Sebi issues rules for disclosure on related party transaction approvals

Markets regulator Sebi has introduced industry standards for the minimum information that listed entities are required to provide to the audit committee and shareholders when seeking approval for the related party transactions (RPT).

The Industry Standards Forum (ISF) comprising representatives from three industry associations -- ASSOCHAM, CII and FICCI -- have formulated these standards for minimum information to be provided for review of the audit committee and shareholders for approval of RPTs in consultation with Sebi under the aegis of the stock exchanges. 

The industry associations and stock exchanges will publish these standards on their websites to facilitate a uniform approach and assist listed entities in complying with the requirements, the Securities and Exchange Board of India (Sebi) said in a circular on Friday.

The new disclosure requirements will come into effect from April 1, it added.

Under Sebi's LODR (Listing Obligations and Disclosure Requirements) rules, related party transactions (RPTs) require approval by the audit committee and from the shareholders as well, if material.

As per the modifications, Sebi said the listed entities are required to provide the audit committee with the information as specified in the industry standards while placing any proposal for review and approval of a related party transaction.

Similarly, the explanatory statement accompanying notices sent to the shareholders seeking approval for any RPT will include the information in addition to requirements under the Companies Act, 2013, the circular said.

Further, the regulator has directed the stock exchanges to bring the contents of this circular to the notice of the listed entities to ensure compliance, it added.

On Friday, Sebi launched a dedicated RPT portal to enhance transparency in corporate transactions.

"This portal will simplify investor access to critical governance data on RPTs. It will ensure that transparency in related party transactions is no longer a privilege reserved for institutional investors but a right accessible to all," Sebi's whole-time member Ashwani Bhatia said.

To monitor and analyse RPTs -- a crucial area where governance failures frequently occur -- the regulator launched this portal.