to meet expenditure in the course of his or her duties as such Director or KMP of the Company or any of its subsidiaries or associates.
   2. Any transaction in which the interest of Related Party arise solely from ownership of securities issued by the Company and all holders of such securities receive the same benefits pro rata as the Related Party.
   3. 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, as may be prescribed by Act or Listing Regulations from time to time.
   4. Transactions entered into between two wholly-owned subsidiaries of the Company, whose accounts are consolidated with the Company and placed before the shareholders at the general meeting for approval.
   5. the issue of specified securities on a preferential basis, subject to compliance of the requirements under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;

   6. the following corporate actions which are uniformly applicable/offered to all shareholders in proportion to their shareholding:

      1. payment of dividend;
      2. subdivision or consolidation of securities;
      3. issuance of securities by way of a rights issue or a bonus issue; and
      4. buy-back of securities.
   7. retail purchases from Company or its subsidiary by its directors or its employees, without establishing a business relationship and at the terms which are uniformly applicable/offered to all employees and directors.
   8. Any other transaction which may be prescribed by Act or Listing Regulations from time to time.

5. REVIEW AND APPROVAL OF RELATED PARTY TRANSACTIONS

   The Committee/Board/Shareholders (as the case may be), will be provided with all relevant material information for approval of any Related Party Transaction, including the terms / nature of the transaction, value, business purpose of the transaction, and such other details as prescribed under applicable law or required by Committee/Board.

   In determining whether to approve a Related Party Transaction, the Committee/Board will consider the following factors, among others, to the extent relevant to any Related Party Transaction:

   1. Whether the terms of the Related Party Transaction are fair and on arms’ length basis to the Company, and would apply on the same basis as if the transaction did not involve a Related Party;
   2. In order to determine whether a proposed Related Party Transaction is at arm’s length, the Committee may, while analyzing Related Party Transactions ask for a valuation report from a valuer. Similarly, in order to determine whether a proposed Related Party Transaction falls within the meaning of ‘ordinary course of businesses of the Company, the Committee may ask for an independent opinion from a legal expert. The Committee may also place such valuation report and/or the opinion so obtained before the Board for its consideration.
   3. Whether there are any compelling business reasons for the Company to enter into the Related Party Transaction and the alternative available with the Company, if any;
   4. Whether the Related Party Transaction would affect the independence of an independent director;
   5. Whether the proposed transaction includes any potential reputational risk issues that may arise as a result of or in connection with the proposed transaction;
   6. Whether the Company was notified about the Related Party Transaction before its execution and if not, why pre-approval was not sought and whether subsequent ratification is allowed and would be detrimental to the Company; and
   7. Whether the Related Party Transaction would present an improper conflict of interest for any Director or KMP of the Company, taking into account the size of the transaction, the overall financial position of the director, Executive Officer or other Related Party, the direct or indirect nature of the director’s, KMP’s or other Related Party’s interest in the transaction and the ongoing nature of any proposed relationship and any other factors the Board/Committee deems relevant.

DISCLOSURES

1. The Company shall make relevant disclosures in its Annual Report/ Financial Statements/ Board Report/elsewhere, relating to the Related Party Transactions (including ratification, if any) of the Company as may be required under the provisions of the Act or Listing Regulations or any other applicable law, from time to time.
2. The Company shall maintain a Register of Contracts or Arrangements as required under Section 189 of the Act containing the prescribed details under the provisions of the Act.
3. This Policy shall be disclosed on the website of the Company and a web link thereto shall be provided in the Annual Report.
4. Any other disclosures shall be made, as may be required in accordance with the applicable statutory provisions.

POLICY REVIEW, ETC.

The Board of Directors of the Company may subject to applicable laws is entitled to amend, suspend or rescind this Policy at any time. Any difficulties or ambiguities in the Policy will be resolved by the Board of Directors in line with the broad intent of the Policy. The Board may also establish further rules and procedures, from time to time, to give effect to the intent of this Policy.

In the event of any conflict between the provisions of this policy and of the applicable law dealing with the related party transactions, such applicable law in force from time to time shall prevail over this policy.