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POLICY ON RELATED PARTY TRANSACTIONS
Preamble
The Board of Directors (the “Board”) of ESAB India Limited (the “Company” or “ESAB”), has adopted the following policy and procedures with regard to Related Party Transactions as defined below. The Audit Committee will review and may amend this policy from time to time. 
This policy will be applicable to the Company. This policy is to regulate transactions between the Company and its Related Parties based on the applicable laws and regulations applicable on the Company. 
 
Purpose
This policy is framed as per the requirement of Clause 49 of the Listing Agreement entered by the Company with the Stock Exchanges and in terms of Section 188 of the Companies Act, 2013 and intended to ensure the proper approval, disclosure and reporting requirements of transactions between the Company and its Related Parties.
Such Related Party transactions are considered appropriate only if they are in the best interests of the Company and its shareholders. The Company is required to disclose each year in the Financial Statements and in the Annual Report certain transactions between the Company and Related Parties as well as policies concerning transactions with Related Parties.
 
Definitions
All definitions are based on the more stringent requirements of the Companies Act, 2013 and the provisions of clause 49 of the Listing Agreement.
“Audit Committee or Committee” means Committee of Board of Directors of the Company constituted under provisions of Clause 49 of the Listing agreement and Section 177 of the Companies Act, 2013. 
“Board” means Board of Directors of the Company “Control” shall have the same meaning as defined in SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011 
“Key Managerial Personnel” means Key managerial personnel as defined under the Companies Act, 2013 and includes
  • Managing Director, or Executive Director or Chief Executive Officer; or
    Manager and in their absence, a Whole-time Director;
  • Company Secretary and
  • Chief Financial Officer
“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 transactions during a financial year, exceeds five percent of the annual turnover or twenty percent of the net worth of the Company as per the last audited financial statements of the Company, whichever is higher. “Policy” means Related Party Transaction Policy. 
Related Party” means related party as defined in Clause 49 of the Listing Agreement which is as follows: 

A ‘Related Party' is a person or entity that is related to the Company. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party, directly or indirectly, in making financial and/or operating decisions and includes the following: 
 

1. A person or a close member of that person’s family is related to a Company if that person: 
a. is a Related Party under Section 2(76) of the Companies Act, 2013 which are as follows: 
         (i)  a Director or his relative ; 
         (ii)  aKey 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 is a Member or Director ; 
         (v)  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 ; 
         (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 under 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)  anyCompany 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) Director or Key Managerial Personnel of the holding Company or his relative with reference to a Company; or  a. has control or joint          control or significant influence over the Company; or  b. is a Key Management Personnel of the Company or of a parent of the          Company; or 

 
2. An entity is related to a Company if any of the following conditions applies:
          a. The entity is a related party under Section 2(76) of the Companies Act, 2013; or 
          b.The entity and the Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is                  related to the others); or 
          c. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the                        other entity is a member); or
          d. Both entities are joint ventures of the same third party; or
          e. One entity is a joint venture of a third entity and the other entity is an associate of the third entity; or
          f. The entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company.                If the Company is itself such a plan, the sponsoring employers are also related to the Company; or
         g. The entity is controlled or jointly controlled by a person identified in (1).
          h. A person identified in (1)(b) has significant influence over the entity (or of a parent of the entity); or
“Related Party Transaction” means any transaction directly or indirectly involving any Related Party which is a transfer of resources, services or obligations between a Company and a related party, regardless of whether a price is charged.
 
3. “Relative” means relative as defined under the Companies Act, 2013 and includes any one who is related to another, if –
       i. They are members of a Hindu undivided family ;
       ii. They are husband and wife ;
       iii. Father (including step-father);
        iv. Mother (including step-mother);
        v. Son (including step-son);
        vi. Son’s wife;
        vii. Daughter;
       viii. Daughter’s husband;
        ix. Brother ( including step-brother);
       x. Sister (including step-sister);
 

4. Policy
All Related Party Transactions must be reported to the Audit Committee and referred for approval by the Committee in accordance with this Policy.

