SEBI to make sweeping changes to strengthen norms governing Related Party Transactions

New Delhi: Capital markets regulator SEBI has decided to make sweeping changes to strengthen the monitoring and enforcement of norms on related party transactions. It has been decided to tweak the definition of Related Party and Related Party Transactions (RPTs), according to a statement issued by SEBI after the board meeting. Also, it has been decided to make changes to the process followed by a company’s audit committee for approval of RPTs that are material. Further, there would be a format for reporting of RPTs to the stock exchanges. Under the framework approved by SEBI, a related party should be any person or entity belonging to the promoter or promoter group of the listed entity. Besides, any person or any entity, directly or indirectly (including with their relatives), holding 20 percent or more of the holding in the listed entity during the preceding fiscal and 10 percent or more with effect from 1 April, 2023, should be considered as a related party. Prior approval of the shareholders of the listed entity should be required for material RPTs, having a threshold of lower of Rs 1,000 crore or 10 percent of the consolidated annual turnover of the listed entity. SEBI said that approval of the audit committee should be required for all RPTs and subsequent material modifications as defined by the audit committee. In addition, approval should be needed for RPTs where the subsidiary is a party but the listed entity is not a party. This is subject to a threshold of 10 percent of the consolidated turnover of the listed entity and 10 percent of the standalone turnover of the subsidiary from 1 April, 2023. Generally, RPT means a transaction involving a transfer of resources, services between the listed entity or its subsidiaries on the one hand and a related party of the listed entity or its subsidiaries on the other hand. Also, the transaction between the listed entity or its subsidiaries and any other entity which is aimed to benefit a related party should be considered as an RPT. In addition, the transaction between the listed entity or any of its subsidiaries on one hand, and any other person or entity, on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its subsidiaries from 1 April, 2023, should also be considered RPT. SEBI said that enhanced disclosure of information related to RPTs should be placed before the audit committee. The disclosure should be provided in the notice to shareholders for material RPTs. In addition, such disclosure should be made to the stock exchanges every six months in the format specified by SEBI within 15 days from the date of publication of financials. The amendments will come into force with effect from 1 April, 2022, unless otherwise specified above, SEBI said.