Sebi to tighten related party transaction disclosure norms for listed firms

Chairperson announces while unveiling new portal to track India Inc RPTs

Listed companies may soon face stricter disclosure requirements for related-party transactions (RPTs).

 

Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch announced on Friday that the new standards — deliberated and cleared by the Industry Standards Forum (ISF) — will be notified and integrated into the regulations soon.

 

The approved RPT disclosure standards will require listed companies to provide more detailed information when seeking approval for RPTs from audit committees and shareholders.

 

RPTs involve transactions between listed companies and connected entities or firms related to promoter group members.

 

These transactions often require shareholder and audit committee approval to ensure transparency and trust.

 

 

“The industry itself has come up with the minimum disclosures that companies need to make when they take an RPT for approval, both to the audit committee and to the shareholders,” said Buch. 

 

She added, “Going forward, the quality of information that will reach the audit committee members and public shareholders at the time of approval will be significantly different from what it is today.”

 

Buch spoke at the launch of a new platform developed by three domestic proxy advisory firms to help investors track RPTs and access opinion on such transactions.

 

The portal will provide analysis by advisory firms InGovern Research Services, Institutional Investor Advisory Services (IiAS), and Stakeholder Empowerment Services (SES).

 

This includes whether the advisory firms were in favour of the transaction, whether it received shareholder approval, and the rationale behind such deals.

 

Retail investors will now have access to this information, which was previously limited to institutional investors.

 

This enhanced transparency aims to align the interests of promoters and minority shareholders, ensuring no divergence in interests when business decisions are made.

 

Earlier, Sebi had raised concerns about RPTs with overseas entities where there was no tangible evidence of funds being spent on purchases.

 

Whole-time member Ashwani Bhatia highlighted the risks of compromised transparency, citing examples of round-tripping of funds and other malpractices through related parties.

 

“Such practices not only shake investor confidence but also tarnish the reputation of the entire corporate sector,” said Bhatia.

 

He added, “When markets are booming, governance lapses might go unnoticed, but when the tide turns, the truth emerges. By then, it's often too late for investors.”

 

The new disclosure norms aim to prevent such malpractices, protect shareholder wealth, and maintain investor confidence by ensuring transparency and accountability in RPTs.