4.1 Identification of Potential Related Party Transactions
Each Director and Key Managerial Personnel is responsible for providing notice to the Board or Audit Committee of any potential Related Party Transaction involving him or her or his or her Relative, including any additional information about the transaction that the Board/Audit Committee may reasonably request. Board/Audit Committee will determine whether the transaction does, in fact, constitute a Related Party Transaction requiring compliance with this policy. The Secretarial Department shall obtain a list of group companies from the Holding Company.  Based on these notices and reports, Secretarial Department shall ensure that the related parties list is kept upto date.  All related parties should be marked as such in the ERP system (MOVEX) used by the business.  This would ensure that even the operations team is preparing quotes / request for quotes, whether they are dealing with related parties must be identified and tracked. 
Prior to the purchase / service procurement order or quote for sales price and terms is issued, all proposed transactions with related parties must be escalated to the Senior Management for approval or where required for them to obtained approval from the Audit Committee. 
Each Director and Key Managerial Personnel shall make an annual declaration to the Company on the last of the month ending before the financial year and this declaration shall be placed before the Audit Committee and the Board of Directors at their first meeting held at the succeeding financial year.  Any change in the list of relatives shall be intimated by the Directors and Key Managerial Personnel by way of a fresh declaration to the Company within 7 days of such change.  
The Company strongly prefers to receive such notice of any potential Related Party Transaction well in advance so that the Audit Committee/Board has adequate time to obtain and review information about the proposed transaction.

4.2 Prohibitions related to Related Party Transactions
All Related Party Transactions shall require prior approval of Audit Committee. 
Further, all Material Related Party Transactions shall require approval of the shareholders through special resolution and the Related Parties shall abstain from voting on such resolutions. 

4.3 Review and Approval of Related Party Transactions
Related Party Transactions will be referred to the next regularly scheduled meeting of Audit Committee for review and approval. Any member of the Committee or the Directors of the Board who has a potential interest in any Related Party Transaction will in terms of Chapter XII Rule 15 (2) shall not be present at the meeting during discussions on the subject matter and shall recuse himself or herself and abstain from
discussion and voting on the approval of the Related Party Transaction.  To review a Related Party Transaction, the Committee will be provided with all relevant material information of the Related Party Transaction, including the terms of the transaction, the business rationale of the transaction, justification on arms’ length / in the ordinary course of business and the benefits to the Company and to the Related Party, and any other relevant matters like
  • The name of the related party and nature of relationship
  • The nature, duration of the contract and particulars of the contract or arrangement
  • The material terms of the contract or arrangement including the value, if any;
  • Any advance paid or received for the contract or arrangement, if any;
  • The manner of determining the pricing and other commercial terms, both included as part of contract and not considered as part of the contract
  • Whether all factors relevant to the contract have been considered, if not, the details of factors not considered with the rationale for not considering those factors; and
  • Any other information relevant or important for the Board to take a decision on
    the proposed transaction.
In determining whether to approve a Related Party Transaction, the Committee will consider the following factors, among others, to the extent relevant to the Related Party Transaction:
  • 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 if the transaction did not involve a Related Party; 
  • Whether there are any compelling business reasons / rationale for the Company to enter into the Related Party Transaction and the nature of alternative transactions, if any; 
  • Whether the Related Party Transaction would affect the independence of an independent Director; 
  • Whether the proposed transaction includes any potential reputational risk issues that may arise as a result of or in connection with the proposed transaction;
  • Whether the Company was notified about the Related Party Transaction before its commencement and if not, why pre-approval was not sought and whether subsequent ratification is allowed and would be detrimental to the Company; and 
  • Whether the Related Party Transaction would present an improper conflict of interest for any Director or Key Managerial Personnel 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, Key Managerial Personnel’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
If the Committee determines that a Related Party Transaction should be brought before the Board, or if the Board in any case elects to review any such matter or it is mandatory under any law for Board to approve the Related Party Transaction, then the considerations set forth above shall apply to the Board’s review and approval of the matter, with such modification as may be necessary or appropriate under the circumstances. 
SEBI vide its circular CIR/CFD/POLICY CELL/7/2014 dated September 15, 2014 have clarified that vide Clause 43 (VII) (D) that All Related Party Transactions shall require prior approval of the Audit Committee.  However, the Audit Committee may grant omnibus approval for Related Party Transactions proposed to be entered into by the Company subject to certain conditions like:

      I. the transactions which are repetitive in nature
      II. the audit committee is of the opinion that such omnibus approval is in the interest of the Company 
      III. that the approval shall special the name of the related party nature of transaction, period of transaction, maximum of transaction that can be entered into, the indicative base price / current contracted price as the Audit Committee may deem fit. 

