# Key Definitions — Related Party, Officer in Default, KMP

## A. Related Party of a Company [Section 2(76)]

The following are related parties of a company:

1. Directors — Director of the company OR director of the holding company, and their relatives.

2. KMP — KMP of the company OR KMP of the holding company, and their relatives.

3. Firms / Private Companies in which our director, manager, or their relative is a partner, member, or director.

4. Public Companies in which our director or manager is a director AND holds (along with relatives) more than 2% of paid-up share capital.

5. Our holding, subsidiary, or associate company.

6. Other subsidiaries of our holding company (i.e., fellow subsidiaries).

7. Our investing company or venturer company (i.e., the company for which our company is an associate).

8. Body corporate accustomed to act as per directions of our director or manager.

Exception: directions given in a professional capacity.

9. Person on whose directions our director/manager is accustomed to act.

Exception: directions given in a professional capacity.

### Definition of 'Relative'

Relative of an individual means:

Members of HUF,
Spouse,
Father, mother, brother, sister,
Son, son's wife,
Daughter, daughter's husband,
Includes step- father / mother / brother / sister / son.

## B. Officer Who is in Default [Section 2(60)]

The following are officers in default for purposes of penalty / prosecution:

1. Whole-time director (WTD) and KMP.

2. If no KMP, then directors specified by BOD in this behalf (who have consented). If no director is specified, then all directors.

3. Any person (under authority of BOD/KMP) charged with the relevant responsibility.

4. Person on whose advice/directions/instructions BOD is accustomed to act (other than professional advisors).

5. A director who is aware of contravention through BOD proceedings and does not object, OR where contravention took place with his consent.

## C. Key Managerial Personnel (KMP) [Section 2(51)]

KMP means:

Managing Director (MD)
Manager
Whole-Time Director (WTD)
Chief Executive Officer (CEO)
Company Secretary (CS)
Chief Financial Officer (CFO)

Worked example

### Example 1

Q: X Pvt. Ltd. has two subsidiaries — Y Pvt. Ltd. and Z Pvt. Ltd. Are Y and Z related parties to each other?

A: Yes. As fellow subsidiaries (subsidiaries of the same holding company X), Y and Z are related parties to each other under the definition.

### Example 2

Q: Mr. A is a director of P Ltd. He also holds 1.5% of paid-up share capital of Q Ltd. (a public company) where he is also a director. Is Q Ltd. a related party of P Ltd.?

A: Need to check Mr. A + relatives' total holding in Q Ltd. If A alone holds 1.5%, the test is whether A (along with relatives) holds more than 2%. If the combined holding is below 2%, Q Ltd. is not a related party on this ground.

### Example 3

Q: ABC Ltd. has no MD, no WTD, no Manager, and the Board has not designated any specific officer as in-charge of compliance. There has been a contravention under the Act. Who are the officers in default?

A: Where no KMP exists and the Board has not specified any director, all the directors of the company are treated as officers in default.

### Example 4

Q: Is a Chartered Accountant who advises the Board on tax structuring an 'officer in default' for a tax-related contravention?

A: No. The definition specifically excludes persons who advise the Board in a professional capacity.

⚠️ Common exam mistakes

Treating a 2% holding as the threshold — the test is more than 2% (i.e., 2.01% or higher).
Forgetting that 'relative' includes step-relations (father/mother/brother/sister/son) but NOT step-daughter explicitly.
Including 'directors of associate company' as related parties — only holding/subsidiary/associate is related; directors of associate are not automatically related parties.
Treating professional advisors (CA, lawyer, consultant) as officers in default — they are expressly excluded.
Missing 'Manager' as a separate KMP distinct from MD/WTD/CEO.

Bare-Act text Section 2(51), 2(60) & 2(76) · Companies Act, 2013 · click to expand

'Key managerial personnel' 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, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board.

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Definitions — Related Party, Officer in Default & KMP [Section 2]

Worked example

⚠️ Common exam mistakes