No fresh nod needed for approved related party transactions, clarifies Sebi

Regulator, however, refuses to accept India Inc's demand of deferring implementation of new norms

The Securities and Exchange Board of India (Sebi) on Thursday clarified that related party transactions (RPTs) that have been approved by the audit committee and shareholders prior to April 1, 2022, will not be required to obtain fresh approval from the shareholders.

The market regulator, however, has refused to extend the deadline for implementation of the new RPT norms, dashing hopes of India Inc.

Industry body Confederation of Indian Industry (CII) requested Sebi to defer the implementation of the RPT norms, announced in November 2021, by at least six months. It said the new rules, which come into effect from April 1, 2022, would have a far-reaching impact on the running of business.

Sebi has further said RPTs that become ‘material’ under the revised threshold will have to be placed before the shareholders in the first general meeting after April 1, 2022.

The regulator has revised the materiality threshold whereby any listed entity would be required to seek prior approval of the shareholders for all transactions exceeding Rs 1,000 crore, or 10 per cent, of the consolidated annual turnover of the listed entity, whichever is lower. Earlier, shareholder approval was required only if material transactions entered into with related parties exceeded 10 per cent of the consolidated annual turnover of the listed entity.

CII had said the Rs 1,000-crore threshold was an irritant for large-sized entities. “ For companies conglomerates having multiple subsidiaries including listed subsidiaries with high turnover, transactions worth Rs 1,000 crore may not qualify as ‘material’ or ‘substantial’ but will still need to be approved by shareholders as per the amended law,” it has said in a presentation to Sebi.

Sebi, however, has held that the new norms are necessary to improve corporate governance.

“Transparency, accountability and shareholder empowerment are the bedrock of robust corporate governance. Listed entities, therefore, shall ensure to comply with the spirit of the law and endeavor to provide relevant and detailed information to enable and empower shareholders for taking an informed decision,” Sebi has said.

The regulator has urged India Inc to provide explanatory statement while seeking shareholders’ approval for an RPT “so as to enable the shareholders to take a view whether the terms and conditions of the proposed RPT are not unfavorable to the listed entity, compared to the terms and conditions, had similar transaction been entered into between two unrelated parties.”