Policy on Related Party Transactions

1.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.

2.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.

3.DEFINITIONS

“Act” means the Companies Act, 2013 (‘Act’) read with the Rules thereto including any subsequent amendments thereof.

“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.

“Control” shall have the same meaning as defined in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and under the provisions of the Act (as amended from time to time).

“Key Managerial Personnel” or “KMP” means the key managerial personnel of the Company as defined under the Act (as amended from time to time), and includes:

• Managing Director, or Chief Executive officer or Manager;
• The whole-time director;
• The Company Secretary;and
• The Chief Financial Officer;
• 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
• Such other officer as may be prescribed.

“Listing Regulations” means the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 including any subsequent amendments thereof.

“Material Modifications” means modifications to the related party transactions which were earlier approved by the Audit Committee or Shareholders during the year which results into:

• Change in the nature of the transaction; or
• Increase in value in excess of 10% of the originally approved transaction.

“Material Related Party Transaction” means a transaction with a Related Party if the transaction / transactions to be entered into individually or taken together with previous transaction(s) during a financial year, exceeds 10% (ten percent) of the annual consolidated turnover of the Company as per the last audited financial statements of the Company or applicable threshold provided under the Listing Regulations, whichever is less.

A transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds five percent of the annual consolidated turnover of the Company as per the last audited financial statements 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. a director or his/her relative;
2. a key managerial personnel or his/her relative;
3. a firm, in which a director, manager or his/her relative is a partner;
4. a private company in which a director or manager or his/her relative is a member or director;
5. a public company in which a director or manager is a director and holds along with his/her 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 (e) and (f) shall apply to the advice, directions or instructions given in a professional capacity;
8. any company which is:
   • a holding, subsidiary or an associate company of such company; or
   • a subsidiary of a holding company to which it is also a subsidiary; or
   • 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
10. 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.

“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. 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.

A “transaction” with a Related Party shall be construed to include single transaction or a group of transactions in a contract.

Further, this may include any other transaction as may be specified from time to time.

“Significant influence” means control of at least twenty percent (20%) of total voting power or control of or participation in business decision under an agreement.

“Subsidiary” shall mean a subsidiary as defined under the Companies Act, 2013.

“Transaction” with a related party shall be construed to include single transaction or a group of transactions in a contract.

Any other term not defined herein shall have the same meaning as defined in the Companies Act, 2013, the Listing Regulations, Accounting Standard 18 or any other applicable regulation.

4.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. A related party transaction above rupees one crore and subsequent material modification thereof, whether entered into individually or taken together with previous transactions during a financial year, to which the subsidiary of the Company is a party but the Company is not a party, shall require prior approval of the audit committee of the Company if the value of such transaction, exceeds the lower of the following:
         1. If subsidiary has audited financial statements at least for one year:
            1. ten percent of the annual standalone turnover of the subsidiary as per the last audited financial statements of the subsidiary; or
            2. the threshold for material related party transactions of the Company.
         2. If subsidiary does not have audited financial statements at least for one year:
            1. ten percent of the aggregate value of paid-up share capital and securities premium account of the subsidiary; or
            2. the threshold for material related party transactions of the Company.
      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:
            • 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.

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.

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 omnibus approval granted by the shareholders for material related party transactions shall be valid for a period:

• Where omnibus approval is granted at the Annual General Meeting (AGM), such approval shall remain valid only till the date of next AGM held within the timelines prescribed under the Act or rules, notifications, or circulars issued thereunder from time to time.
• Where omnibus approval is granted at a general meeting other than an AGM, the validity of such approval shall not exceed one year from the date of approval.

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

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.

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.

They shall be provided with all information, as prescribed under the Act, Listing Regulations, including the information pursuant to the RPT Industry Standards and circulars issued by SEBI/Regulatory authorities/Bodies from time to time, as applicable to relevant RPT, for their approval/ratification.

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.

5.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.

6.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.