Approval of transactions undertaken at subsidiary level However, the exclusion does not specifically cover dividend received by the listed entity and hence it may still need prior audit committee approval and shareholders’ approval (if above materiality threshold). This is a welcome move as there were divergent views among the listed entities on inclusion of such transactions. (i) Preferential allotment, being subject to procedures specifically laid down by SEBI in other regulations, and (ii) certain transactions which, by their very nature treat all shareholders equally such as payment of dividend, subdivision or consolidation of securities, bonus or rights issue, buy-back of securities have been excluded from the purview of RPTs. Based on the comments received from public and Primary Market Advisory Committee (PMAC) on the practical difficulties of implementing this provision, SEBI has made this provision effective from Aponly providing some time for the Industry.Ĭ. While this provision has been borrowed from the UK Premium Listing Rules, SEBI has not provided any guidance on identifying such transactions. The intention here is to consider substance of the relationship and not merely legal form as a part of good governance practice. Transaction undertaken to benefit a related partyĪ transaction by listed entity or its subsidiary with unrelated party shall also get covered with effect from April 1, 2023, if the purpose and effect of such transaction is to benefit a related party of the listed entity or any of its subsidiaries. This will require appropriate identification of related parties, tracking transactions with such parties and approval of / disclosure to Audit Committee and shareholders and stock exchanges under relevant regulations.ī. The new definition of RPT shall cover a transaction between (i) the listed entity or any of its subsidiaries on one hand and (ii) a related party of the listed entity or any of its subsidiaries on the other hand. Inclusion of Related Parties of Subsidiaries and Transactions of Subsidiaries The definition of “related party” has been further amended to include any person or entity holding equity shares ither 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 amounting to:Ī. Inclusion of any person equity shares in the company (even on beneficial basis) Now, the new provisions shall cover person/entity belonging to the promoter/ promoter group without the requirement of holding any threshold of shareholding.ī. SEBI had wef April, 2019 plugged this vital loophole for listed companies, by including ‘any person/entity belonging to the promoter/ promoter group and holding 20% or more shareholding’ within the definition of “related party”. While LODR so far relied mainly on the definition of Related Party under section 2(76) of Companies Act, 2013 and para 9 of Indian Accounting Standard 24 – Related Party Disclosures for coverage of Related Parties for LODR purpose, Promoter or Promoter Group is included in neither. Now, on NovemSEBI has vide a Circular prescribed the information to be placed before the audit committee and the shareholders for consideration of RPTs and the format of half yearly disclosure as well. Thereafter on Novemit notified Securities And Exchange Board Of India (Listing Obligations And Disclosure Requirements) (Sixth Amendment) Regulations, 2021 (“Amendment Regulations”) with changes proposed to be effective from April 1, 2022. Recently, SEBI had in its Board meeting held on Septemreviewed regulatory provisions with respect to RPTs and approved changes to LODR Regulations that were proposed by the Working Group (‘WG’) in its Report dated January 27, 2020. While Companies Act provides the much-needed flexibility to undertake related party transactions which are on arms-length basis and in ordinary course of business of a company, LODR has had more stringent compliance requirements along with several amendments from time to time, including coverage of ‘related party’ and ‘related party transactions’, disclosure requirements and approval requirements. Even since the introduction of Companies Act, 2013 in the year 2014 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), corporate governance and Related Party Transactions (RPTs) has been an area of focus for the regulators, more so in light of recent corporate scams.
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