SEBI changes norms governing related party transactions
Markets regulator Securities and Exchange Board of India (SEBI) has made sweeping changes to strengthen the monitoring and enforcement of norms relating to related party transactions.
According to a notification, the regulator has changed the definitions of ‘related party’ and ‘related party transaction’ (RPT).
It made changes in the procedure to be followed by the audit committee of the company for approval of the RPT which are material.
In addition, there will be a format for reporting RPTs to the stock exchanges. The recent NCLT judgment in cases like Zee, Dish TV and Videocon may have triggered a change in the RPT framework.
Generally, RPT means a transaction that involves transfer of resources, services between a listed entity or its subsidiaries on the one hand and related parties of the listed entity or its subsidiaries on the other.
The recent NCLT judgment in cases like Zee, Dish TV and Videocon may have triggered a change in the RPT framework.
According to experts, any transaction that benefits a related party (even indirectly) will require the approval of the audit committee and the shareholders of a listed company.
When the transaction is with a third party, but may benefit the party concerned, it will be difficult to identify and sometimes corporates may be unnecessarily accused of infringement.
Under the new rules, SEBI said that the concerned party shall be the promoter of the listed entity or any person or entity belonging to the promoter group.
Further, any person or any entity, directly or indirectly (including his relatives), held 20 per cent or more of the stake in the listed entity during the previous financial year and 10 per cent or more with effect from 1st April, 2023. can be treated as a related party.
Material RPTs with a ceiling of less than Rs 1,000 crore or 10 per cent of the consolidated annual turnover of the listed entity would require prior approval of the shareholders of the listed entity.
Sebi said all RPTs and subsequent material amendments as defined by the audit committee would require the approval of the audit committee.
Further, approval will be required for RPTs where the subsidiary is a party but the enlisted entity is not a party.
This is subject to a limit of 10 per cent of the consolidated turnover of the listed entity and 10 per cent of the standalone turnover of the subsidiary with effect from April 1, 2023.
,