Sebi streamlines minimum information rules for RPTs from September

From September 1, companies must provide detailed certificates, valuations and disclosures to audit committees and shareholders for related party transactions

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The Securities and Exchange Board of India (Sebi) has revised the minimum information that companies must provide to their audit committees and shareholders for the approval of related party transactions (RPTs). The new standards will come into effect from September 1.

 

Sebi initially issued the minimum standards in February 2025. However, after consulting industry players, the standards have been tweaked. The updates were made based on feedback from industry associations such as Assocham, Ficci, and CII.

 

Under the revised standards, company management will be required to provide a certificate confirming that the terms of RPTs are in the best interest of the listed company. Additionally, a valuation or a report from an external party will also be mandatory.

 

Gaurav Pingle, a company secretary, said that the inclusion of the managing director, whole-time director, or manager to certify that RPTs are in the company's interest is necessary. This comes as many companies have promoters or executive directors on their boards. 

 

Previously, only the CEO or CFO was permitted to provide this certification.

 

Furthermore, Sebi has now prescribed the content of the certificate.

 

The audit committee may seek additional information, if needed. This information will include details of previous transactions with the related party, as well as the relationship and ownership structure of the entity.

 

“Sebi has streamlined the information required from the management on RPTs and included relevant details for decision-making. Additional details for transactions involving royalty payments have also been rationalised,” said Pingle. 

The companies will also have to disclose a percentage of total royalty to be paid separately for brand name or trademark, technology know-how, professional fee, etc. Further, if royalty is paid to the parent company, then disclosure would be required on royalty received from group entities in other group entities. 

 

An earlier study by Sebi in November 2024 had found that in one out of four times, listed firms paid more than 20 per cent of their net profits as royalty to related parties.  The study had analysed 233 listed companies over a period of ten years, starting from financial year 2014 (FY14).

 

The 29-page document outlining the minimum information requirements also mandates the disclosure of the total amount of all transactions undertaken by the listed company or its subsidiary with the related party in the current financial year.

 

Any defaults made by the related party during the last financial year must also be disclosed.

 

“The audit committee may, at its discretion, comment on the information provided by the management. Such comments and the rationale for not approving an RPT shall be recorded in the minutes of the audit committee meeting,” the standards specify.   

Regulator streamlines rules 

Revised standards for minimum information to come into effect from September 1 

MD, CEO or CFO need to certify that the terms of RPTs are in the interest of the listed company

  More transparency on royalty payments to related parties

  Audit committee may also seek additional information; valuation report may be shared

  Disclosure of total amount of transactions undertaken with the related party in the current financial year(FY) and any default made in previous FY