Provided that where the need for Related Party Transaction cannot be foreseen and aforesaid details are not available, Audit Committee may grant omnibus approval for such transactions subject to their value not exceeding Rs.1 crore per transaction.
The details of the related party transactions entered into by the Company shall be reviewed by the audit committee on quarterly basis.  Such omnibus approval shall be valid for a period of one year.
The Company obtained such approval for its policy on Related Parties, the name of the related parties, type of transactions, margins on such transactions and the extent of such transactions viz. not exceeding 5% of the annual turnover of the Company. 
The update on the related party transactions entered into for the quarter would be placed before the Audit Committee meeting giving details of the transactions, margins made, and the justification and business rationale for such transactions at its meeting once in every quarter by the Management. 
The approval policy as per this document must be read in the context of the above- mentioned omnibus resolution approved by the Audit Committee and Board of Directors.

Transactions falling in Group I (including transactions such as Royalty and Trademark fees which are in the ordinary course of business as well as other transactions, which are not in the ordinary course of business) shall be justified by the Management in the Related Party Transactions Reporting Format and shall be approved by the Audit Committee (and where required by the Board and special resolution by other than interested members) prior to the contract / agreement / order being executed.-what about contracts classified as Group III Transactions falling in Group II, shall be approved by the Management and is required to be reported to the Audit Committee in the aggregate in the next meeting. 
Transactions falling into Group III, shall be:
      a) Where, the value of the purchase / sale / cost of sales of the goods / services involved in a given transaction is less than 5% of the turnover of the company (in the immediately preceding financial year), justified and approved by the Management (subject to the management confirming the transaction is at arms length pricing) and placed to the Audit Committee for information in the next meeting.

      b) Where, the value of the purchase / sale / cost of sales of the goods / services involved in a given transaction is 5% or more of the turnover of the company (in the immediately preceding financial year), may be justified and approved by the Management in the fist instance for the immediate transaction value of not more than 5% of the turnover (subject to the management confirming the transaction is at arms length pricing) and then placed to the Audit Committee, which needs to then approve or reject for any further transactions under such agreement
Where the transaction is not confirmed by the management to be at arms length pricing, then, such transactions will require to be approved by the Audit Committee and also by the Board and by way of a special resolution of other than the interested members, prior to the contract / agreement / order being executed.

Transactions falling into Group IV shall be considered as approved for dealing with related parties, when the transaction itself is approved by the Audit Committee / Board as the case may be.
 
4.4 Format of Approvals
Any Related Party Transaction have to be proceeded only on prior approval of the Key Managerial Person’s as provided in the format which is enclosed as annexure.
 
