RELATED PARTY TRANSACTIONS

Policy on Materiality of Related Party

Transactions and dealing with Related
Party Transactions

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CONTENTS
Sl. No. Particulars Page No.

A Background 3

B Purpose 3

C Definitions 3‐8

D Procedure 8‐10

E Mechanism for approval of Related Party 11‐12

transactions in Hindustan Petroleum Corporation Ltd
F Ratification of Related Party transactions 12

G Related Party transactions not approved under this 12

policy
H Disclosures 12‐13

I Modifications and amendments in the policy 13

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A. BACKGROUND

The Companies Act, 2013 was enacted on August 30, 2013 which provides major overhaul in the
Corporate Governance norms for all Companies. The rules pertaining to Corporate Governance
were notified on March 27, 2014. The requirements under the Companies Act, 2013 and the rules
notified there under would be applicable to every company or a class of companies (both listed
and unlisted) as may be provided therein.

Section 188 of the Companies Act, 2013 read with Companies (Meetings of Board and its Powers)
Rules, 2014 provides the detailed mechanism for dealing with Related Party Transaction’s
(“RPT’s”) of a Company. Further, it provides for certain compliance requirements such as Board
approval and Shareholder’s approval in specific circumstances. In addition, Section 177 of the
Companies Act, 2013 read with Companies (Meetings of Board and its Powers) Rules, 2014
provides for approval of the Audit Committee for RPT’s.

Securities and Exchange Board of India (SEBI) has also amended Clause 49 of the Listing
Agreement (“Revised Clause 49”) which is effective from 1st October 2014. The Revised Clause 49,
in addition to the approvals required for RPT’s, also provides that the company shall formulate a
policy on materiality of related party transactions and also on dealing with related party
transactions.

Keeping in view the above mentioned compliance requirements provided in Companies Act, 2013
read with related rules issued thereon and Revised Clause 49 of the Listing Agreement, including
any amendment thereof, the Board of Directors of Hindustan Petroleum Corporation Limited
(“HPCL” or “the Company”), acting upon the recommendations of the Audit Committee of the
Board, has approved and adopted the following policy on Materiality of Related Party
Transaction’s and dealing with Related Party Transaction’s.

All RPT’s as defined in this Policy shall be subject to review in accordance with the procedures set
forth below.

B. PURPOSE

This policy is to define the approval mechanism and reporting of transactions between the
Company and its related parties. It may be modified pursuant to the amendment in the Companies
Act, 2013 or Listing Agreement or any Rules and Regulations made therein.

C. DEFINITIONS

1. Arm’s length transaction ‐ The transaction between two related parties that is conducted as
if they were unrelated, so that there is no conflict of interest.

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2. Government Company ‐ In accordance with Section 2(45) of the Companies Act, 2013 read
with related rules issued thereon, Government Company means any company in which not
less than fifty one per cent of the paid‐up share capital is held by the Central Government, or
by any State Government or Governments, or partly by the Central Government and partly
by one or more State Governments, and includes a company which is a subsidiary company
of such a Government company;

3. Ordinary Course of business ‐ includes, but not limited to, activities that are necessary,
normal, and incidental to the business.

4. Related Party ‐ In accordance with Clause 49 of Listing Agreement including any statutory
modification, amendment thereof as may be issued from time to time, an entity shall be
considered as related party to the Company if:

(i) Such entity is a related party under Section 2(76) of the Companies Act,2013; or
(ii) Such entity is a related party under the applicable Accounting Standards.

In accordance with Section 2(76) of the Companies Act, 2013, Related Party in relation to a
company means:

(i) a director or his relative;

(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager or relative is a member or director;
(v) a public company in which a director or manager is a director and holds along with his
relatives, more than two per cent. of its paid‐up share capital;
(vi) 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;
(vii) 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;

(viii) any company which is—

(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary;
(ix) A Director (other than Independent Director) or KMP of the holding company of such
company or his relative.

The Accounting Standard 18 defines related party as ‐ “parties are considered to be related
if at any time during the reporting period one party has the ability to control the other party
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or exercise significant influence over the other party in making financial and / or operating
decisions.”

The Accounting Standard 18 deals only with related party relationships described below:

(a) enterprises that directly, or indirectly through one or more intermediaries, control, or
are controlled by, or are under common control with, the reporting enterprise (this
includes holding companies, subsidiaries and fellow subsidiaries);

(b) associates and joint ventures of the reporting enterprise and the investing party or
venturer in respect of which the reporting enterprise is an associate or a joint venture;

(c) individuals owning, directly or indirectly, an interest in the voting power of the
reporting enterprise that gives them control or significant influence over the
enterprise, and relatives of any such individual;

(d) key management personnel and relatives of such personnel; and

(e) enterprises over which any person described in (c) or (d) is able to exercise significant
influence. This includes enterprises owned by directors or major shareholders of the
reporting enterprise and enterprises that have a member of key management in
common with the reporting enterprise.

