Sebi tells Linde: No room for word games in related party norms definition

Market regulator and public shareholders accuse industrial gases firm of splitting hairs to escape scrutiny over dealings with its arm

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The Securities and Exchange Board of India (Sebi) has taken a firm stance before the Securities Appellate Tribunal (SAT) in its ongoing dispute with multinational industrial gases firm Linde India, providing a comprehensive interpretation of the term ‘related party transaction’ (RPT) under the Sebi Listing Obligations and Disclosure Requirements (LODR) Regulations. 

In its submission, Sebi has asserted there is no legal distinction between “related party transaction” and “transaction with a related party” under the LODR framework. 

According to Sebi, both expressions are “used interchangeably” and should be treated as synonymous for the purposes of compliance and enforcement. 

Sebi’s views assume significance as the long-drawn battle over Linde India’s RPTs, and their valuation exercise draws to a possible close with the SAT reserving the order in the matter. 

Both Sebi and public shareholders have accused Linde India of indulging into word play to classify transactions with its arm Praxair India as “non-material” to escape shareholder scrutiny. 

Business Standard has seen the copy of the Sebi’s response to the tribunal dated July 11. 

An email sent to Sebi and Linde remained unanswered. 

RPTs are deemed to be material if their value during a financial year exceeds 10 per cent of the company’s turnover during the previous financial year. 

Linde India is of the view that only transactions executed under a “common contract” should be considered while determining this 

10 per cent threshold. 

Sebi had earlier underscored that market standards require aggregating all RPTs with a particular related party, irrespective of contract structure or grouping.

  In its latest submissions, Sebi directly counters Linde India’s claim that “related party transaction” and “transaction with a related 

party” have distinct meanings in the regulations. 

The market regulator has argued that accepting Linde’s view would lead to “anomalies and absurdities”, potentially undermining the intent behind disclosure thresholds and materiality requirements.Sebi notes that the provision to Regulation 23(1), which uses the phrase “transaction with a related party,” is meant to clarify when such transactions cross materiality thresholds not to introduce a separate definition. 

“While Linde’s position relies on orthodox textualism and selective legal interpretations, Sebi’s view is pragmatic, cohesive, aligned with the LODR’s spirit and better safeguards systemic integrity,” said Aurelia Menezes, Partner, King Stubb & Kasiva, Advocates and Attorneys. 

Experts said the SAT judgement will be closely watched by industry stakeholders as it could set important precedents for defining and disclosing related party transactions — a crucial element of corporate governance and transparency for publicly listed companies.