4.5 List of Related Parties as on 1 April, 2017:
Colfax group Entities
 

Relationship

Name of the Entity

Type of transaction

Gross Margins

Parent Company Colfax Corporation Reimbursement  of expenses  
Holding Company ESAB Holdings Ltd. Payment of Royalty, Trade Mark Fee, receipt of service income, payment of Dividend and reimbursement of expenses, software licence fees, insurance claim Royalty 3% of TOT product sales. Trade mark 2% of NSV, Service income 15% mark up
  Exelvia Group India BV Payment of Dividend Cost plus 10% mark up
Fellow Subsidiary ESAB Welding production (Jiangsu) Co. Limited, China Import of materials and capital equipment, Consulting Services income Cost plus 10% mark up and 15% mark up on services income
  ESAB Asia / Pacific Pte. Limited, Singapore Import and Export of Materials, Service income from ESD and SSC services Cost plus 10%
mark up, 10%
margin and 15% mark up on Services income
  ESAB Cutting Systems GmbH, Germany Import of materials Cost plus 10% mark up
  ESAB GmbH,
Germany
Import of materials Cost plus 10% mark up
  ESAB Europe AG Switzerland Import of materials Cost plus 10% mark up
  ESAB-ATAS GmbH,
Germany
Import of materials Cost plus 10% mark up
  ESAB AB, Sweden Import of materials Export of Materials and service income for ESD and SSC services Cost plus 10% mark up – 10% margin, Service income 15% mark up
  PT Karya Yasantara Cakti , Indonesia Import of materials, service income from consulting services
Cost plus 10% mark up and 15% mark up on service income
  ESAB-Mor Kft, Hungary Import of materials Cost plus 10% mark up
  Alcotec Wire Corporation, USA Import of materials Cost plus 10% markup
  ESAB KK, Japan Import of materials and export of materials Cost plus 10% mark up
  ESAB Automation Limited, UK Import of materials Cost plus 10% mark up
  ESAB (Malaysia) SDB BHD, Malaysia Import of materials Cost plus 10% mark up
  ESAB Welding Products (Weihai) Co. Limited, China Import of materials Cost plus 10% mark up
  ESAB Cutting & Welding automation (Shanghai) Co.
Limited
Import of materials Cost plus 10% mark up
  ESAB Middle East LLC, UAE Import of materials and export of materials Cost plus 10% mark up
  ESAB Middle East FZE, UAE Import of materials Cost plus 10% mark up
  ESAB SeAH
Corporation, Korea
Receipt of Commission and import of raw materails 2.5% of the sales made by them in Indian territory, Cost plus 10% mark up
  ESAB Industria e Commercio Ltda, Brazil Import of materials Cost plus 10% mark up
  ESAB Saldutura SpA, Italy Import of materials Cost plus 10% mark up
  OZAS-ESAB Sp.
z.o.o. Poland
Import of materials Cost plus 10% mark up
  ESAB Vamberksro, Czech Republic Import of materials, spares and reimbursement of expenses Cost plus 10% mark up, Visit to Nagpur plant by Czech Joseph Muravek for process improvements in production
  ESAB Africa Welding and Cutting (Proprietary) Limited, South Africa Export of Finished Goods 10% margin
  ESAB Welding & Cutting Product, USA Import of materials, Service income Cost plus 10% mark up, Service income 15% mark up
  Romar Positioning Equipment International Pte. Limited, Singapore Import of materials Cost plus 10% mark up
  ESAB Group Inc. USA Import of materials Cost plus 10% mark up
  ESAB
Polska Sp.z.o.o. Poland
Import of materials Cost plus 10% mark up
  ESAB Equipment & Machinery Manufacturing (Zhangjiangang) Co. Limited Import of materials Cost plus 10% mark up
  ESAB Welding Equipment AB, Sweden Import of materials Cost plus 10% mark up
  ESAB SeAH Welding Products (Yantai) Co. Ltd. Import of materials Cost plus 10% mark up
  L&T Howden Sale of Products In the ordinary course of business and at arms’ length based on market price.
  Howden Solyvent (India)
Private Limited
Sale of Products In the ordinary course of business and at arms’ length based on market price.
  TLT Babcock India
Private Limited
Sale of Products In the ordinary course of business and at arms’ length based on market price.
  Howden Air & Gas India
Private Limited
Sale of Products In the ordinary course of business and at arms’ length based on market price.
  Howden Thommassen
Compressors India
Private Limited
Sale of Products In the ordinary course of business and at arms’ length based on market price.
  Tushaco Pumps Private
Limited
Sale of Products In the ordinary course of business and at arms’ length based on market price.
  ESAB Automation Cutting & Welding (Wuxi) Co. Ltd. China Import of raw materials and finished goods for trading, service income from consulting services Cost plus 10% mark up and 15% mark up for service income
  Victor Technologies, USA Import of raw materials and finished goods for trading and reimbursement of expenses & service income from ESD and SSC services Cost plus 10% mark up and 15% mark up for service income
  Victor (Ningbo) Cutting & Welding Eq. China Import of raw materials and finished goods for trading Cost plus 10% mark up
  ESAB Europe GmbH, Switzerland Import of raw materials and finished goods for trading and Service income from SSC services Cost plus 10% mark up and 15% mark up for service income
  Victor Technologies International Inc. Denton Import of raw materials and finished goods for trading Cost plus 10% mark up
  ESAB GmbH, (SSC 6138) Belgium Import of raw materials and finished goods for trading Cost plus 10% mark up
  ESAB Group (UK) Ltd. United Kingdom Import of raw materials and finished goods for trading Cost plus 10% mark up
  CIGWELD, Australia Supply of goods/materials In the ordinary course of business and at arm’s length based on market price.
  THERMAL DYNAMICS OY, Finland Import of Raw materials In the ordinary course of business and at arm’s length based on market price.
  ESAB North America, Florence, USA
Service Income from ESD and SSC services 15% mark up on Services income
  Victor Technologies Asia SDN BHD, Singapore
Service Income from ESD and SSC services 15% mark up on Services income
  GAS ARC - Group Limited Imports of raw materials and traded goods Cost plus 10% mark up
  Victor Malaysia Export of goods and services Cost plus 10% mark up
  Victor Indonesia
Export of goods and services Cost plus 10% mark up
  IMO Industries (Colfax Fluid Handling)
Service Income from ESD and SSC services
15% mark up on Services income
  • ESAB Group and its affiliates and any other Related Party Company as may be approved by the Audit Committee / Board of Directors from time to time
  • Key  Manager  Personnel  includes,  Managing  Director  /  Executive  Director, Chief Financial Officer and Company Secretary

