SAT upholds Sebi's interpretation of RPT norms in Linde India case

The Securities Appellate Tribunal (SAT) has upheld the Securities and Exchange Board of India’s (Sebi) interpretation of the materiality test for related-party transactions (RPTs) in a case involving Linde India and its joint venture with Praxair India, marking a significant affirmation of the regulator’s approach to RPT oversight.

 

The multinational company had challenged Sebi’s findings, arguing that the regulator had misapplied the definition of a related-party transaction by relying on a narrow, literal reading of Regulation 23(1) of the Listing Obligations and Disclosure Requirements (LODR) Regulations. It further claimed that Sebi overlooked the phrasing “in a contract” contained in Regulation 2(1)(zc), which the company said should influence how materiality is assessed. 

Linde also contended that Sebi had drawn an artificial distinction between the phrases “related party transaction” and “transaction with a related party”, which, according to the appellant, diluted the intent of the regulation.

 

SAT, however, dismissed these arguments, stating that “a careful reading of the Regulation leaves not much scope for interpretation”.

 

The tribunal highlighted that the materiality threshold — transactions exceeding Rs 1,000 crore or 10 per cent of the entity’s annual consolidated turnover, whichever is lower — is explicitly set out in the proviso to the regulation. It agreed with Sebi that this threshold should be applied cumulatively across transactions within a financial year.

 

The ruling reinforces Sebi’s framework for evaluating large RPTs and is expected to have implications for how listed companies structure and disclose dealings involving related parties.