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Sebi comes out with disclosure obligations on related party transactions

Capital markets regulator Sebi came out with disclosure requirements to be placed by listed entities before the audit committee and shareholders for consideration of related party transactions

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SEBI

Press Trust of India  |  New Delhi 

File photo: PTI
File photo: PTI

Capital regulator came out with disclosure requirements to be placed by listed entities before the audit committee and shareholders for consideration of related party transactions (RPTs).

A listed entity will have to justify as to why the RPT is in its interest, besides, a copy of the valuation or other external party report will have to be submitted to the audit committee as well as shareholders for approval, said in a circular.

In addition, a listed entity will have to place information on the percentage of the counter-party's annual consolidated turnover that is represented by the value of the proposed RPT voluntarily to the audit committee and shareholders.

The provisions will apply to entities that have listed specified securities on a recognised stock exchange.

The listed entity will have to make RPT disclosures every six months in the prescribed format and the new disclosure framework will come into force with effect from April 1, 2022, the Securities and Exchange Board of India (Sebi) said on Monday.

About information to be submitted to the audit committee for approval of a proposed RPT, said listed entity will have to disclose type, material terms and particulars of the proposed transaction, name of the RPT and its relationship with the listed entity or its subsidiary, including nature of its concern or interest.

In addition, the listed entity will have to inform the audit committee about tenure as well as the value of the proposed transaction, the percentage of the listed entity's annual consolidated turnover, for the immediately preceding financial year, which is represented by the value of the proposed transaction.

If the transaction relates to any loans, inter-corporate deposits, investments made by the listed entity or its subsidiary, Sebi said the details of the source of funds in connection with the proposed transaction, nature of indebtedness, cost of funds and tenure in case financial indebtedness incurred to give loans.

Among others, the purpose for which the funds will be utilised by the ultimate beneficiary pursuant to the RPT need to be submitted.

"The audit committee shall also review the status of long-term (more than one year) or recurring RPTs on an annual basis," Sebi said.

The regulator said the notice being sent to the shareholders seeking approval for any proposed RPT will include certain information as a part of the explanatory statement.

These include a summary of the information provided by the management of the listed entity to the audit committee.

Also, a statement that the valuation or other external report concerning the proposed transaction will be made available through the registered email address of the shareholder, Sebi said.

Earlier this month, Sebi made sweeping changes to strengthen the monitoring and enforcement of norms on related party transactions.

The regulator tweaked the definition of Related Party and Related Party Transactions.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Tue, November 23 2021. 15:35 IST
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