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Sebi provides clarity on new norms for related party transactions

Sebi provides clarity on new norms for related party transactions


Sebi provides clarity on new norms for related party transactions

Markets regulator Sebi on Wednesday provided clarity on the applicability of new norms for related party transactions, saying companies need not seek fresh approval from shareholders in case such deals were cleared prior to April 1.

The watchdog has issued a circular on Related Party Transactions (RPTs) norms amid calls from various quarters, including industry bodies, to postpone implementation of the new framework, which is to come into effect from April 1.

The issuance of the circular indicates that implementation of the new norms is unlikely to be postponed by the regulator.

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“For an RPT that has been approved by the audit committee and shareholders prior to April 1, 2022, there shall be no requirement to seek fresh approval from the shareholders,” the circular said.

According to Sebi, all existing material related party contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date should be placed for approval of the shareholders in the first general meeting subsequent to notification of these regulations.

“… an RPT that has been approved by the audit committee prior to April 1, 2022 which continues beyond such date and becomes material as per the revised materiality threshold shall be placed before the shareholders in the first general meeting held after April 1, 2022,” it noted.

Further, Sebi noted that a RPT for which the audit committee has granted omnibus approval would continue to be placed before the shareholders if it is material in terms of the regulations.

Noting that transparency, accountability and shareholder empowerment are the bedrock of robust corporate governance, Sebi said that listed entities should ensure compliance with “the spirit of the law and endeavour to provide relevant and detailed information to enable and empower shareholders for taking an informed decision”.

The explanatory statement contained in the notice sent to the shareholders for seeking approval for an RPT should provide relevant information. This is to enable the shareholders to take a view on whether the terms and conditions of the proposed RPT are not unfavourable to the listed entity compared to the terms and conditions, had similar transaction been entered into between two unrelated parties, Sebi said.

The circular, sent to all entities that have listed their specified securities and to all stock exchanges, would be effective from April 1.

Industry body CII had made a representation to Sebi seeking deferment of the implementation of the new RPT norms. The key concern raised is over the threshold being changed to mean that listed entities need to seek prior approval of the shareholders for all RPTs exceeding Rs 1,000 crore or 10 per cent of the firm’s consolidated annual turnover, whichever is lower.

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