4.6 Type of Related Party Transactions in the Ordinary Course of Business entered into by the Company

  • Group I
    Royalty
    Trademark Fee
    Transactions not in the ordinary course of business
  • Group II
    Samples (In/Out)
    Re-imbursement of expenses
  • Group III
    Import of Raw materials  
    Import of Finished / Traded goods
    Import of Fixed assets / spares / machinery
    Export of Finished goods
    Export of Services  
    Commission Income received
    Other Income received
    Commission Paid
  • Group IV
    Dividend payment
    Key Managerial Personnel Remuneration

    Any other transaction would be considered to be “not in the ordinary course of
    business” and will be dealt with accordingly.

4.7 All transactions with the Related Parties apart from the list above, would be deemed to be “Not in the Normal Course of Business” and hence would require the approval of the Audit Committee / Board of Directors and consequently the approval of the Shareholders at the General Meeting.

All transactions entered into with less favourable margins stated above shall be construed as not in the normal course of business and hence would require prior approval of the audit committee and / or the Board of Directors.

5. Related Party Transactions not approved under this Policy

In the event, the Company becomes aware of a Related Party Transaction with a Related Party that has not been approved under this Policy prior to its consummation, the matter shall be reviewed by the Committee. The Committee shall consider all of the relevant facts and circumstances regarding the Related Party Transaction, and shall evaluate all options available to the Company, including ratification, revision or termination of the Related Party Transaction. The Committee shall also examine the facts and circumstances pertaining to the failure of reporting

such Related Party Transaction to the Committee under this Policy, and shall take any such action it deems appropriate.

In any case, where the Committee determines not to ratify a Related Party Transaction that has been commenced without approval, the Committee, as appropriate, may direct additional actions including, but not limited to, immediate discontinuation or rescission of the transaction. In connection with any review of a Related Party Transaction, the Committee has authority to modify or waive any procedural requirements of this Policy.

This Policy will be communicated to all operational employees and other concerned persons of the Company.

Signed
Effective Date
   
ROHIT GAMBHIR (Managing Director)
6 November 2014


Format for Documenting Related Party Transactions and its Approvals:
Related Party Transaction Number  Sl.No/2014-15
Name of the related party  
Nature of relationship  
Transaction description  
Quantity (where applicable)  
Rate (where applicable)  
Estimated contract value  
Contract period  
Payment terms  
Other key terms  
Termination clause  
Process followed for party selection /
price determination / negotiation
 
Details of competitive quotes (where
applicable)
 
Why the management considers the pricing to be fair and on arms length basis? If not, to state so, and also present the justification for ricing?  
Does the management see any compelling usiness reasons / rationale to enter into this agreement?  
Confirmation by the Management that the transaction
(a) Is being made at Arms length pricing
(b) Would not affect the independence of an Independent Director
(c) Is not expected to lead to any reputational risk for the company
(d) Is in the interests of the company and its stakeholders
 
Management justification / approval by  
Management justification / approval date  
Audit Committee Approval / Intimation date