In the context of this Accounting Standard, the following are deemed not to be related
parties:

(a) two companies simply because they have a director in common notwithstanding
paragraph (d) or (e) above (unless the director is able to affect the policies of both
companies in their mutual dealings);

(b) a single customer, supplier, franchiser, distributor, or general agent with whom an
enterprise transacts a significant volume of business merely by virtue of the resulting
economic dependence; and

(c) the parties listed below, in the course of their normal dealings with an enterprise by
virtue only of those dealings (although they may circumscribe the freedom of action of
the enterprise or participate in its decision‐making process):
(i) Providers of finance;
(ii) Trade unions;
(iii) Public utilities;
(iv) Government departments and government agencies including government
sponsored bodies

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 No disclosure is required in the financial statements of state‐controlled enterprises as
regards related party relationships with other state‐controlled enterprises and transactions
with such enterprises. State‐controlled enterprise means an enterprise which is under the
control of the Central Government and/or any State Government(s).

5. Related Party Transactions

a) In accordance with Revised Clause 49, related party transaction is a transfer of

resources, services or obligations between a Company and a related party, regardless
of whether a price is charged or not.

Explanation: A "transaction" with a related party shall be construed to include single

transaction or a group of transactions in a contract."

b) In accordance with Companies Act, 2013, Related Party Transaction includes the
following transactions between the related parties:

 sale, purchase or supply of any goods or materials;

 selling or otherwise disposing of, or buying, property of any kind;
 leasing of property of any kind;
 availing or rendering of any services;
 appointment of any agent for purchase or sale of goods, materials, services or
property;
 such related party's appointment to any office or place of profit in the company, its
subsidiary company or associate company; and
 Underwriting the subscription of any securities or derivatives thereof, of the
company.

6. Material Related Party Transactions

a) In accordance with Revised Clause 49, material related party transactions means any
related party transaction / transactions, to be entered into individually or taken
together with previous transactions during a financial year, which exceeds 10% of the
annual consolidated turnover of the Company as per the last audited financial
statements of the company; and

b) In accordance with Section 188 of the Companies Act, 2013 read with related rules
issued thereon including any statutory modification, amendment thereof as may be
issued from time to time Material Related Party Transaction means the Transactions
which are not on Arm’s Length Basis and / or are not in the Ordinary Course of
Business and exceed limits provided for the specified transactions as mentioned
below:

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 Transactions covered Transaction value

sale, purchase or supply of any goods or exceeding 10% of Turnover or Rs. 100
materials directly or through appointment of Crore, whichever is lower
agents *
selling or otherwise disposing of, or buying, exceeding 10% of Net Worth or Rs. 100
property of any kind directly or through Crore, whichever is lower.
appointment of agents *
leasing of property of any kind* exceeding 10% of Turnover or Net Worth
or Rs. 100 Crore, whichever is lower.
availing or rendering of any services directly exceeding 10% of Turnover or Rs. 50 Crore,
or through appointment of agents * whichever is lower.
such related party's appointment to any monthly remuneration exceeding Rs. 2.5
office or place of profit in the company, its Lakh
subsidiary company or associate company
Remuneration for underwriting the exceeding 1% of Net Worth
subscription of any securities or derivatives
thereof, of the company*

* The limits shall apply for these transaction or transactions to be entered into either
individually or taken together with the previous transactions during a financial year.

Explanation ‐ The Turnover or Net Worth referred above shall be on the basis of the Audited
Financial Statement of the preceding financial year.

7. Relatives ‐ In accordance with Section 2 (77) of the Companies Act, 2013 read with related
rules issued thereon including any statutory modification, amendment thereof as may be
issued from time to time, relative with reference to any person, means anyone who is
related to another, if—

(i) they are members of a Hindu Undivided Family;

(ii) they are husband and wife; or
(iii) a person shall be deemed to be the relative of another, if he or she is related to
another in the following manner, namely:‐
(a) Father: Provided that the term “Father” includes step‐father.
(b) Mother: Provided that the term “Mother” includes the step‐mother.
(c) Son: Provided that the term “Son” includes the step‐son.
(d) Son’s wife.
(e) Daughter.
(f) Daughter’s husband.
(g) Brother: Provided that the term “Brother” includes the step‐brother;

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 (h) Sister: Provided that the term “Sister” includes the step‐sister;

8. Key Managerial Personnel’s (KMPs) ‐ in relation to a company, means‐

(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole‐time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed under Companies Act, 2013.

9. Subsidiary Company ‐ The terms Subsidiary Company shall have the same meaning as
specified under Companies Act, 2013 read with related rules issued thereon including any
statutory modification and amendment thereof as may be issued from time to time.

D. PROCEDURE

1. In line with the provisions of Revised Clause 49 of the Listing Agreement and the provisions
of Section 177 of the Companies Act, 2013, the Audit Committee of the Company shall
review and approve all Related Party Transactions existing on the date of this Policy or
proposed to be entered into by the Company.

2. a)Omnibus Approval ‐ Audit Committee may grant omnibus approval for Related Party
Transactions provided it is satisfied that there is a need to grant such approval in the interest
of the Company. Such approval may be granted by Audit Committee for the proposed
transaction subject to the following:

i) Transactions are repetitive in nature;

ii) Sufficient disclosure shall be made to the Audit Committee, including the following:
a. name/s of the related party,
b. nature of transaction
c. period of transaction
d. maximum amount of transaction that can be entered into
e. the indicative base price / current contracted price and the formula for variation
in the price if any and
f. such other conditions as the Audit Committee may deem fit.
b) In case any of such transaction considered to be Material Related Party transaction, audit
committee shall recommend to the Board for its approval and to seek approval from
Shareholders of the Company.

3. In case, the above details mentioned in Point 2 are not available or need for Related Party
Transaction cannot be foreseen, Audit Committee may consider to grant omnibus approval
for any transaction or transactions, subject to the maximum value of Rs.1 crore per
transaction.

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 In case such transaction exceeds the threshold limit of Rs. 1 Crore and Company propose to
continue the omnibus approval of the Audit Committee for said transaction, in such
scenario, to continue the said transaction the Company is required to give the necessary
disclosures/ information before the Audit Committee and Audit Committee shall evaluate
such transaction in light of the above mentioned criteria’s for Omnibus approval of Audit
Committee.

4. Audit Committee shall review, at least on a quarterly basis, the details of RPTs entered into
by the company pursuant to each of the omnibus approval given. Further, such omnibus
approvals shall be valid for a period not exceeding one year and shall require fresh approvals
after the expiry of one year.

5. Exemptions from Audit Committee approval ‐ In terms of Clause 49 of the Listing

Agreement, following transactions are exempted from the requirement of obtaining the
Audit Committee approval however approval of Audit Committee will be required as per
Section 177 of the Companies Act, 2013:

i) Transactions entered into by Hindustan Petroleum Corporation Limited with other

government companies;
ii) Transactions entered into between HPCL and its wholly owned subsidiary whose
accounts are consolidated with HPCL. f

In case such transaction is not on Arm’s length and / or not in the Ordinary course of
business, then the Audit Committee may recommend to the Board of Directors for approval
of such transactions.

6. Details to be provided to the Audit Committee ‐ In accordance with Companies Act, 2013
read with related rules issued thereon and Revised Clause 49, including any statutory
modification and amendment thereof, with respect to Related Party Transactions following
information, to the extent relevant, shall be presented to the Audit Committee:

 A general description of the transaction(s), including the nature, duration of the

contract, material terms and conditions and particulars of the contract or
arrangement.
 The name of the Related Party and the basis on which such person or entity is a
Related Party.
 Name of director or KMP who is related
 Nature of relationship
 Any advance paid or received for the contract or arrangement, if any.
 Period of transaction
 Maximum amount of transaction that can be entered into

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  The Related Party’s interest in the transaction(s), including the Related Party’s position
or relationship with, or ownership of, any entity that is a party to or has an interest in
the transaction(s).
 The indicative base price / current contracted price and the formula for variation in the
price if any. Other commercial terms, both included as part of contract and not
considered as part of the contract
 Any other material information regarding the transaction(s) or the Related Party’s
interest in the transaction(s).

7. The Audit Committee shall also review and approve subsequent modification of transactions
of the Company with Related Parties.

8. Approval of Board / Shareholders ‐ In accordance with the provisions of Section 188 of the
Companies Act, 2013 and Revised Clause 49 of Listing agreement, the Board of Directors and
shareholders of the Company shall accord prior approval for related party transactions, for
the following:

a. Board of Directors and Shareholders approval in terms of Companies Act, 2013 ‐ All
Related Party Transactions which are either not on arm’s length basis or not in the
Ordinary Course of Business shall be recommended by the Audit Committee for the
approval of the Board of Directors. In case the said transaction is a Material Related
Party Transaction as provided under clause C.6.(b) above, the Board of Directors shall
further recommend the same for the approval of the Shareholders by way of Special
Resolution of the Company.
b. Board of Director’s and Shareholders approval in terms of Listing Agreement ‐ In
terms of Revised Clause 49 of the Listing Agreement, all Material Related Party
Transaction as provided under Clause C.6.(a) above shall be recommended by the
Audit Committee for the approval of the Board of Directors. The Board of Directors
shall further recommend the same for the approval of the Shareholders by way of
special resolution of the Company.

All entities falling under the definition of related parties shall abstain from voting at the
shareholders meeting, irrespective of whether the entity is a party to the particular
transaction or not.

Further, in accordance with Section 184 of the Companies Act, 2013 and all other applicable
provisions, every director of a company who is in any way, whether directly or indirectly,
concerned or interested in a contract or arrangement or proposed contract or arrangement
entered into or to be entered into, shall disclose the nature of his concern or interest at the
meeting of the Board in which the contract or arrangement is discussed and shall not
participate in such meeting.

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 c. Exemption from Shareholder’s approval ‐ In terms of Revised Clause 49 of the Listing
Agreement, following transactions are exempted from the requirement of obtaining
the Shareholders approval,:

i) Transactions entered into by HPCL with other government companies;

ii) Transactions entered into between HPCL and its wholly owned subsidiary whose
accounts are consolidated with HPCL

However approval of Shareholders would be required under the Companies Act 2013
for above transactions if they are not in the ordinary course of business and / or are
not on arms length basis and exceed the limits prescribed under clause C.6.(b) above.

d. All existing Material Related Party contracts or arrangements as on the date of SEBI
circular i.e. 17th April 2014 which are likely to continue beyond 31st March 2015 shall
be placed for approval of the shareholders in the first General Meeting subsequent to
01st October 2014.

e. In accordance with Section 188 of the Companies Act, 2013 read with related rules
issued thereon, in case of wholly owned subsidiary, the special resolution passed by
the holding company shall be sufficient for the purpose of entering into the
transactions between wholly owned subsidiary and holding company.

E. MECHANISM FOR APPROVAL FOR RELATED PARTY TRANSACTIONS IN HPCL

a. TRANSACTIONS WHICH ARE ON ARM’S LENGTH BASIS AND ARE IN ORDINARY COURSE OF
BUSINESS

- Approval of Audit Committee for all transactions

- Board to take note of such transactions

- Approval of shareholders by way of special resolution only if the value of transactions

exceeds the limits provided under Clause C.6.(a) above.

b. TRANSACTIONS WHICH ARE EITHER NOT ON ARM’S LENGTH BASIS AND / OR NOT IN
ORDINARY COURSE OF BUSINESS

- Approval of Audit Committee for all transactions

- Approval of the Board for all transactions

- Approval of shareholders by way of special resolution only if the value of transactions
exceeds the limits provided under Clause C. 6 (a) or Clause C.6.(b) above as the case
may be.
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c. TRANSITIONAL PROVISIONS

- In accordance with Revised Clause 49 of listing agreement, all transactions which have
been entered into prior to April 01, 2014 and are likely to continue beyond March 31,
2015 and the value of transactions exceeds the limits provided under Clause C.6.(a)
above shall require approval of the Shareholders in the General Meeting scheduled
after October 1, 2014.

- All transactions which have been entered into after April 01, 2014 shall require
approval of Audit Committee. The approval of the Board / Shareholders would be
required in case the transaction exceeds the limits provided under Clause C.6(a) or
C.6(b) as the case may be.

F. RATIFICATION OF THE RELATED PARTY TRANSACTIONS

Where any contract or arrangement, which is considered as a Related Party Transaction

exclusively as per Companies Act, 2013, is entered into by a director or any other employee,
without obtaining the consent of Audit Committee or the Board or the shareholders of the
Company, as the case may be, such transaction shall be 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.

In case such transaction is not ratified within the specified period, such contract or arrangement
shall be voidable at the option of the Board 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 company against any loss incurred by it.

G. RELATED PARTY TRANSACTIONS NOT APPROVED UNDER THIS POLICY

In the event of inadvertent omission to seek the approval of the Related Party Transaction in
accordance with the Policy, the matter shall be reviewed by the Audit Committee.

H. DISCLOSURE

Every Contract or arrangement entered with Related Parties with the approval of Board /
Shareholders in line with sub‐section (1) of Section 188 of the Companies Act 2013 and as
provided under clause C.6.(b) of the policy, shall be referred to in the Board’s Report to the
shareholders along with the justification for entering into such contract or arrangements.

Details of Material Related Party Transactions as per clause C.6(a) of the policy shall be disclosed
quarterly along with the compliance report on corporate governance to be filed with Stock
Exchanges.
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The company shall disclose the policy on dealing with Related Party Transactions on its website
and a web link thereto shall be provided in the Annual Report.

I. MODIFICATIONS AND AMENDMENTS IN THE POLICY

The Audit Committee will review and may amend this policy as may be required from time to time
in accordance with the provisions of the Companies Act, 2013, rules made therein, Listing
Agreement and any further amendments and notifications as may be made effective in this
regard. Any subsequent notification, circular, guidelines or amendments under Companies Act,
2013, revised listing agreement, accounting standards and all other applicable laws, as may be
issued from time to time shall be mutatis mutandis applicable without any further modification or
amendment in this policy.

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